The end of the year is nearing, and here are some ways you can reduce your income tax for this year of assessment.
Top up CPF
The first way is to top up your CPF, and you can do so to your Medisave or Special Account (SA). Medisave is for medical expenses and certain types of insurance, while your SA is for retirement.
For this year, you can only top up to your Medisave if you have not reached the CPF Annual Limit of $37,740 which includes your own contributions as a salaried employee. From 2022 onwards, you can contribute to your Medisave without regard for the CPF Annual Limit as long as you have not met the Basic Healthcare Sum (BHS).
For CPF SA, you can top up up to the difference between the Full Retirement Sum and your current SA account amounts. For this year, you can earn a tax relief of up to $7,000 for top ups to your own account, and up to $7,000 for top ups made to your loved ones’ accounts. This amount will change to $8,000 from 2022 onwards.
Contribute to SRS
You can open a Supplementary Retirement Scheme account with one of the operators – DBS, OCBC, and UOB – and you should do so before the statutory retirement age is increased.
SRS savings are completely liquid, although one has to pay a 5% penalty on top of prevailing income tax if he/she withdraws before the statutory retirement age (currently 62 for accounts opened before any change). This still suits my plan to retire early: if I wish to draw down on my SRS funds in my forties, for instance, and I have retired by then, my income tax should be quite small at that time. Paying a 5% is still quite worth it if I can save on more income tax on the years I contribute to my SRS.
Do note that SRS only gives a paltry 0.05% p.a. return, and one should always keep his/her SRS monies invested. There is a little bit of “capital gains tax” as a result, since money that grow in your SRS are subject to income tax when you withdraw it, so only consider SRS if your tax savings is substantial.
Contribute to a charity
For every dollar you donate, get 250% of the amount in tax relief! This means that for every $100 you donate, you get $250 of tax relief. At the 11.5% tax bracket, for instance, that’s $28.75 of tax saved.
Do chip in for my fundraiser, and you can also earn card rewards. See this article for more details.
Claim relief for work-from-home expenses
As a result from working from home, your bills may increase as a result. If you don’t or can’t claim these expenses from your company, you can at least claim tax relief for these increased expenditure.
Do note that things that are capital of nature, for instance a new work desk or computer, are not eligible for tax relief.
Make sure you claim eligible reliefs
IRAS has a laundry list of reliefs to reduce your payable tax, and they include things like the lesser-known Course Fees Relief where taking an eligible course to upgrade your skills qualify you to claim relief on such expenses. Make sure you look through the list to claim reliefs you are eligible for when you file your tax. While some are automatically applied, some require you to manually claim for it.
Use CardUp or ipaymy to pay your income tax
Once you have filed for your income tax, you can also use payment services like CardUp or ipaymy to pay for your income tax. This allows you to earn either miles or cashback for your tax payment, and you can read more details here.
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