Filling in tax returns can be frustrating and painful, but it’s one of those unavoidable aspects of sound financial management. We’re all required by law to pay tax on our incomes each year, and trying to avoid paying tax is a serious crime.

However, if you understand your tax obligations properly, you can structure your finances so that you are legally entitled to pay less tax. It always makes sense to pay what’s required and no more.
 

Paying tax as a permanent employee

If you’re employed full-time or part-time in a permanent job, you typically pay tax on the ‘pay as you earn’ system, called PAYE. Every time your salary is paid, your employer deducts PAYE and pays it to the South African Revenue Service (SARS). This makes your life simpler in many ways, because your employer pays your tax in monthly instalments deducted from your salary – you don’t have to worry about saving a portion of your income to pay provisional tax twice a year.

However, this does mean that the same amount of tax is paid every month – a percentage of your salary, based on your tax bracket, without subtracting deductible expenses. That’s why, if you pay PAYE, it’s essential that you file an accurate tax return every year to claim a rebate on any tax deductions that you’re entitled to. You can do this yourself online, or you can hire a professional tax consultant to help you identify all the deductible expenses you can claim.
 

Paying tax as a freelancer

If you’re a self-employed freelancer or contractor, you will need to register as a provisional taxpayer so that you can pay provisional tax twice a year – at the end of August and February. Because you don’t have an employer paying your tax to SARS every month, you need to know which tax bracket you’re in, so that you can save that percentage of your income to meet your tax bill every 6 months. Make sure that you do, to avoid having to scramble for money and perhaps go into debt when the time comes to pay SARS.

One benefit of being a provisional taxpayer is that your return is calculated with your deductions included, so you don’t have to wait for a rebate – you pay SARS only what you owe to begin with. However, this makes it even more important that you understand tax law clearly and declare all income and deductions correctly. Otherwise, you might find yourself owing SARS more than you have calculated, so we strongly advise getting professional help.
 

Legal ways to reduce your tax bill

You pay personal income tax according to the amount you earn. If you earn below a minimum threshold, you will not be taxed. In 2023, for the tax year ending in February 2024, SARS set this threshold at R95,750 per year for taxpayers under the age of 65, at R148,217 for those aged 65 to 74, and at R165,689 for those aged 75 or older.

If you earn more than the minimum threshold, your income will be taxed at 18% – if you’re under 65, this rate applies until your income reaches R237,101 a year. Then any taxable income you earn over R237,101 is taxed at a rate of 26% – the increased rate applies only to the income above the threshold and the rest is still taxed at 18%.

This process continues through a total of 7 different tax brackets, which you can find in full on the SARS site. If you earn more than R1,817,001 a year, you’ll be in the top tax bracket, paying R644,489 plus 45% of taxable income above R1,817,000 in tax.

SARS revises the tax thresholds and brackets every year, so be sure to check every March. Once you know which tax bracket you fall into, you may even be able to move yourself into a lower bracket by making the right tax-deductible investments, putting some money back in your pocket. Here are some suggestions to help you make sure you’re not paying more tax than you’re required to
 

1. Keep a record of deductible expenses

Get an expert to advise you about what can be claimed as a deduction on your income tax – allowable deductions will vary according to your job and personal circumstances, and they are deducted from your income before tax is calculated. It’s important to track deductible expenses and keep receipts, so you can prove that you made these payments if SARS requires you to.

If you’re a freelancer, keep separate records for business and personal expenses. If you’re a full-time employee, keep receipts of deductible expenses such as business entertaining, fuel for commuting, and costs of business or educational courses, etc. For efficient safekeeping, it helps to digitise your receipts or use an accounting program that can catalogue them neatly from the beginning.
 

2. Explore tax-efficient investment options

Tax-efficient investments allow a certain portion of the investment to be tax deductible, so they can help you pay less tax and perhaps even move into a lower bracket. If you’re paying towards a retirement annuity, maximise your tax-deductible contributions before the end of the tax year. A maximum of 27.5% of your taxable income (but no more than R350,000) is tax-deductible for investments in a tax year.
 

3. Know which deductions you can claim

If you work from home or rented premises, whether you work remotely on a salary or as a freelancer, there are certain business expenses you can claim. These deductions don’t apply if you work on company premises, although it’s important that your home office is used solely for work. If you switched from commuting to an office to remote work and you haven’t updated your claimed deductions according to your #WFH status, you should do so on your next tax return.

4. Donate to charity

Legally, you qualify for a tax deduction on up to 10% of your taxable income if it’s donated to charity. You can always donate as much to charity as you like, of course, but a maximum 10% of your income can be deducted as ‘charitable contributions’. It’s still a good strategy – giving to charity will not only lower your tax bill, but it also allows you to contribute directly to those in need in your community.

Make sure that the organisation you donate to is registered in terms of Section 18A of the Income Tax Act, and that it issues a certificate for your donation that you can submit to SARS with your tax return.

5. Keep track of your travel costs

If you use your private vehicle for work purposes, keep a logbook so you can claim a deduction in relation to kilometres travelled for business. Note the date of travel, the kilometres travelled and business travel details (where you went and the reason for the trip). Start recording your kilometres at the beginning of March, the first day of the tax year, and keep the log for the whole year. In addition, make sure you keep all receipts as proof of your travel in case SARS requires them.

How to file your tax return

Be sure to file your tax return on time every year. You can file your own return electronically through SARS eFiling. You simply need to register online and send through the required information at the end of the tax year, which runs from 1 March to the end of the following February. However, self-filing can be difficult and confusing if you aren’t sure what counts as taxable income or what deductions you’re allowed.

Digital technology has made this easier in recent years – when eFiling, tax returns can be prepopulated with third-party data. Your main task is then to check that you’re satisfied all your deductions and rebates have been accounted for correctly – and query anything you believe is incorrect before the cut-off date, when your return is finalised.

Getting professional tax advice may cost a fee, but it can help you make sure your tax return is filed smoothly and accepted by SARS without any problems, and that you receive any deductions or rebates that you’re entitled to. If your professional adviser helps you save more in tax than the cost of their fee, using one is certainly a better money choice.