Tax-saving opportunities for the Self-employed
Every year thousands of self-employed people across Ireland use their pension as a great way of reducing their tax liability. It’s easy, efficient, and if you aren’t doing it, you should ask yourself why not!
If you are self-employed you must calculate your tax liability and make a payment by 31 October 2024 (or 14 November 2024 for ROS users) in respect of your:
1. Final Tax Assessment for 2023;
2. Preliminary Tax for 2024.
You can reduce your 2023 Final Tax liability and your 2024 Preliminary Tax liability by making contributions to a Personal Pension plan or Personal Retirement Savings Account (PRSA) and electing to backdate the tax relief to 2023
Your pension contributions are subject to age-related limits
An earnings cap of €115,000 applies to contributions. Pension contributions made by you in 2023 must be deducted from the maximum tax-allowable contribution calculated based on these limits.
Age is age on your birthday in 2023.
Retirement benefits are subject to separate Revenue limits.
Reference throughout this document to ‘Tax’ refers to ‘Income Tax
Example;
John is self-employed, aged 45 years, and his Net Relevant Earnings for 2023 were €80,000. He has paid €15,000 Preliminary Tax in 2023 and his total tax bill for 2023 is €22,000. This leaves him owing €7,000 for 2023. He does not currently pay pension contributions. The two scenarios below show just how a lump sum pension contribution can save John lots of money
2023 Net Relevant Earnings €80,000 and €15,000 Preliminary Tax paid in October 2023
Scenario 1; No Pension Contribution
Balance of tax due from 2023 is €7,000 (i.e. €22,000 less €15,000)
Preliminary Tax due for 2024 is €22,000 (i.e. 100% of 2023’s Final Liability)
Total payment to Revenue is €29,000
Scenario 2 After Pension Contribution
Before 31 October 2024, John makes a €20,000 Pension Contribution and backdates the tax relief to 2023.
Actual Tax Bill for 2023 reduced to €14,000 i.e. the total Tax Bill for 2023 of €22,000 less tax relief of €8,000 {40% on the pension contribution of €20,000} However, €15,000 Preliminary Tax was paid already in October 2023. Therefore, a refund of €1,000 is due from the Revenue.
Preliminary Tax due for 2024 is €14,000 (i.e. 100% of 2023’s final liability).
Total payment to Revenue is €13,000
• Warning: The value of your investment may go down as well as up.
• Warning: If you invest in this product you may lose some or all of the money you invest.
• Warning: These products may be affected by changes in currency exchange rates.
Make the most of the tax-efficiency of pension contributions now – you may never get such good value again!
For more information contact Frank Ryan Financial Services
Source; Zurich Life