The end of the coming year brings with it the deadline for implementing a few simple steps that will save you thousands of shekels or even tens of thousands of shekels in tax liability. If you are a salaried employee with an above-average income or if you are self-employed, you can probably do one or more of the actions listed below and save a considerable amount of money.
Ready?
If your employer does not provide you with a pension fund and you purchase life insurance privately, you can receive a tax credit benefit that is, a benefit that will reduce your tax at the end of the year. According to clause 45A, you can obtain a tax benefit credit of up to 25%, for life insurance and this applies to life insurance that was taken in the framework of a mortgage too. The same applies to any privately purchased work disability insurance where you can also receive a tax benefit of up to 7% as a credit.
Additional savings can be made through an investment provident fund, a savings tool launched back in 2016. This fund enables savers to withdraw their funds at any stage, subject to capital gains tax, similar to other savings plans. However, in contrast, with the investment provident fund it is possible to change the investment track without it being considered a tax event. For example, you can now transfer funds from a stock track to a more solid track without paying capital gains tax on the profits. However, if you do decide to withdraw the money as an annuity after retirement you will then be able to enjoy the tax benefit that the retirement pension provides.
Employees can also save tax. (Illustration source: Davar Rishon).
It’s commonly recommended for one to put money aside in the form of savings for unexpected expenses or any problem that might crop up. So if you are looking for a savings plan with a convenient and simple investment channel that can yield higher returns, the investment provident fund is definitely a satisfactory option. The savings in the investment provident fund are limited to an annual ceiling of NIS 70,281.
Another more significant channel which is suitable for a more sophisticated segment of the investors market, is an investment in a target company. A target company is a start-up company which is recognized by the Chief Scientist and which allows you to allocate the investment as a recognized expense and receive a refund from the IRS according to the maximum tax that you pay.
Seven years ago, the Angels Law (or Section 20 of the Economic Arrangements Law for 2011) was enacted to encourage venture capital investments. The law allows the public to invest in up to 120 start-ups.
Finally, there is an interesting and easy to implement option, which is highly relevant following the recent sharp falls in the stock market. This option is the use of losses from the sale of securities; if assets were realized during the year and capital gains tax was paid, losses from the last stock market falls can be refunded in the form of a tax rebate at the end of the year. One needs to sell the losing security and the bank will offset the sum automatically.
First, make sure that you have deposited the full amount possible into a study fund - a deposit to the fund of up to NIS 11,745, or 4.5% of your salary, is recognized as an expense in your annual tax returns.
A second piece of advice relates to your compulsory deposit into your pension fund, (which the self-employed are obligated to do since the law that was instigated in January 2017.) Self-employed people who do not make these deposits are also liable to administrative fines. In effect, these deposits help you to save via your pension savings.
Any excess funds can be deposited into your life insurance for amounts of up to 25% of your annual income. This deposit is recognized in your annual tax returns as an expense. The money can also be deposited in occupational disability insurance for up to 3.5% of the income, or 3.5% of the average wage of two and a half times the lowest wage. It is important to note that it is not possible to receive a tax benefit on the purchase of disability in the framework of your pension fund.
You can also save on excess funds. Petty cash box in your business (Illustration: Noam Rivkin Fenton / Flash 90)
The self-employed can also benefit from the "Angel Law" and invest in up to 120 start-ups that are recognized by the Chief Scientist. Such an investment, we remind you, is recognized as an expense too.
Another savings channel is the conceptual sale of a savings policy. Those born in 1948 can enjoy a tax benefit that allows them to receive a capital gains tax exemption on profits of up to NIS 13,200 a year, and even more for spouses. To do this, contact the insurance company and make a conceptual sale of the policy
Like employees, you also have the option of taking advantage of losses in the sale of securities. If assets were realized during the year and capital gains tax was paid, the last
decreases in tax rebates could be utilized by the end of the year. The sale of the lossable security is to be made and the bank will perform the offset automatically. It is important to note that even if you have not accumulated profits during the year, you can now realize profits and offset losses.
Additional savings can be made through an investment provident fund, a savings tool launched in 2016. Such a fund enables savers to withdraw the funds at any stage, subject to capital gains tax, similar to other savings instruments. However, in contrast, in the provident fund for investment it is possible to change the investment track without it being considered a tax event. For example, you can now transfer funds from a stock track to a more solid track without paying capital gains tax on profits. However, if you decide to withdraw the money as an annuity after retirement you will be able to enjoy the tax benefit that the retirement pension provides.
As is known, it is recommended to leave money aside for savings, unexpected expenses or any trouble. So if you are looking for a savings plan with a convenient and simple investment channel that can yield higher returns, it is definitely a satisfactory solution. The saving in the investment provident fund is limited to an annual ceiling of NIS 70,281.
