When it comes to saving, one of the best things to do is to make sure you are getting as much of your earnings as possible into your hand. By maximising your tax efficiency, you are also maximising your savings potential.
As outlined here, the single greatest way to be tax-efficient and to save is to put money into a pension.
Any earnings put away for retirement are tax-deductible, up to certain limits depending on your age. They are a great way of maximising how much can be saved.
Once you have that sorted, there are plenty of other things to keep on top of in order to minimise your tax liability:
Understand your income tax credits and make sure you are getting everything you are entitled to.Claim for your medical expenses – Revenue will rebate 20% of normal medical bills and up to 40% for nursing home expenses.If you are married or in a civil partnership and your spouse is working, make sure your joint allowances are maximised. Keep on top of specific farm tax reliefs such as stock relief, accelerated capital allowances, VAT refunds and capital gains tax reliefs. For landholders who are looking to change how they farm, or looking to retire but do not want to sell their land, there are a few tax-free income streams possible.
Money earned from leasing land can be tax-free up to €18,000 for a five-year lease and €40,000 for a lease of more than 15 years.
Income from forestry is exempt from income tax. This includes forestry grants, annual premiums, sale of thinnings and clearfell. They are, however, still subject to universal social charge and PRSI.
For most farmers, it is best to engage the services of an expert to ensure they are minimising their tax liability
With this year’s budget only weeks away, it is important to keep an eye on changes in Government policies and allowances.
For most farmers, it is best to engage the services of an expert to ensure they are minimising their tax liability.
Understanding tax efficiency
While it is important to make sure you are getting the greatest tax allowance possible and minimising the amount you send to Revenue, it is also important that you remember to maximise the amount of money you keep for yourself.
For example, while a farmer on the high rate of tax who spends €1,000 on farm expenses can reduce that cost by almost half, they will still have around €500 less cash for themselves.
For lower-income farms, the salesman’s argument that something “can be written off against tax” should carry even less weight. The less money a farm makes, the less rationality there is behind spending money on it to reduce taxes.
Every expense should be made on its own merits, with the tax implications of it being, at best, a secondary concern.
Difficult year
When it comes to taxes this year, many farmers are facing a difficult set of circumstances, where strong earnings in 2022 have been followed by a very tight 2023.
The situation is most difficult in the dairy sector where farmers face potentially very large tax bills in the coming months.
IFA dairy chair Stephen Arthur recently called for assistance for the sector, saying farmers are “really worried.”
Farm input costs have remained high while income from milk sales dropped rapidly so far this year.
For farmers facing severe cashflow problems, there are credit solutions available for those caught without savings
The speed of the reversal in fortunes between 2022 and 2023 has caught some farmers off guard as few cashflow projections at the start of the year would have predicted how it has developed.
For farmers facing severe cashflow problems, there are credit solutions available for those caught without savings.
Bank of Ireland has an 11-month small business tax loan product that might suit some borrowers.
The unsecured debt, which can be up to €120,000 per customer, carries a variable interest rate of 6.94%.
Borrowing
Borrowing to pay a tax bill is never a good idea, and should only be done if there are no other reasonable options.
Repaying the loan would extend into autumn of 2024, just ahead of the next tax bill, meaning there would be little or no time to build a cash buffer to meet that bill.
As with all financial decisions, it is essential to speak to an expert before making any commitments.
When it comes to saving, one of the best things to do is to make sure you are getting as much of your earnings as possible into your hand. By maximising your tax efficiency, you are also maximising your savings potential.
As outlined here, the single greatest way to be tax-efficient and to save is to put money into a pension.
Any earnings put away for retirement are tax-deductible, up to certain limits depending on your age. They are a great way of maximising how much can be saved.
Once you have that sorted, there are plenty of other things to keep on top of in order to minimise your tax liability:
Understand your income tax credits and make sure you are getting everything you are entitled to.Claim for your medical expenses – Revenue will rebate 20% of normal medical bills and up to 40% for nursing home expenses.If you are married or in a civil partnership and your spouse is working, make sure your joint allowances are maximised. Keep on top of specific farm tax reliefs such as stock relief, accelerated capital allowances, VAT refunds and capital gains tax reliefs. For landholders who are looking to change how they farm, or looking to retire but do not want to sell their land, there are a few tax-free income streams possible.
Money earned from leasing land can be tax-free up to €18,000 for a five-year lease and €40,000 for a lease of more than 15 years.
Income from forestry is exempt from income tax. This includes forestry grants, annual premiums, sale of thinnings and clearfell. They are, however, still subject to universal social charge and PRSI.
For most farmers, it is best to engage the services of an expert to ensure they are minimising their tax liability
With this year’s budget only weeks away, it is important to keep an eye on changes in Government policies and allowances.
For most farmers, it is best to engage the services of an expert to ensure they are minimising their tax liability.
Understanding tax efficiency
While it is important to make sure you are getting the greatest tax allowance possible and minimising the amount you send to Revenue, it is also important that you remember to maximise the amount of money you keep for yourself.
For example, while a farmer on the high rate of tax who spends €1,000 on farm expenses can reduce that cost by almost half, they will still have around €500 less cash for themselves.
For lower-income farms, the salesman’s argument that something “can be written off against tax” should carry even less weight. The less money a farm makes, the less rationality there is behind spending money on it to reduce taxes.
Every expense should be made on its own merits, with the tax implications of it being, at best, a secondary concern.
Difficult year
When it comes to taxes this year, many farmers are facing a difficult set of circumstances, where strong earnings in 2022 have been followed by a very tight 2023.
The situation is most difficult in the dairy sector where farmers face potentially very large tax bills in the coming months.
IFA dairy chair Stephen Arthur recently called for assistance for the sector, saying farmers are “really worried.”
Farm input costs have remained high while income from milk sales dropped rapidly so far this year.
For farmers facing severe cashflow problems, there are credit solutions available for those caught without savings
The speed of the reversal in fortunes between 2022 and 2023 has caught some farmers off guard as few cashflow projections at the start of the year would have predicted how it has developed.
For farmers facing severe cashflow problems, there are credit solutions available for those caught without savings.
Bank of Ireland has an 11-month small business tax loan product that might suit some borrowers.
The unsecured debt, which can be up to €120,000 per customer, carries a variable interest rate of 6.94%.
Borrowing
Borrowing to pay a tax bill is never a good idea, and should only be done if there are no other reasonable options.
Repaying the loan would extend into autumn of 2024, just ahead of the next tax bill, meaning there would be little or no time to build a cash buffer to meet that bill.
As with all financial decisions, it is essential to speak to an expert before making any commitments.
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