Income tax tips

Pension contributions

Saving for the future while cutting your tax bill? That’s exactly what pension contributions allow you to do. If you contribute to a personal pension plan or PRSA, you can reduce your taxable income—especially beneficial for those taxed at the higher 40% rate. For example, a business owner earning €50,000 who contributes €5,000 to a pension can save €2,000 in tax.

For incorporated businesses, pensions offer an additional advantage. Employer contributions made directly by a company are deductible against trading profits, taxed at the lower 12.5% corporation tax rate. This makes pensions an effective strategy for both personal retirement planning and business tax efficiency. If you’re not sure how much to contribute, consider adjusting based on your business’s annual performance. A higher contribution in a profitable year can help offset tax, while lower contributions in leaner years keep cash flow flexible. Planning with an accountant ensures your pension contributions align with both your financial goals and tax strategy.

Claiming tax relief on health expenses

Healthcare costs can add up quickly, but many business owners forget that certain expenses qualify for tax relief. You can claim a 20% tax refund on unreimbursed medical costs, including GP visits, prescriptions, and hospital stays. For those dealing with nursing home expenses—whether for themselves or a family member—there’s even better news. These costs qualify for relief at the higher 40% tax rate, offering significant savings. For example, if you pay €10,000 in nursing home fees, you could get up to €4,000 back in tax relief.

To ensure you don’t miss out, keep all medical receipts and invoices on file and claim your relief when filing your tax return.

Capital allowances: a smart way to invest

If you’re investing in business equipment, machinery, or office renovations, capital allowances can help reduce your taxable profits. The cost of equipment like computers or company vehicles can be deducted over time, providing ongoing tax relief.

For those prioritising energy efficiency, there’s an extra incentive. Businesses can claim 100% of the cost of qualifying energy-efficient equipment in the first year. Similarly, if your business invests in improving workplace safety—such as installing ergonomic office furniture or upgrading ventilation systems—special allowances may apply.

For companies looking at long-term sustainability, the government also offers accelerated capital allowances for certain environmentally friendly investments. Working with an accountant can help identify which capital allowances apply to your business and how to structure investments for maximum benefit.

Employing family members

Hiring family members to work in the family business can be a legitimate way to reduce taxable income while keeping wealth within the family. If a spouse or child works in your business, you can pay them a reasonable salary, which is deductible as a business expense.

The key is ensuring that the pay matches the work performed—Revenue requires that wages be at market rates and for actual duties completed. Not only does this help lower your tax bill, but it also provides financial support to your family members in a tax-efficient way.

Should you incorporate?

For businesses that are growing, transitioning to a company structure can offer significant tax advantages. While sole traders are taxed at personal rates of up to 52%, profits retained within a company are taxed at just 12.5%. If your business generates more profit than you need for personal expenses, keeping surplus income within the company can result in substantial tax savings. Funds can be reinvested in the business, used for pension contributions, or drawn down later in a more tax-efficient manner.

However, incorporation isn’t for everyone. It comes with additional legal and accounting requirements, so careful planning and professional advice are essential before making the switch.

Gift and inheritance tax: passing on wealth tax-efficiently

If you plan to transfer assets to family members, understanding inheritance and gift tax thresholds is crucial.

• Group Thresholds: Parents can pass on up to €400,000 to each child tax-free. Gifts to other relatives have lower thresholds, so structuring transfers carefully helps minimise tax liability.

• Small Gift Exemption: You can give up to €3,000 per year to any individual tax-free. Over time, this allows significant wealth to be passed on without eroding inheritance thresholds. For example, a business owner with three children and three grandchildren could transfer €36,000 per year tax-free.

• Business Relief: If passing on a business, qualifying assets may be eligible for a 90% reduction in taxable value, significantly lowering inheritance tax. For assets to qualify they must have been business assets of the individual gifting the asset for 5 years immediately prior to the date of gift, reduced to 2 years on the inheritance of qualifying assets.

Final thoughts

Good tax planning starts with solid record-keeping and an understanding of available reliefs. Whether it’s pension contributions, capital allowances, or structuring your business efficiently, taking advantage of these opportunities can make a big difference in your bottom line.

By working with a tax advisor and planning ahead, you can reduce your tax burden while securing long-term financial stability for yourself, your business, and your family.