Lowering your taxes at the last minute: what solutions?
Overtime, accumulation of activities, decreasing number of dependents, increased financial assets making you liable for wealth tax, or other novelties are all reasons that increase annual income, reduce deductible expenses, and by therefore increase income tax. During the simulation, it’s a cold shower: the tax to pay is enormous! So how do you lower your taxes at the last minute? Here are our solutions.
How to get tax relief at the last minute?
If you are one of the 44% of tax households that must pay their income tax each year, then the search for any means to lower it concerns you. However, it should be clear: the last minute will be relative. No action allows immediate consideration in the calculation of income tax. The tax return is completed in the spring on the income received the previous year. Here are the 4 quick solutions that allow you to be able to tax part of your income at the very end of the year.
Donations to associations or foundations
When you want, and without depriving yourself of it, donating to an association is above all a very good action. To encourage donations, the State returns part of it by reducing income tax, up to 66% of the amount paid, within the limit of 20% of taxable income. The donation must be made to a philanthropic (ethical), educational, scientific, social, humanitarian, sporting, family or cultural association. To allow the tax reduction, the association in question must be recognized as being of public utility, pursue a non-profit goal, present a disinterested management, have a social object, and not exist for the sole benefit of a restricted group of people. ‘people.
In the case of an emergency tax exemption, it will be better to make a donation to associations helping the most deprived. The best known are: Restos du Coeur, Red Cross, Doctors Without Borders, Emmaus and Action against Hunger. Thus, the tax exemption will be increased to 75% of the sums paid. This amount will however be limited to €553, which has been increased to €1,000 over these two years of health crisis. Thus, by donating €1000 to associations helping people in need, €750 will be deducted from income tax. Please note that a tax reduction does not give any right to a refund of the amount if it were to exceed the amount of tax due.
Subscribe to a Retirement Savings Plan (PER)
The PER is the new retirement savings product accessible to all, which replaces several predecessors, such as the PERP, the Perco, the Madelin contract, article 83, etc. Much more flexible and advantageous, each payment made on a PER is deductible not from tax, but from the taxable income which will allow the calculation, within the limit of 10% of the annual net salary. Note an important advantage that PER allows: the tax reduction is not subject to the cap on tax loopholes at €10,000 per year and per tax household. This is why it is one of the best tax exemption products, if the savings invested can remain there for the duration of the contract.
We agree, at the last minute, it is difficult to bet everything on a payment. However, taxation is applied by tax bracket, on a progressive scale. Sometimes, it doesn’t take much to avoid exceeding a tax threshold. Opening a PER can be done extremely quickly with a financial institution, and the first payments can be made as soon as it is opened.
Invest in FCPI or FIP
Investing capital in Mutual Funds for Innovation, or in Local Investment Funds, both grouped together under the term “tax funds”, is a purely tax-exempt approach. This is the first and clearly stated objective. The principle is simple, by investing capital in SMEs (Small and Medium Enterprises), the investor supports innovation, and the State rewards this action with the right to a reduction of 18% of the investment on the income tax. This percentage was increased to 25% on the 2021 income statement, to satisfy the economic recovery.
Be careful however, this type of investment is reflected since it induces the blocking of capital for at least 5 years. Tax exemption, therefore the desire to reduce your monthly tax deduction now at source, should not impact the budget too hard and thus make the end of the month untenable. Makes sense, but it’s a good balance to strike.
Take out life insurance
All sums paid into a life insurance contract are exempt from taxable income. Also, to reduce tax at the last minute, it is possible to take out a contract with an insurer, even if it means placing the payments on euro funds immediately, which are not very remunerative but tax-free. Unit-linked investments require close attention to the financial markets to invest in high-performance funds to limit the risk of capital loss.
However, if life insurance allows withdrawals at any time, its subscription implies a long-term investment. A need for urgent tax relief will therefore not be fully satisfied by life insurance.
Thinking about anticipating tax variations
Last-minute tax exemption is not so obvious. Most of the processes to reduce your annual income tax must be anticipated, and generally induce a financial investment, which will then be done in installments. The idea of carrying out energy renovation work in a hurry, of investing in real estate through the Pinel system, or even in the old building to be renovated, is therefore gone. To avoid investing your money hastily, without much thought, sometimes putting yourself in difficulty to tax, which ultimately no longer makes sense, it is better to bet on anticipation.
When we know that a tax increase is foreseeable, or, conversely, that annual income will certainly decrease due to retirement, end of contract, layoff, long sick leave duration, or other, it is better to plan and invest intelligently throughout the year. Here are some tips to consider:
- Increase your withholding tax rate: If you know that the income received will inevitably increase the tax the following year, it is possible to modulate your withholding tax rate to anticipate the increase. At best, the overpayment will be returned. At worst, the tax due the following year will be reduced;
- Dedicate capital to donations: Dedicating, or even automating, a monthly payment to charities allows you to spread smaller payments over the year, and benefit from up to 75% tax reduction, in return. Paying €40 per month to associations or foundations makes it possible to deduct €360 from annual taxable income;
- Committing to an investment allowing a permanent tax exemption: By anticipating, it will be possible to invest in the stock market or to invest in the stone, and this by taking the time and the advice of experts to make an investment promising a good added value and profitability.
At any time in the year, it is possible to carry out tax simulations by integrating wage and property income, by deducting tax exemption products. Applications make it possible to estimate the right to tax exemption, according to the boxes completed on your declaration.