The Last Guide To Tax You'll Ever Need
Right now the tax man is greedily rubbing his hands together…
He knows that very soon he’ll be able to raid your hard earned income to line his fat pockets!
There’s nothing you can do about it…
He’s going to get his money whether you like it or not…
And all you can do is smile and watch it happen.
Or is it?
From the day you start receiving an official pay cheque, the Tax Man wants a slice of your pie.
But today I want to show you everything you need to know about how this works, and more importantly how to pay less tax!
It’s all in this ultimate guide to tax I’ve put together for you.
Simply read on for more!
Everything You Need To Know About Tax
However you earn an income, the likelihood is you’ll have to pay tax.
This includes your wages, interest and the vast majority of other forms of income.
Think of it like this, if you earn an income from it, the chances are that the Tax Man wants his cut!
But what you have to know is that not all income is deemed the same.
SARS treats different income in different ways.
Here’s what you need to know…
How The Tax Man Bleeds You Dry
In the last fiscal year, personal income tax revenue amounted to R353.9 billion.
That accounts for 35.9% of the total tax revenue the government received in for the 2014/2015 tax year.
As soon as you begin working, you’ll come across this tax.
SARS taxes you according to your annual income on a sliding scale (You can find out more about this here).
But income tax doesn’t just cover your salary.
It also includes…
Income From Trading
If you speculatively trade the stock market, any profits you make are also liable for income tax.
But don’t forget, you can write off losses too!
Income From Rental Properties
If you own properties that you let out, SARS will also add this to your income tax liability.
But there may be expenses you can write off against this to reduce what you have to pay.
Not sure how to do this?
Speak to a tax expert.
(I’ll show you how shortly!)
Income From Interest
If you have savings in the bank or other interest bearing investments, such as bonds, you may also have to pay tax on this income.
It all depends on how much interest you earn.
If you earn more than R23,800 in interest a year, you’ll have to pay income tax on it. If you’re over 65, that number thankfully rises to R34,500.
You could make use of tax free saving accounts to lessen this burden, I’ll touch on this in a moment.
For the vast majority of dividend paying shares you own, you don’t have to pay tax on this income.
The company paying the dividend sorts this out at its end.
But there is one exception, and this is real estate investment trusts (REITs).
With REITs, you must declare all dividend income on your tax return. There is no exemption amount here.
The Two Ways The Tax Man Looks At Your Income
If you sell assets, you may have to pay capital gains tax.
Capital gains tax applies when you sell an asset you purchased as an investment.
This can include shares and property.
If it’s a more speculative venture, such as the trading of shares, SARS view this as an income of nature transaction. And, as such, is subject to income tax.
Your intention when investing in assets and selling them is what SARS looks at when deciding if something is income of nature or capital of nature.
But this can be quite subjective, so make sure you seek advice if you need to.
This is because the capital gains tax due can work out much less than if you had to pay income tax.
Capital gains tax works out at 16.4% of your profit, above the annual exemption amount of R40,000.
If it’s your primary residence, this is extended to R2 million.
But, as with other forms of tax, you can offset losses against this.
For example, if you were selling off a large quantity of shares you owned, you can deduct losses from poorly performing shares from your gains.
How To Pay Less Tax
The good news is there are ways to save and pay less tax!
Even though it may seem like the Tax Man has a finger in all your money making ventures, there are ways that you can minimise how much tax you pay.
Here are three great ways to start with:
Tax Saver #1: Retirement Savings
Whether you contribute to a retirement annuity, provident fund or pension fund, make sure you make the most of the tax benefits.
The contributions you make are tax deductible up to 27.5%. (There is a cap of R350,000 per year).
Naturally this’ll lower your income tax bill.
Tax Saver #2: Tax Free Savings Accounts (TFSAs)
TFSAs aren’t just for savings, you can use them to invest in unit trusts, ETFs and bonds too.
You can put up to R33,000 a year into a TFSA, whilst there’s a lifetime cap of R500,000.
Any income you make from your TFSA is free of tax.
If you’re paying income tax on interest you receive from your savings, it may be worthwhile putting your annual allowance into a TFSA.
Any interest you receive is tax free.
Or, if you’re making new investments, you could use a TFSA to do it.
You can’t transfer any investments you already own into a TFSA, but it could be a good home for new ones that fall below R33,000 in value a year.
Or if you’re planning on investing in REITs, avoid paying income tax on your dividends by using a TFSA.
Tax Saver #3: Tax Practitioner
If you have a number of different forms of income, seeking the specialist advice of a tax professional is well worth the outlay.
Such an advisor can ensure you make the most of exemptions and help you manage your tax liabilities in the most efficient way.
You can use the South African Institute of Tax Professionals website to help you find a suitable expert in your area.
And if you plan on consulting an expert, don’t leave it too late. As tax return filing deadline looms, they tend to get very busy.
The Simple Way To Keep The SARS Wolves From Your Door
The more investments you have, the more complicated things are when it comes to filing you tax return.
To ensure you make it as easy as you possibly can for yourself, you need to keep track of what’s going on throughout the year.
Leaving it all until you begin to put together your tax return could turn into a bit of a nightmare.
To help you do this, get into the mindset of keeping on top of your paperwork, such as pay slips and bank and investment statements, and have all the information you need to hand in, in a logical manner.
Plus, don’t forget to have copies of your previous tax returns!
As I touched on earlier, it may be worth getting an expert to help you with this to ensure you’ve got all bases covered.
So how do you file a tax return?
By far the easiest way to do it is through SARS e-Filing. If you haven’t already, you must register first.
You can find a great guide here on how to use e-Filing.
The major benefit of using e-Filing is that SARS tends to process your return faster than if you opt for the paper method.
How To Avoid Becoming A Tax Hostage!
“In this world, nothing can be said to be certain except death and taxes”
Benjamin Franklin penned this iconic phrase nearly 230 years ago and it stands true today.
Many of us aren’t too fond of having to pay a chunk of our income to the taxman, but thankfully there are smart ways to minimize what you pay.
By having a solid understanding of how taxes affect you, you can make efforts to reduce your tax liability and make use of ways to save on tax.
The time you invest in this could give you a decent rebate, and nothing beats a cash injection of a few grand every now and then!
Until then, here’s to tax free investing.
The Money Lab
PS: Discover the secret to paying less tax AND how to get SARS to pay for your retirement at the same time! It's all in this FREE report titled "The Tax Free Playbook", you just need to let me know where to send your copy!