Archive for the ‘Tax Planning’ Category

Commonly missed tax savings

Monday, January 4th, 2010

If your employer pays your medical insurance

Individuals get tax relief at source when they pay medical insurance e.g. VHI, Quinn. Companies do not get this relief. Also if you get thios perk you are taxed on the full grossed up value of the premium. You need to claim back the tax credit or it is lost.

Example (ignoring PRSI and levies)

   
Insurance paid nett 2,000
Gross up 2,500
Income Tax  41%  1,025
   
Claim back Tax Credit 20%    500

 Fees to Third Level Institutions

Fees paid for certain HETAC approved courses attract a tax credit at the 20% standard rate. The maximum fees allowed are €5,000 in any year. Therefore the maximum tax saving is €1,000.

Caring for elderly or incapacitated relatives

Carers Payments

Payments to a carer for an elderly or incapacitated relative

These payments are allowed at your higher rate.  They include nursing home fees. The maximum payment in any one year is €50,000. The tax saving, ignoring PRSI and levies is €20,500

Regular payments to elderly relatives

You may also be making regular payments to an elderly relativewhich are not covered by the carers allowance. However, by covenanting the money you can utilise their tax credits to save tax on theise payments. Many elderly people do not fullu use their credits and allowances. If their income is below the age exemption threshold they may not pay tax at all.

If the payment is legally binding to be for a minimum of six years you can deduct it from yourtaxable income

Example

You covenant €5,000 per annum to your elderly mother. Her annual income is €18,000 which is below the age threshold.

If you pay tax at the high rate the effect is

You deduct tax at 20% from the payment i.e. €1,000

You pay this tax over to Revenue

The full €5,000 is allowable as a deduction to you. You save tax, PRSI and levies at say 47% = €2,350

Your mother is can offset her alloances and credits to reclaim the €1,000.

The €5,000 has only cost you €2,650.

Should you form a company?

Monday, January 4th, 2010

Should I form a Company?

Most business owners face the decision whether to be a sole trader or a company at some stage.here, we briefly outline some issues

For Against
Retained profits taxed at lower 12.5%. Higher accounting costs
Higher pension contributions More legal obligations
More options on exit CRO returns
More ways to sell/pass on Possible audits

Tax Rate

Depending on the nature of its income, the company will pay tax at 12.5% or 25%. This is better than your high rate of 41% plus income levy. This is relevant when the business makes more than you need to draw out.

Pension contributions

The company can contribute on top of your own contributions, subject to revenue limits on fund values.

Another advantage here is that this avoids income levies. Your contributions are not exempt from these.

You should always get professional pension advice

Exit

Severance payment options may be available on retiremment as a director

Passing on the business

For example, company shares are easier to manage when pertitioning a business between family members. Particularly with second families, it may be useful to use different share classes.

Becoming a company

There are Capital Gains Tax exemptions on transferring to a company. There are possible stamp duty implications.  Your solicitor and tax adviser can help with these.

Important Note

The above is only as a brief guide. It is not meant to replace professional tax advice.

Tax Residence – What can it mean to you

Monday, January 4th, 2010

Residency issues can play a large part in your tax affairs if you

  1. Come to live in Ireland
  2. Leave Ireland

What does resident mean?

You are resident if

  1. You spend over 183 days here in any tax year or
  2. You spend 240 days between one year any the preceding year. Any year when you are here less than 30 days is ignored.

Ordinarily Resident

This is another important concept.

You become ordinarily resident when you are resident in 3 successive years

You remain so until you have been non-resident for 3 years

If you are resident and ordinarily resident for a tax year you are taxable on worldwide income

Coming to Ireland

If you are resident but not ordinarily resident you are taxed on

Irish income

Foreign income remitted here

This is called the remittance basis

Before coming to ireland, consult a tax advisor to manage how you bring over funds

Leaving Ireland

If you leave you will be ordinarily resident but not resident for a year. You will be taxed on worldwide income excluding

Trade, profession or employment income wholly exercised abroad

Other income below €3,810. If you exceed this it is all taxable

Domicile

This is a very complex area based on case law. I will give a simplified example

Bob is born in England, of English parents. he is U.K. domiciled. He will keep this unless he choses to change it. To change he would have to break allies with the U.K.

If Bob moves to Ireland but keeps British citizeneship etc he would keep U.K. domicile

How can this affect you?

If you are not domiciled here, you are taxed on the remittance basis. This means you are taxed on

Irish income

Foreign income sent into Ireland

This is a general outline only. residence and domicile issues always need the help of a good tax adviser

Tax Tips for Company Directors

Monday, January 4th, 2010

 

Directors of Small Companies – Some Do’s and Dont’s

The director of a small company is normally an owner-manager. He/she faces a number of challenges. They must run the business while remaining tax and legally compliant. This leaflet briefly outlines a few issues which often cause problems

DO!

Use the audit exemption to reduce costs. Your accountant will advise you

File CRO returns and accounts on time. This avoids penalties. Being late will lose you the audit exemption

Manage your pension plan. Use company contributions where cash allows

Have shareholder agreements. These help minimise disputes

Have first option on other shareholders holdings on their leaving/death. There are insurance policies to help in this area

If you are a professional services company e.g. consultants, avoid building up retained profits in the company. This incurs non-refundable surcharges

DONT!

Take loans from the company. This may breach company law and incur witholding taxes on advances

Hold rental property in a trading company. This can lead to tax surcharges

Take assets at below value. This will be a distribution taxable at the high rate. There will also be Dividend Witholding Taxes. For tax-efficient methods of asset extraction e.g. properties, consult your tax adviser.