Ways to Reduce your Income Tax

It is possible to pay less income tax, a fact that many of us fail to take advantage of while complaining about the lack of enough funds to save, to invest and achieve financial security.

You can cut down the amount of income tax you pay by taking advantage of the tax laws.

# 1 Life Insurance and Education policies

Investing in a life insurance policy for nine or more years maturity can further reduce income tax as this qualifies you for income tax relief on the premiums paid. You can get relief amounting to $ 670 a year, or 15 % of the premiums, whichever is lower.

# 2 Pension Plans

Most employers will only contribute the mandatory minimum amount of 5 % towards employee retirement schemes.

If you are employed and your employer has a registered retirement benefit scheme which is a pension scheme, you will notice that on your pay-slip, your contribution is deducted from your gross pay before income tax is calculated.

Putting away more than the minimum means killing two birds with one stone: you save money for a comfortable retirement and earn more interest on it.

Tax laws allow a maximum of $ 225 or 30 % of gross pay to be deducted from gross salary before tax is calculated. It is important to be putting away money in a registered personal pension plan.

# 3 Mortgages

Mortgages, which many people have a morbid fear of, are another income tax reduction opportunity. If you are paying mortgage interest to a registered mortgage provider, you can claim tax relief of up to $ 1700 per year.

You only need to acquire a certificate of interest paid that is issued by the mortgage provider after filling in the required information in the income tax return form.

# 4 Home ownership savings schemes

Saving in registered home ownership savings schemes are aimed at encouraging home ownership by giving tax incentives to individuals saving to buy a house.

Any money that is deposited into such a scheme, up to a maximum of $ 45 per month, is deducted from gross income before tax is calculated which means lower income tax. Couples can also pool resources and put Ksh $ 90 or $ 45 each into such an account.

# 5 Tax advantage

The other advantage is that the money accumulated in such a scheme earns tax-free interest.

Note: You are allowed to operate a home ownership scheme for a maximum of 10 years and the funds must be used to acquire a home. If the money is used for another purposes, the tax advantage is lost as taxes are charged on it.

# 4 and 5 are offered by insurance companies, mortgage companies and fund managers. Housing Finance, for example offers First Hop. These are different from house development funds which may be for a second home or commercial buildings.

So while taxes are certain in life, you can certainly kill some of them and finish with that dream house, comfortable retirement, life or education fund.

Reference:
Kirago, Manyara. “Cutting your Tax Burden“. 2010

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