Any tips to reduce my tax via expenses?

ScouseMouse

John buys a building freehold and for the first year is paying interest only. John forms a company with his wife. The company rents the building from John. The rent is the same amount as John is paying for the mortgage - interest only. So in theory John is making no profit from the rental agreement.

Johns tax free allowance has been cut as he is classed as a self employed company director and has just got a form from revenue for self assessment. Jeffs wife is still PAYE as she works in her own job and has nothing to do with the business except being listed as a director.

I there anything John can write off as tax that he claim for. At the moment, he is aware of the 1.10 per mile allowance for personal car use as the company has no van and the lunch allowance if away on company business for so many hours.

Thanks in advance.

John

MortgageBroker

i suggest john gets an accountant and talks to a professional about how everything is set up and what the most tax efficient way to deal with it is.

AccessQuery

Hi,
On the rental front there are a number of expenses you can offset against tax arising from the building rental.

Insurance on buildings (100%)
Your Life Assurance cover on the mortgage (100%)
All maintenance and repair costs (100%)
Depreciation on any the contents owned by you (not the company) @ 12.5% per annum over 8 years on items such as air con if installed, carpets etc. Using the "straight line method".
Painting and decorating (100%)
Window cleaning (100%)
General cleaning (100%)
I've come across people offsetting mileage incurred due to inspection visits. This is a very grey area. I've never had revenue confirmation. But on the flip side they've never said it's not legit, apply this one only after speaking with your accountant. As your business uses the building I don't think it will wash anyway!
Bank charges/interest on bank account that receives rent (100%).
Professional fees i.e accountant, legal, architect etc (100%)
Un-invoiced expenditure (100%) as long as it's a small sum i.e I'd suggest not much above €1500 per annum.

I also believe that you can't off set rental losses against your PAYE income so I'd suggest that the rental income covers as much of the above expenses as possible.

If the rental income and in turn the tax bill is quite substantial I'd suggest you have a look at a Section (23 or 50) property purchase. But, before any section purchase make sure you do the maths as tax savings achieved could be lost in the purchase price. The other option would be to buy a regular property with a high mortgage leveraged against the office property. This would have the same net effect as a section purchase as you'd offset tax on this also.

You should also review asap how you and your wife are assessed by the revenue. Have a look at www.Revenue.ie

Before you do anything further I'd strongly recommend you have a chat with your accountant.

Jessica84

MortgageBroker wrote: »

i suggest john gets an accountant and talks to a professional about how everything is set up and what the most tax efficient way to deal with it is.

Ditto! A company needs a professional accountant to deal with such kind of complicated tax situation.

ScouseMouse

John is looking for more advice as the accountant has already put him wrong once. John was looking at renting out surplus space and was told he would have to pay 40% tax as it was rental income. Section 23 was mentioned but John nearly choked as he has only just mortgaged his house and the building to get this far. Another purchase would be to much at the moment.

So he figured if he lowered the shop rent from the company so that the combined rents only came to the amount of interest repayment, then he has no profit. No profit = no tax.

e.g.

Rent from company = 5000
Second rental income = 1000

total 6000

Interest only repayments 6000, so not profit or tax.

As John and his wife are directors of the company renting from John, it just means that the money is staying in the business.

Bandara

At the risk of being smart, John needs to get rid of his incompetent accountant and get an properly qualified one asap.

Asking for information as detailed and specific as this on a internet message board is quite scary, do you actually intend on plannign your next step based on statements made by people here that you have never met and have no idea of their expertise?

Seriously mate, a €300 consultation with a specialist will be the best money you ever spend.

ScouseMouse

Hammertime wrote: »

At the risk of being smart, John needs to get rid of his incompetent accountant and get an properly qualified one asap.

Asking for information as detailed and specific as this on a internet message board is quite scary, do you actually intend on plannign your next step based on statements made by people here that you have never met and have no idea of their expertise?

Seriously mate, a €300 consultation with a specialist will be the best money you ever spend.

The accountant is question has handed Johns file to another partner after this issue was brought up. He now has another accountant, but as the original subject heading say, he is looking for TIPS. People like yourself would have a wealth of experince in these matters, and a chance to pick your brains would be very valuable. If you have a Spar, its possible John may know you.

MortgageBroker

if john is on the higher rate of tax in his regular income then rental income (case 5 income) is added to your paye and taxed at the appropriate rate - in this case it would be 41% + PRSI.

btw: ask your accountant if the rent was 'lowered' can you be taxed on value as opposed to what you actually get? i know that if you rent a house to a relative for well below market rent that it can be an issue for the same reason.

and then take all of this info and spend the €300 hammertime talked about.

the idea of a section 23 means you would pay 0% tax on rent until you use up the s23 allowance of whatever you may purchase, and it only goes on profit not on interest so it would in fact be the best route and you can get them in longford for next to nothing now. if you were able to raise the funds you could probably get one with a sitting tennant who is meeting the interest only payments then jack up the rent on the shop and the proceeds are rent free, granted you had to buy a tax break and the second property will probably fall in value in the short term but it beats giving it to revenue or not taking it out at all and getting hit with corporation tax.

you need professional advice, in fact spend €300 twice and get two seperate opinions. its worth every penny to get two opinions