Rain or shine, bull market or bear market, COVID or no-COVID, it’s that time of the year again. Individual tax season has arrived for Hong Kong residents. The last date to file your taxes is June 3 2021. As is the case almost every year, from now until the tax filing deadline, you know what needs to be done, but are loath to actually do it. However, the feeling of procrastination that kicks in now could end up causing anxiety as you rush to complete your tax filings. A few steps of preparation will help lessen your pressure that last-minute rush would cause.
Tip 1: Organize, Organize, Organize.
Instead of flipping through documents in a rush, you should first identify the relevant items that need reporting and collect all the numbers in one go. Many taxpayers overlook the importance of organizing the items before filling in the forms – either in paper or online. It avoids the trouble of looking for the missing items or numbers at the very last moment before the deadline. Once you have a complete set of information on hand, completing your tax return is then a matter of filling in data.
Tax-planning software can help, and are often useful and available for free online. From a practical standpoint, something as simple as an Excel spreadsheet will do. For many people, the relevant boxes like employment income, pension income, rental income from sole-owned properties, won’t drastically vary from one year to another. Even better, setting up a tax planner template can buy you some relief in the upcoming tax seasons. Every year, you can simply populate it with the updated tax data before filling up the forms and make it your quick checklist.
Tip 2: Claim Your Tax Allowances
Moving on from the basic items like children and education allowances, we next look at the specific tax claims that involve voluntary subscription to health insurance, deferred annuity policy as well as an additional contribution to the MPF program in the fiscal year between April 2020 and March 2021. The list of items is new to many as tax-deductible incentives that encourage early retirement planning are present only from the preceding fiscal year. As the deductibles can end up being sizable, with tax benefits covering individuals and dependents, you won’t want to overlook these items.
First, if you want to deduct eligible accounts on your tax return, you’ll need to report all the specific tax allowance claims in the regular filing forms. Second, although the Inland Revenue Department (IRD) will not ask for document attachments to support the claims when you claim the item, it is recommended to stash away all the black-and-white evidence for verification. You should keep them for at least six years. Evidence can be the premium payment receipt for those under the voluntary annuity scheme, payment for health insurance policy, and the contribution summary issued by the MPF trustee. Therefore, as you are preparing the numbers, you may want to round up the documents in an organized manner to facilitate future references.
One point to note is that your deadline for contributing to the above programs in Hong Kong is not the same as your tax-filing deadline. The deadline for tax return, or the end of fiscal year, is June 3, 2021. To be eligible, the payment date has to fall within the reporting fiscal year, before March 31, 2021. That means, for example, if you have settled with an additional contribution plan with any MPF trustee this month (before the tax return form deadline), it will only be counted as a deductible item for the 2021/22 fiscal year.
Tip 3: Calculate Your Payment as well as Next Years’ Benefits
After a thorough check, you can mail or upload the tax forms to the IRD. A key next step that follows is to estimate the tax liability you may face and save up a reasonable amount for the payment. Do not forget, on top of the taxation responsibility of the last fiscal year, there is the provisional tax, which equates to 100% of the tax payment. You won’t enjoy the bad surprise of being a few thousand short of the lump sum after months of excessive spending. The pitfall can be remedied by saving up some provisions on the side month by month, before the actual pay date.
Meanwhile, as the round of tax filing is completed, you have full information on hand that tells you your taxation status. You have a clearer idea whether there are attractive tax-saving incentives you missed or weren’t eligible previously. For instance, if you have recently moved into a new home, you may check with your employee if your company sponsors the rental reimbursement program for a new rental lease. Looking further ahead, it is also a great moment to start budgeting the tax-saving annuity, insurance, and pension incentives in the upcoming fiscal year that could be a way to accelerate your retirement savings.
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