I have to start this blog by wishing Waterford the very best on Sunday afternoon. It would be an amazing achievement to get over the line. It’s exciting to see all the flags around and the buzz it’s creating. Best of luck to the panel and the background team from all at Comerford Foley. The only downside of a win is that we will have to send out a search party for some team members next week
Last week we looked at Income Planning. The aim was to show how you can minimise your taxes and maximise your credits by planning well. In case you missed it Read here
“Next to being shot at and missed, nothing is really quite as satisfying as an Income Tax refund” F.J. Raymond
Taxpayers overpay millions of euros every year when doing their tax returns. Could you be one of those that has overpaid? Sometimes they underpay too. I know the balance rests on Revenue’s side. We have finished the Income Tax return filing season which was yesterday. This blog is to focus on 10 tips that taxpayers miss out on when filing their returns. We will look at 5 this week and the other 5 next week. Sometimes other accountants will also miss out on some of these. We have seen this when we win new clients and review prior year taxes. This is why you should never do your Income Tax return. We have seen a few that cost themselves thousands by going alone
Homecarer Credit
If you are a married couple or in a civil partnership with dependents, then you could avail of this. One spouse or partner is working, and the other is caring for children or dependents at home. The person at home would have little or no income and you pay your taxes under joint assessment. This doesn’t mean you have to file a tax return as that will depend on your circumstances.
John & Jen are married and have 2 kids aged 2 and 5. Jen works as a lecturer in the local IT. John is at home looking after the kids and has no income. Jen’s salary is €75,000 in 2020. Their tax liability is as follows
| First €44,300 | 20% | €8,860 |
| Balance €30,700 | 40% | €12,280 |
| Total | €21,140 | |
| Less Tax credits | ||
| Married/Civil Partner | €3,300 | |
| Paye | €1,650 | |
| Homecarer | €1,600 | |
| Net Tax Liability | €14,590 |
The dependent person must be either
- a child who you are getting child benefit for
- a person over 65
- an incapacitated individual for mental or physical reasons
A dependent person could also be a relative that lives within 2 kilometres of your home. Carer’s income is not taken into account for the credit
For more information on this click here
Medical Insurance Credit
I had a call yesterday with a client that we do some work for, but they do their own income tax return. They had missed a tax credit – see next week – but we got talking and I asked her if his employer paid for medical insurance. The answer was yes that they pay for all the family. This is for 2 adults and 2 children.
Where an employer pays for an employee’s medical insurance the employee pays BIK on this. They pay BIK on the gross premium. Best look at an example.
Sound Ltd pays for medical insurance for one of their senior employees Marky Mark. The gross premium is €1,500 and the tax relief at source is €200, so the net premium is €1,300. Marky will be liable to BIK on the gross premium of €1,500. But he can claim the tax relief through his tax credits or through a tax return. If he doesn’t claim this then he has missed out on €200. What tax return he has to file will depend on his circumstances.
The maximum tax credit for an adult is €200 once the gross premium is over €1000. The maximum tax credit for a child is €100 provided the gross premium is €500 or more. If the premiums are less than these figures the tax credit is 20% of the gross premium. For example, for an adult with a gross premium of €900, the tax credit would be €180.
If we take our family with 2 adults and 2 children that could be a tax credit of €600, being €200 for each adult and €100 per child.
Remember this credit is only relevant for those where their employer pays all or some of the premium. In all other cases you get the tax relief at source. This means when paying your medical insurance, you pay the net premium. Using the above example, if Marky paid the medical insurance himself, he would have paid the net premium of €1,300.
For more information on this Read here
Medical Expenses
Most people know they can get tax relief on medical expenses. Often a medical expense claim can be small as one gets tax relief at 20%. If the total of your doctor’s and prescriptions for a year come to €1,000 then the tax relief on that is €200. Not a huge amount of money but if you haven’t claimed this for 3 or 4 years then it’s more significant.
People tend not to keep the paperwork on this. Most doctors and chemists will be able to give you a printout of your receipts for a tax year. Some of our clients have medical insurance that covers them for day to day medical expenses. They submit an annual claim and get a refund from their provider. When completing their returns, we deduct the amount refunded from the provider first. Then we claim the balance at 20%. You need to be careful about this as some expenses, such as routine eye care, are not allowable for tax relief.
We have claimed tax relief for larger medical costs over the last few years. Such costs related to
- In vitro fertilisation
- Non-routine dental expenses such as crowns, root canal, bridges etc
- Expenses incurred for an ill child travelling abroad for medical treatment
The above costs also get tax relief at 20%
What we have seen more of this year were nursing home expenses and employing a carer. When I talk about hiring a carer I am talking about the home relief type services that are out there. A company like Home Instead comes to mind. The tax relief on these expenses is at 40% so they are more valuable to the taxpayer. It is vital to get the tax back on these costs once you qualify given that the costs can be expensive.
Phil Jones is single and earns a salary of €100,000 per annum with a local company. Phil’s dad is 86 and is unable to look after himself. Phil pays €15,000 to Home Instead in 2019 for nursing care in the dad’s home. Phil will get a tax deduction for this at 40% so he would be due a tax refund of €6,000.
For more information read here
Offshore funds
In the last few years, we have seen a lot more of Exchange Traded Funds [ETF’s]. We have seen some stockbrokers invest more of their client’s cash in these funds. They can have lower costs but still give access to stock markets. They can give greater diversification when compared to purchasing individual shares. Very often the tax implications are not explained. There are certain reporting requirements when you buy these funds. Also, the taxes will depend on the domicile of the fund. The basic rules are if it is an Irish or EU domiciled fund then
- Income is at 41%
- Gains are at 41%
- Owner is liable to exit tax at 41% after 8 years
- Income is not liable to PRSI or USC
If it is a US or OECD domiciled fund, then the taxes are like a normal share
- Income is at your marginal tax rate of 20% or 40%
- Income is liable to USC and PRSI
- Gains are subject to Capital Gains Tax
The starting point for us as advisors is to know the domicile of the fund. We also need to get the consolidated tax statements from the stockbrokers. This helps us get it right for the client.
For more information on this Part 27-01A-03
Tuition Fees
In most cases you get tax relief when you have 2 children in college. This is because the first €3,000 is not allowed when making a claim. If you have two children in college the cost is €6,000.
| College Fees | €3,000 x 2 | €6,000 |
| Disregard | full-time course | €3,000 |
| Claim balance | €3,000 | |
| Tax relief | 20% | €600 |
To get this relief you or yours need to be doing an approved course in an approved college. Only qualifying fees for tuition in an approved college can get tax relief. It is possible to claim for the academic year or the year of payment. So, for the 2019/20 academic year you can claim in 2019 or 2020 if payment for that academic year was in 2020.
With the disruption of Covid-19 there may be demand for more part-time courses. The amount to disregard for a part-time course is €1,500. We recently say with a client who had done a part-time masters. We checked that it was an approved course in an approved college. Tax relief was as follows
| Tuition fees | €5,500 | |
| Disregard | part-time course | €1,500 |
| Claim balance | €4,000 | |
| Tax relief | 20% | €800 |
For more information on this Read here
I will finish with a quote from Snoopy “Dear IRS, I am writing to you to cancel my subscription. Please remove my name from your mailing list”
Need help to ensure you are not overpaying your taxes? Call Deirdre on 051396703 or contact us
