Tips To Reduce Your Income Tax Liability

Are you required to prepare an Income Tax Return for 2014?  If so you are probably gathering your information to forward to your accountant or tax advisor.  From our years of experience of working with our clients we have put together some of the key Income Tax deductions, credits, allowances and reliefs which you may be able to claim to help reduce your Income Tax Liability.  

1. Health Expenses

One of the main tax reliefs claimed by individuals are medical expenses, which may be claimed at the standard rate of 20%.  Examples of claimable medical expenses include:

• Qualifying medical expenses i.e. prescribed on the advice of a qualifying practitioner.
• Drugs or medicines prescribed by a practitioner.
• Qualifying dental expenditure, which must be accompanied by a Form Med 2 (Routine dental treatment such as extraction, scaling and fillings are not allowable expenses.)

In addition to the above, any payments made to a nursing home for the full time care of an individual will provide relief at the Income Tax Rate of 41%.  

1. Qualifying Tuition Fees paid in 2014

If you have children in third level education you will more than likely have paid a significant amount in tuition fees. (Hopefully it will be money well spent!)  The good news for Income Tax purposes is that you can claim a deduction against your Income Tax Liability at the 20% rate.  The deduction may be claimed on the 2014 academic year tuition fees paid, including student contribution.  The maximum limit on qualifying fees paid for the academic year 2013/2014 is €7,000 per individual per course.  Relief may also be claimed for certain training courses in the areas of information technology and foreign languages, with relief applying to fees paid from €315 to a maximum of €1,270 per student.  

1. Home Carer’s Tax Credit

If you are jointly assessed and you or your spouse/civil partner is a home carer you may be entitled to claim a Home Carer’s Tax Credit.  For the tax year 31st December 2014 the credit amounts to €810 and may be claimed if care is provided for:

• A child whom you are entitled to Social Welfare Child Benefit;
• A person who is permanently incapacitated by reason of mental or physical infirmity and such person normally resides with you for the year or;
• A person aged 65 or over.

1. Retirement Annuity Contracts (RAC’s)

Are you thinking of topping up your pension for an early retirement?  If so you can avail of Tax relief on RAC premiums paid, including any premiums paid between 1st January 2015 and the return filing date.  When deciding on the amount of an RAC contribution you would like to make you must consider two main factors:

Age related percentage limit – This provides for a maximum contribution of your Net Relevant Earnings (NRE)*. For example a person under 30 years of age can make a contribution of 15% of their NRE, with a person aged 60 and over being able to make a contribution of 40% of their NRE.

For example, if you are aged 28, have earned €45,000 and made a contribution of €7,000 the relief is restricted to €6,750 (€45,000 * 15%).  The remaining €250 may be carried forward to the following year.

Upper Limited on NRE – There is an upper earnings limited of €115,000 for 2014 and applies whether an individual is contributing to a single pension product or multiple products.

*Your Net Relevant Earnings are your earnings, less any allowable expenses. For example, if you have a sole trade profit of €80,000 and capital allowances of €10,000 the NRE is €70,000.  

1. Personal Retirement Savings Accounts (PRSAs)

Payments made to PRSAs will benefit from tax relief at the individuals highest Income Tax rate.  As with RAC’s above the maximum contribution is linked to your age so it is important to include your date of birth in the personal details section of the Income Tax Return.  

1. Employment and Investment Incentive Relief, replacing Business Expansion Scheme

This relief can be claimed as a deduction against your total income, before tax credits and allowances, thus reducing your Income Tax at the higher rate.  The maximum relief claimed in any tax year is €150,000 with a minimum of €250.  If full relief cannot be claimed in the year that monies were invested the excess can be carried forward, but no later than 2020, subject to the above maximum limits. Before a claim can be made you must secure a RICT 3 as you will be required to include the RICT 3 certificate number or Designated Funds reference number on your Income Tax Return.  

1. Maintenance Payments and Deeds of Covenants

Tax Relief may only be claimed on maintenance payments made under a legally enforceable arrangement for the benefit of the spouse or civil partner. Relief is not granted on payments for children. If you have a deed of covenant in place in favour of permanently incapacitated minor, other than your own child, where the recipient is under 18 years of age and unmarried, unrestricted relief may be granted against your Income Tax Liability. Relief is also available for covenants in favour of permanently incapacitated adults with restricted relief available on covenants in favour of adults aged 65 and over.  

1. Employing a Carer

Tax relief can be claimed at the higher rate of tax if you employ an individual to care for an incapacitated person.  This relief cannot be claimed in conjunction with the Dependent Relative Tax Credit or the Incapacitated Child Tax Credit.  The relief to be claimed is the cost of employing the carer, subject to a maximum of €50,000, less any amounts recovered from a health or local tax authority.  If two or more people employ the carer, the relief is apportioned between them.  

Submitting Your Income Tax Return

Under the pay and file self assessment system for Income Tax you must complete the following before 31st October 2015:

• File your 2014 Income Tax Return
• Pay any balance of Income Tax outstanding for 2014
• Pay your Preliminary Tax for 2015

If you submit and pay our Income Tax through the Revenue Online System (ROS) you can avail of an extended filing and payment deadline of 12th November 2015. If the above deadlines are not met, you may be subject to a surcharge, interest or penalties which may be imposed by the Revenue Commissioners. At Roberts Nathan we have an experienced team of professionals who assist our clients with their tax compliance, including the completion and submission of their annual Income Tax Return. If you have any queries in relation to the above or require assistance you can contact us here.