Have you received a bonus? Or had your overtime paid out? Or do you have a higher income from work and property this year for any other reason? If so, it might be worth looking into tax deductions before the end of 2017. This also applies if you expect your income to be lower in 2018. After all, it may be worth claiming tax deductions before the end of 2017.
Paying mortgage interest in advance
One tax deduction that is still very common is the interest on your home loan, usually referred to as mortgage interest. Most people pay the interest relating to that year each year. However, banks often have no objection to you paying your mortgage interest in advance.
As long as the mortgage interest paid in advance covers a period of no more than 6 months, the tax deduction applies in the year in which you make the advance payment. The following year, your tax deduction will only cover the interest for the remaining 6 months – unless you pay another 6 months’ interest in advance.
Concentrating donations
Donations to charitable organisations are tax-deductible. However, the total amount of your donations must exceed the threshold. If you make (roughly) the same donations every year, you might consider making them in January and December of the same year.
Suppose your income is €45,000. The threshold for the charitable donation allowance is 1% of your income. You cannot deduct the first €450 of your donations.
If you make donations totalling €1,000 in a year, you may deduct: €1,000 - €450 = €550.
If you make €1,000 in donations each year, you can claim a tax deduction of €550 each year. However, if you make the donations in the same calendar year (for example, in January and December), your tax deduction will be: €2,000 – €450 = €1,550. That is €450 more in tax relief than if you made the donations each year. The following year, you make no donations and therefore have no tax deduction.
PLEASE NOTE: donations are also not tax-deductible if, in any given year, they exceed 10% of your income. You should therefore calculate carefully how much you are allowed to claim as a tax deduction.
There is another way to avoid the threshold and the cap on the charitable donation allowance. This involves making your annual donations in the form of a regular payment. You must, however, make these donations for at least five years. A regular donation These days, you can easily record this with a little phrase of the Inland Revenue.
A regular donation is also tax-deductible if the beneficiary is an association with at least 25 members. It’s a great way to get the tax authorities to contribute significantly towards the financial support you provide to an association.
At the start of this year we wrote that 2017 might be the last opportunity to claim tax relief on regular donations. As far as is currently known, this tax relief will not be abolished for 2018.
If you are a director and major shareholder, you can choose where you can claim tax relief on your donations.
Annuity premium
Another possible tax deduction relates to annuity premiums (or contributions to an annuity savings account). You may deduct such premiums/contributions if you have a pension shortfall, or if you have had one in the past seven years. VWGNijhof will be happy to calculate for you how much of your annual allowance and reserve allowance you are still entitled to use.
Payments from an annuity insurance policy or savings account are, of course, subject to income tax. With careful financial planning, this could work to your advantage – particularly given the prospect of falling tax rates.
Coalition agreement
If the coalition agreement is implemented, the tax “flair” will be somewhat lost from the tax deductions. It appears that, from 2019 onwards, these will only be applicable at the basic rate (the lower of the two rates to be applied for income tax).