Hi guys …
We are less than a month away from 1 January 2018.
I know, in a few weeks time, most of us would be on Christmas shopping to commemorate the final episode of year 2017. Most likely, if you are a reader of KCLau.com, I’m pretty sure that you probably have prepared a budget on what and how much you intend to spend during the holiday season.
Now, before you splurge yourself happy, perhaps, there are a few more things that you may do now to save a couple more bucks on your next income tax payment. I’m sure you do not want to miss it. Thus, in this article, I’ll share 5 quick things you need to know about filing your income tax for Year 2017 so that you can plan ahead in advance.
#1: 2% Reduction in Income Tax
According to the Budget 2018, the government has proposed to reduce the current tax rates by 2% to the following chargeable income bands:
Chargeable Income Bands (RM)
Tax Rates 2017
Tax Rates 2018
0 – 5,000
5,001 – 20,000
20,000 – 35,000
35,001 – 50,000
50,001 – 70,000
70,001 – 100,000
100,001 – 250,000
250,001 – 400,000
400,001 – 600,000
600,001 – 1,000,000
Thus, if you are reporting RM 100,000 in chargeable income for year 2017, you would still be paying RM 11,900 in income tax payments in 2018.
However, if you estimated your chargeable income for year 2018 to be RM 100,000, thus, your income tax payments in 2019 would estimate to be RM 10,900. Hence, you would save the RM 1,000 from year of assessment 2018. (Page 60 of Budget Speech 2018.)
#2: Contribute to PRS
You can choose to invest in Private Retirement Scheme (PRS) as you would be entitled to tax relief on your investment. The tax relief available is up to RM 3,000. If your chargeable income is estimated to be RM 100,000 and you choose to invest RM 3,000 into PRS, your chargeable income would then be RM 97,000. You would reduce your income tax payments by RM 630 (21% of RM 3,000) to RM 10,270. This means, before any results achieved, you would gain 21% returns from tax relief on making the investment in PRS.
#3: Contribute to SSPN
Alternatively, you can also choose to invest in Skim Simpanan Pendidikan Nasional (SSPN) as tax relief would also be entitled on your investment. The tax relief available is up to RM 6,000.
This means, if your chargeable income is estimated to be RM 100,000 and you choose to invest RM 6,000 into SSPN, your chargeable income would be reduced to RM 94,000. You would reduce your income tax payments by RM 1,260 (21% of RM 6,000) to RM 9,640. Hence, you would gain 21% returns from tax relief on making the investment in SSPN.
#4: Boost Your Insurance Coverages
Have you maxed out the tax relief of RM 6,000 made available for EPF and life insurance and another RM 3,000 made available for medical insurance?
If you are not adequate insured, I believe, it is prudent for you to boost your coverages, both life and medical. As I write, there are many affordable plans to choose from where you can extend your sum assured and medical limits by six figures at a price of a few hundred Ringgit a month. So, it’s time for you to call your insurance agent to talk about it.
#5: Go Grab Some Books
There are up to RM 2,500 in tax relief to be claimed for expenses classified under ‘Lifestyle’. These expenses include books, magazines, newspapers, gym memberships (not home gym), monthly bills of internet subscription, and IT gadgets such as a smartphone, a tablet or a personal computer.
Recently, there are a few books which are quite hot in local bookstores. This includes Flying High by Tony Fernandes, Finding My Virginity by Richard Branson, and Robert Kuok: A Memoir by the ‘Sugar King’ himself. So, if you are into these books, you would not only get a discount offered by Popular Bookstores and MPH but also a further tax relief from the government.
What’s my Final Tax Payment?
Let us assume, your chargeable income is estimated to be RM 100,000 before the 5 things mentioned above. Your income tax payment is estimated to be RM 11,900.
You have decided to invest RM 3,000 in PRS, invest RM 6,000 in SSPN, and claim the maximum tax relief of RM 6,000 on life insurance and EPF, RM 3,000 on medical insurance and RM 2,500 on lifestyle expenses. How much would you pay in income tax in 2018? What is the potential amount of tax savings you could receive?
- Your chargeable income would be reduced to RM 79,500.
- Your estimated income tax payments would be reduced to RM 7,595.
- You would save RM 4,305 in income tax payments.
What can I do now to Reduce my Income Tax Payments?
First, you can consult your tax agent. He will be able to provide specific tax advices which is catered to your needs.
Second, if you do not wish to have a tax agent, then, here are the following links which I find them useful to help you with your tax planning and your budgeting for this year’s Christmas shopping: