You can improve your financial health by taking advantage of the various tax-filing maneuvers to reduce your tax bill.
At the beginning of every year my partner and I, spend hours keeping abreast with tax laws. For us, we seek to take every tax deduction to which we are entitled to, in order to save on tax bill. While paying taxes is a civic duty and a non-enjoyable experience at that , our taxman has outdone himself in making the process as easy as possible.
As the cost living keeps rising, it would not hurt to seek out ways to leave more money in your pocket without evading the taxman. Here is how to legally pay less taxes:
Go Long on Investments
Capital gains tax is tax on securities, land and buildings is at 5% rate on net gains. Capital gains tax is less selling costs such as advertising, agent commissions, valuation fees and others. Selling an asset after a having it for a long time or short time can have some effect on your overall gain. Active trading particularly on securities can yield to very high tax liabilities on capital gains. However, it is imperative that you do not base your trading decisions solely on tax concerns. Rather, think whether selling a wining investment after holding it for a day or year for tax reasons makes any sense to you.
Let’s Talk About Life
Getting life insurance is great way to reduce your tax bill and meet your financial obligations all at the same time. Life insurance has always been a great way to deliver your money into the future at a tax reduced discount. In Kenya, the tax relief for taxpayers on premiums is realized on amounts not exceeding KES 60,000 per year at a 15% rate. For those very keen on their financial planning, this is a great way to get more out of your life insurance policy and taxes.
Buy a House
If you are still debating on whether to buy or rent a home, remember that mortgage interest is tax-deductible. Having a mortgage is a serious commitment just like paying rent but you have to be strategic about these things. Mortgage interest tax rebates can significantly go a long way to reduce your overall tax liability. This however, should not be your main reason to take on a mortgage but you should factor it into your calculations. Under the Income Tax Act, you can get a rebate of an amount no more than KES 480,000 a year. This can go a long in the initial years when a significant portion of the mortgage payment interest.
Housing Bonds
Make most of the exemptions through by investing in investment vehicles that enjoy tax exemption benefits. Mortgage-backed securities i.e. housing bonds offered by Housing Finance or the National Housing Cooperation, would be a great start. Investors in housing bonds have an opportunity to enjoy tax exemptions of up to KES 300,000 on their investments. This way, you can accumulate some wealth at a lower cost to you.
Retirement Savings
One of the best ways to reduce your income tax payable is to contribute as much as you can into a retirement savings account. This way, you can take advantage of tax exemptions that will significantly reduce your tax bill. The money contributed is not included in your taxable income hence, not taxable. Therefore, you can accumulate a sizable amount in your pensions account tax-free by making contributions to registered pension and provident funds to take advantage of these tax exemptions.
On Being Your Own Boss
Finally, those of us who are self-employed know that we pay twice what salaried pay in many income tax deductions. Therefore, as a business woman/man, ensure you cost everything i.e. if your work from home, cost expenses such as your own salary, utilities, repairs, depreciation, mortgage interest as a business expense. Self-employed people have many deductions that they can take on but they have to be very strategic about it – if it adds some form of value to your business, include it.
These are just some of the tax breaks that you can strategically take advantage of that can yield high aggregate savings for you. Therefore, spend a little more time investigating tax breaks, you may learn how to legally pay less taxes and many more ways to shrink your tax bill.
You can right-click on the following links to read more on financial planning:
- Pros & Cons of Refinancing Your Property Loan
- 10 Laws of Building Wealth
- 5 Helpful Ways to Keep your Financial Info Confidential
- Leverage: The Key to Amassing Wealth
- 3 Steps to Build Wealth
Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.