If there’s one person that adults up and down the globe fear, it’s the taxman.
For the self-employed, he is almost like a vacuum cleaner, a sentient force that comes along and sucks up a good chunk of cash. For the employed, he is an invisible predator, a creature that swipes the money from your salary before you’ve even had the chance to see it.
Not that there’s anything wrong with that – it’s perfectly normal, after all! But you wouldn’t be ridiculed if you also wanted to reduce the amount he takes, filling your own pockets while still paying a legal amount of tax.
And, luckily, there are several ways to do just that.
So, to make your money go further this year, here are the top six ways you can (honestly) cut your tax bill!
Double and triple-check your tax code
I’m willing to bet that you receive your payslip, drool over all that money you just received, then place it in a file. You’re not the only one.
But have you ever thought to check your tax code? That mystical combination of numbers and letters that’s placed somewhere on your slip? If you never have, you’d be forgiven – not many other people do, and isn’t it supposed to be correct anyway?
Well, yes it is, but that doesn’t mean that’s always the case. Sometimes, your tax code will be incorrect, and that means you’re paying too much – or not enough – tax. This usually happens when your circumstances change – maybe your salary takes a hit, or you become self-employed. Either way, contact your local tax office and place an inquiry if you suspect something’s amiss.
Consult a tax expert
Tax is one of those complex matters that contains many intricacies and nuances. As such, perhaps simply seeking advice would be the best way to make some savings.
If you’re self employed, looking for aid is especially important. If you get in legal trouble due to some form of tax dispute, you’ll need someone who knows taxes inside and out to fight your case. As a result, you can end up paying less than you would have done without help.
And a tax attorney, like those at the Alexander Law Firm, will probably know far more than you do! In addition to this, there are a variety of different expenses you can claim and tax rules to adhere to, and this can all get confusing. Also, some lenders may want to see that you have your accounts professionally prepared, and a tax accountant can help you here. Nobody said being self-employed was easy!
Tax-free savings accounts
Just like paying into a pension (more on that soon) some types of saving are tax free, up to a certain threshold. If you open an ISA, check how much you can pay into it without paying tax. This value will rarely differ from bank to bank, but do your research anyway.
So if you want to save money, make sure you open an account which gives you the highest tax threshold possible. You want to be able to save a huge sum, without paying a penny of tax on it. You also need to keep an eye out for the rules of the interest, too. Some interest is paid gross, while some is paid net.
This means that you could open a 3% interest savings account, but you won’t get 3%, as some tax needs to come off that. On the other hand, if the interest is paid net (after tax has been taken off) you keep every penny you get.
Claim expenses if you’re self-employed
If you’re self-employed, anything relating to your work life can be deducted as a tax expense. Had coffee with a potential business partner? Keep the receipt, you can slash that. Got a company car? That too. Working from home? Deduct a portion of your utility bills.
All these add up, and reduce your tax bill by a hefty sum. I’d recommend simply keeping all your receipts, even if you don’t know whether they’re tax-deductible or not. This way, you can run through them all at the end of the year, and decide which you can use. The important thing is to keep proof!
Pay into a pension
Because if you aren’t, you really should be. And as an added bonus, pension contributions – to a personal or company scheme – can come out of your gross yearly pay. This reduces your gross salary, taking you into a lower tax threshold and meaning you pay less.
And it’s not like you’re sacrificing that money, either. You’ll get it when you retire! Money in pension schemes is typically tax-free too, up to a certain point. This means that you shed a bit of taxable income and effectively make it non-taxable. Not too bad for a day’s work!
Purchase a more efficient car
Of course, depending on your financial circumstances you may not be able to afford a super fuel-efficient vehicle. That being said, if you look into the past and shop for older models, you can end up finding some pretty great deals.
Cars like the 2011 Dodge Caliber with 24mpg would be great fuel-efficient choices. It’s not the latest model of Dodge Caliber, true – but it’ll save you tax. The easier the car is to run, the cheaper it is to run, and the more environmentally friendly it is, the more you save.
And there’s another benefit right there, too. Yes, by having a more fuel efficient car you will pay less tax, but it also reduces your own motoring costs. You’ll need to buy less fuel, and as a result, your monthly vehicle investment will tumble. It’s a double-edged sword, but in a good way!
Pay less tax!
Hopefully, anyway. No matter what you do, there’s no surefire way that you’ll be paying less tax. Some tips, like checking your tax code, can even result in a larger bill.
The important thing to note is to be honest. Honesty is always the best policy, especially when it comes to tax. Tax avoidance or deceit can lead to a whole heap of legal trouble further down the line. Keep you savings methods legal, follow this advice, and hopefully, you can save a bit of money this year!