How to maximise your tax savings

A tax-free savings account allows you to save without incurring tax on the growth of the investment, including interest, dividends or capital gains.

The annual contribution limit for tax-free savings and investments is set at R36 000, allowing you to make regular deposits that can grow over time. Additionally, there is a lifetime limit of R500 000, which means that once you reach this threshold, you can no longer make further contributions without incurring tax penalties. If you maximise your contributions annually, you can effectively use this strategy over an investment horizon of approximately 14 years. By consistently contributing the maximum amount each year, you can take full advantage of the tax benefits available, ultimately enhancing your financial growth and security for the future.

Tip | Remember to observe the individual contribution limit as it is possible to open more than one TFSA; exceeding the R36 000 limit can result in a 40% tax penalty.

Contributing to a retirement fund not only helps you secure your future; it also offers immediate tax benefits.

You can deduct up to 27.5% of your taxable income for retirement contributions, with a maximum cap of R350 000. This means that the more you contribute, the lower your taxable income will be, potentially leading to significant tax refunds. By using these deduction limits, you can not only enhance your retirement savings but also optimise your tax position, making your contributions work harder for you in the long run.

Tip | Even if you have a company sponsored pension fund, you can use a retirement annuity to make extra contributions up to the cap.

Contributions to your medical aid can lead to significant tax credits.

Your premiums (based on the number of dependents on your medical aid) and certain out-of-pocket expenses can qualify for tax credits. Qualifying out-of-pocket expenses include doctor’s appointments and prescribed medications.

Tip | To record out-of-pocket expenses, always submit these to the medical aid even if you know they won’t be covered or you have run out of savings. Your total for unreimbursed medical expenses will then be reflected on your medical aid tax certificate.

With the rise of remote work, understanding what you can claim is crucial. To maximise your tax deductions, understand the eligibility criteria and claimable expenses.

SARS stipulates that you need to work from home for 50% of the work week to qualify (you’ll need a letter from your employer stating this). Deductions may be claimed on a portion of your rent, utilities, and wear and tear on equipment. Remember you can only claim the business portion of these expenses, not the whole amount.

Tip | Keep detailed records of your expenses and take photographs of your home office setup to support your claims.

Donations to registered public benefit organisations (PBOs) can be deducted from your taxable income.

Under South African tax law, donations to PBOs can be deducted from your taxable income, providing a meaningful way to give back while also benefiting your finances. You can claim deductions of up to 10% of your taxable income for these charitable contributions. You’ll need to obtain a Section 18A tax certificate from the charity.

Tip | Maintain accurate records of your donations to ensure you can claim these deductions.