Take these 8 Immediate Actions This Year to Pay Less Income Tax Next Year

Paying taxes is hardly a pleasant experience but here it is again – the tax filing season. If you are like me, I lamented on what I should have done last year which would entitle me for more personal income tax relief.  But what’s done is done, as a Malay proverb goes – “nasi sudah jadi bubur” which literally translates to “rice has turned into porridge already”. If you had thrown away all your receipts, there’s no way you can get them back.  And if you didn’t sign any Housing Sales and Purchase agreement between 10 March 2009 to 31^st December 2010, there is really nothing you can do now to qualify for the RM 10,000 relief on home mortgage loan interest.

The late Steve Jobs once said:

“You can’t connect the dots looking forward; you can only connect them looking backwards”

Under certain circumstances, I disagree. There are certain things that we can anticipate; it all depends on us to lay down the dots now, looking forward so that looking backwards in the future, everything connects the way we want them to.

The critical date for tax planning is 31 Dec, not 30 April.

Here’s my self reminder and practical action plan for the rest of the year so that I don’t get that same “Darn!-I-should-have-done-this” feeling for YA 2012 tax filing season next year. And I would like to share it with you.

#1 Keep your broadband subscription receipts intact

Let’s start with the easiest – your broadband service.

If you are reading this, I bet you are on a broadband plan.

Anyone still on TMNET Dial Up 1515? Seriously…

Subscribing to a broadband service is the easy part; the hard part for most people is keeping your receipts for the next 7 years.

But Just Do It. It’s your money at stake here.

Don’t forget, the broadband account needs to be registered under your name, the taxpayer.

Another point to note is that data service plan for smart phone is also subject to tax relief under this category.

Told you this is easy peasy, yes?

#2 Get some (and more) reading material now

Set a target of RM 83 per month for books and magazines purchase. How about Personal Money to improve your financial literacy? That’s RM 9 (retail price) per month. For books, consider KC Lau’s Top 93 Personal Finance FAQS in Malaysia, and for the more advanced reader, you should consider Millionaire Teacher, the 9 Rules of Wealth You Should Have Learned in School by Andrew Hallam, whom I recently interviewed in a podcast series.

In short, any hardcopy or electronic forms of books, magazines and journals (excluding newspaper) purchased locally or overseas are relievable. Reminder – the onus of proof of purchase lies on you.

Even if you don’t have time to read now, buy something which you would find useful down the road, not only for yourself, but for your kids as well. You can even purchase e-books from site like ebooks.com.

#3 Get an iPad Right Now

No, this is not a sales pitch.

It used to be the conventional desktop or laptop personal computer, but now, iPad is also entitled for this. There’s an argument saying other tablets such as Samsung Galaxy Tab or Kindle Fire is not claimable but here’s some info from a finance blog I followed – Kris from knowthymoney.com. In one blog post, he obtained info from Inland Revenue Board which states only anything with traditional calling or short messaging service hardware capability is not categorized as a computer. As such, any smart phones such as iPhone are out, but any kinds of tablets should be categorized as computers.

But we are all smart and know a workaround for this, aye? – With the help of Voice over IP (VoIP) software such as Skype, we can easily make call or send text messages.

By the way, you cannot claim this for receipts under your spouse name.

#4 Do medical checkup regularly

Set a target to undergo a comprehensive medical checkup twice a year. RM 500 should be more than sufficient to cover this cost.

Incidentally, this is How I Define Wealth, but a fellow personal finance blogger, Champdog from Journey to become Financially Independent, has this alternative equation:

Wealth = Money + Health + Relationship

Money is usually a yardstick on how far you are from financial independence in a time span.  That’s only one third correct. Health and relationship are the integral elements because it affects our overall personal well being. I don’t think there much meaning to life if your family’s broken and you are confined to a wheel chair.

By the way, this is also applicable for your spouse or child.

#5 Exercise more!

This is a paragraph I need to quote directly from financetwitter.com. If you don’t find it amusing, leave a comment below and explain why 🙂

D11 – Purchase of sports equipment for any sports activity, restricted to RM300. Sports equipment includes equipment with short lifespan such as golf balls and even shuttlecocks but excluding sports attire such as swimsuits and sports shoes. You may scream till foam at mouth – how the heck do you expect a person to swim without swimsuits or run without a pair of sports shoe. I supposed the government thought it would be fun if you swim naked or run around barefoot like a chicken (*grin*).

#6 Save extra for your retirement

Keep your eyes open for further details on the newly Securities Commission-approved Private Retirement Scheme (PRS) to supplement your EPF contributions.  If you are risk adverse and are really passive in investing your own money, PRS is offered by the following 8 intermediaries below. The total premiums paid for PRS is eligible for tax relief up to RM 3,000.

• AmInvestment Management Sdn Bhd
• American International Assurance Bhd
• CIMB-Principal Asset Management Bhd
• Hwang Investment Management Bhd
• ING Funds Bhd
• Manulife Unit Trust Bhd
• Public Mutual Bhd
• RHB Investment Management Sdn Bhd.

#7 Extra insurance (Education endowment policy ) premiums for child  or medical insurance

I have a mixed feeling about endowment policy because a real property investment might provide better returns if managed correctly. Therefore, increasing your medical insurance coverage for yourself or your spouse to fill the RM 3,000 quota seems to be a better choice. And do you know that 60 percent of your medical/life insurance policy or riders such as the 36 critical illnesses are claimable under medical insurance premiums tax relief? I recently realized that I, too, have been underutilizing this portion because for most of us, RM 6,000 tax relief for combined EPF and life insurance policy has been maxed out already. I previously blogged on how to do this – Pay less income tax with this one simple tip.

#8 Get additional academic credentials

This is especially important if you are in the education industry. If an additional paper qualification would propel your career advancement, it could be justifiable in terms of cost spent. Any Masters or Doctorate level of any course of study qualifies for up to RM 5,000 tax relief. Apart from that, other skills or courses on technical, vocational, industrial, scientific, ICT, accountancy, Islamic finance and law are also eligible. I do wonder why Certified Financial Planner (CFP) certification is not included though.

How long you need to keep those receipts for tax purposes? IRB requirement is 7 years. The calculation of the 7 year period begins from the end of the year in which the Income Tax Return Form is filed. Effectively, you need to keep it for 9 years. You incurred relief expense in Year 1, submit the Income Tax Return Form by 30 April in Year 2, and then keep the receipts pursuant to tax rules for 7 years.

You can print this out now. You are welcome.

Share this if you find it entertainingly useful.

Interesting points from Personal Money April 2012 issue

Never spend unnecessarily – think of tax deductions as subsidy. Say your personal tax rate is at 26 percent, for everything tax deductable item or service of RM 100, you only pay RM 74.

Failure to submit tax return within the stipulated dateline will result in a penalty of 20 percent of total tax payable.

Property investors with properties registered under their children’s name, who is still a minor (below 21 years old, unmarried), will NOT transfer away the taxable rental income from your total taxable income. IRB can assume the income from property belonging to a minor is the income earned by his or her guardian/parents, because a minor is still dependant on you, by law.

Datelines to know

E-filing, BE form – May 15

E-filing, B form – July 15,

Hard copy filing by post, BE form – May 3

Hard copy filing by post, B form – July 3

Hard copy filing by self submission, BE form – 30 April

Hard copy filing by self submission, B form – 30 June

LCF  blogs about simplified personal finance issues and practical how-to money tips at howtofinancemoney.com