Taxes and pension provision: How to optimize your finances before the end of the year

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It’s the beginning of December again and Christmas and New Year are fast approaching. This means December 31st is also an important tax date. The window of opportunity where you can still optimize your pension and tax situation this year is closing. The most important points at a glance:

1. Column 3a – save on taxes

If you haven’t yet paid the maximum amount for the year, it’s worth paying into stage 3 at the end of the year. For employees, this is a maximum of 7,056 francs in 2023. For self-employed people without a second column, this is up to twenty percent of income and a maximum of 35,280 francs.

“If the investment horizon is more than five years, it is advisable to invest part of it in a security-based solution with an equity component,” says Tashi Gumbatshang, head of investment and retirement consultancy at Raiffeisen Switzerland, when asked about cash. Ch. But more importantly, the payment is deducted from taxable income. Saved assets can then be used to cover the retirement gap, buy property, become self-employed or emigrate.

It may also be beneficial to open several 3a accounts or 3a securities solutions. The rule of thumb is based on an upper limit of around 40,000 francs, which ideally should not be exceeded on deposits. Starting from the age of 60, you can spread your benefits over different calendar years and thus save more tax. You can find more tips and tricks for column 3a in the cash article.

2. Retirement fund – determine tax savings and deduction amount

Another optimization option is to control purchases to the retirement fund. There is tax savings here too. The purchase amount is generally deductible from taxable income.

Purchases into the retirement fund can make sense from age 50 onwards. The timing and amount of individual purchases have a huge impact on whether they are financially worthwhile overall. You can find more information about this in the cash article. For example, assuming a marginal tax rate of 25 percent, you could save 2,500 francs in taxes by buying 10,000 francs into your retirement fund.

Some people insured in the Pension Fund also have the opportunity to determine the deduction amount once a year. “As a rule, it makes sense to choose the highest possible contribution rate if possible,” says Andreas Lichtensteiger, pension expert and managing director of VermögensPartner, when asked by Cash.ch. Additional amounts paid are tax-free and can be withdrawn later as a pension or as a lump sum payment.

In the second pillar, it is always important for Raiffeisen’s Gumbatshang to check in advance the financial condition of the pension fund and the potential improvement in performance that may result from the payment.

3. Real estate – optimize with planning

Tax savings are also possible when maintaining the property. “Depending on the initial situation, it may be beneficial to pay the bill for deductible costs in the same year or next year,” says Lichtensteiger. If larger maintenance costs have already occurred in 2023, it may be beneficial to “carry over” larger amounts to the following year. However, if you intend to opt for the flat rate discount in the new year, smaller amounts should still be booked in the old year.

You can choose between a fixed rate (usually 10 percent of the rental value) or a deduction of actual costs. Therefore, investments that are not immediately required can be timed to ensure that the annual amount is below 10 percent of the imputed rental value (i.e. the fixed rate). This means you can deduct more when choosing the lump sum.

4. Donations, church tax, medical expenses or change of residence

Donations are deductible from taxable income if made to local organizations for charitable or public purposes. There are approximately 6,000 such institutions in the canton of Zurich alone. In order for the deduction to be accepted for the 2023 tax year, anyone who wants to donate must do so before the end of the year.

Despite the emerging Christmas spirit, there may also be a desire to leave the church. In many parishes you are not exempt from church tax until the following year.

Illness and accident expenses that are not covered by health insurance may also be included in the tax. These expenses are tax deductible, for example in the cantons of Zurich and Bern, provided they exceed the exemption rate of 5 percent of net income. But this is probably not the rule for many people. However, if you have already had high medical expenses throughout the year, new glasses or planned dental treatment may be beneficial.

Ultimately, the more important thing is that in Switzerland you are generally subject to tax where you are registered on 31 December. Therefore, anyone who plans to change their place of residence should clarify where they will pay less tax. After moving, there is usually a two-week period during which you must register with the new community.

5. Capital withdrawals, debt and bond interest

Those who retire next year will generally have a better tax situation if they pay down some of their retirement assets this year. To calculate payment taxes, capital withdrawals from column two and column 3a are added per tax year. The higher the salary, the higher the tax burden.

Interest paid on consumer loans during the tax year is also deductible from both direct federal tax and cantonal income tax. This regulation clearly includes interest on private loans. This clearly refers to the interest on the debt, not the total amount of money transferred to the creditor. Therefore, only the interest part of the amount can be deducted, not the part transferred to pay the debt.

Investors must also pay taxes on the full annual interest rate of the bond on the maturity date of the interest rate. Therefore, it would probably be beneficial to sell a bond with an interest coupon at the end of 2023, before the interest matures. This means that accrued interest remains tax-free.

Creating a budget also makes sense, according to retirement expert André Tapernoux. The question should be: “How much can I (and want) to save?” be at the forefront. At the same time, unnecessary consumer spending can be reduced. For example, you may not need such an extensive smartphone subscription or multiple fee-based bank accounts. Here, Cash.ch has listed eight essential tips for “managing” your own finances.

6. These mistakes should be avoided

There are also pitfalls and misunderstandings when it comes to tax optimization: Most people don’t think about pension provision and taxes, says Lichtensteiger from VermögensPartner. Many measures, such as making payments to Pillar 3a, cannot be easily taken after the end of the year. While there is the possibility of additional payments at Pillar 3a in the future, this will be possible from 1 January 2025 at the earliest and only for gaps arising from that date.

When making payments to the Pension Fund, you should not wait too long due to public holidays and possible extension of processing times, and allow enough time until the end of the year. “If the deposit does not arrive on time, the purchase amount will be allocated to the next calendar year,” says Raiffeisen’s Gumbatshang. The value date on which the payment is received is usually decisive.

You should avoid getting divorced in the old year: Most cantons require that spouses be taxed separately in the year of divorce. This can sometimes lead to an increase of up to 50 percent of the total tax burden at the end of the year: on the one hand, alimony payments to divorced or separated spouses may be tax-deductible, on the other hand, in the case of divorce, at the end of the year, no or only a few maintenance payments may be tax-deductible for the current tax year. deductible.

As a result, one spouse’s taxable income may be very high while the other spouse’s taxable income may be very low. The progressive tax rate will ultimately lead to a significantly higher tax burden.

Source :Blick