Many small business owners and self-employed individuals don’t know how to maximise their tax liability in Ireland. They are often unaware of certain deductions that can have a major impact on their tax liabilities. In this article, we will take a look at how you can minimise your tax liability in Ireland by making smart purchases and investments in January. The sooner you start investing, the better. Listed below are some of the most common mistakes that business owners make.
Employing spouses or other family members
There are many ways to reduce your tax liability in Ireland. One of the easiest is to avoid employing spouses or other family members. By doing so, you can claim tax benefits that are not applicable to employees. In addition, the employment of such family members will help you keep your business expenses low. Here are some tips to help you get the most from your business. These can reduce your tax liability dramatically.
Claiming capital allowances for capital expenditure in Ireland
There are a number of benefits to claiming capital allowances for capital expenditure when setting up a business in Ireland. These allowances reduce the tax payable on qualifying business assets, such as machinery, plant and equipment, and buildings and land. These allowances can help to improve your cash flow and keep more money in your business. Here are some of the main advantages of capital allowances.
First, you can claim capital allowances for the purchase of a second-hand business or rental property. There are additional allowances for the plant and machinery attached to the building. Certain businesses and property developers cannot claim capital allowances for purchase costs. This is because they incurred expenditure on the construction of these properties. Similarly, the buildings in the Mid Shannon area are not eligible for capital allowances as they serve as holiday camps. In such cases, a professional valuation is needed to determine whether the cost of the asset qualifies for the allowance.
The second advantage of claiming capital allowances for investment expenditure is the tax benefits. Capital allowances can be claimed for up to 50% of the cost of a residential property. The percentage varies depending on the property’s specification and level of fit-out. However, it’s important to note that not all capital expenditure qualifies for capital allowances. In addition, there are restrictions and conditions that apply.
If you have a hybrid entity, you should be aware that the rules are different than for a tax-exempt company. Therefore, it is important to conduct arm’s-length debt capacity and serviceability analysis before entering a hybrid entity transaction. This will ensure that only mismatches related to hybridity are neutralised. You can also claim for a deduction for your bad debts.
There are also special rules for claiming accelerated capital allowances. This allows you to receive tax relief over a shorter period of time. For example, if you buy an electric vehicle, you can claim 100% acceleration for the first year. If you are converting a vehicle to run on alternative energy, you can claim accelerated capital allowances for the same equipment. This applies to new vehicles but not to leased equipment.
Investing in plant and machinery
There are several ways to invest in plant and machinery to reduce your tax liabilities. The annual investment allowance, currently PS250,000, is one way to minimise your tax liability. You can also use a machinery replacement policy to plan capital expenditure. The following are examples of ways to invest in plant and machinery to reduce your tax liability. If you are planning to invest in plant and machinery for your business, consider investing in the following equipment.
Irish tax legislation is favourable for investors who invest in a wide range of assets. There is a 12.5% corporation tax rate on active business income. Additionally, there is a 25% credit for qualifying R&D expenses, leading to a total effective tax deduction of 37.5%. Furthermore, the tax system supports IP exploitation at advantageous tax rates. You can also benefit from the accelerated depreciation allowances of approved energy efficient equipment.
Another method of reducing your tax liability is to invest in a PFIC or controlled foreign corporation. These entities are transparent for U.S. tax purposes and can utilize their foreign tax credits to reduce their tax burden in the United States. Additionally, Ireland offers a competitive talent pool for your company. You can even get your taxes treated as transparent in Ireland. By pursuing these strategies, you can minimize your tax liability in Ireland.
Investing in year-end pension contributions
Making year-end pension contributions is a way to reduce your overall tax burden in Ireland. Contributions made after the end of the tax year can be tax-free if you pay them before 31 October. Making a once-off contribution to a pension fund can also qualify you for tax relief if you paid them in a previous tax year. When paying contributions using the Revenue Online Service, deadlines are extended. Pre-existing pension plans can also qualify for tax relief if you have a pension in Ireland.
Taking advantage of tax relief on year-end pension contributions is an important part of your year-end tax planning. Investing in a pension plan offers many benefits, including tax-free growth, the ability to take a 25% tax-free lump sum upon retirement, and flexibility rules. Furthermore, you can structure your pension to be exempt from IHT estate. Saving for your retirement should be an integral part of your year-end tax planning.
Investing in year-end pension contributions is an attractive option for individuals who earn higher incomes and want to reduce their tax burden. There are certain restrictions though, such as a cap on the amount you can contribute. If you earn a higher income, you should consider making additional pension contributions to ensure that your tax liability is lower than the statutory limit. By making additional pension contributions, you can receive 40% or 45% tax relief. The limit is PS40,000, so making these contributions will allow you to reduce your tax burden by as much as 40%.