Business
Final warning: Cut your 2025 tax bill before February ends
As February creeps closer, many South Africans are thinking about school fees, debit orders, and month-end survival. But there is another deadline quietly approaching that could make a real difference to your finances. The tax year closes at the end of February 2025, and financial advisers say this is not a date to ignore.
According to Alexforbes, the final stretch before year-end offers a rare window to make decisions that reduce your tax bill now while building wealth for the future. Sinawo Makalima, a financial adviser at the firm, has warned that time is running out for those who want to legally pay less tax this year.
In a country where every rand counts and social media is filled with debates about tax burdens and service delivery, the idea of reducing your taxable income lawfully is understandably appealing. The key, he says, lies in using the tools already available.
The simplest starting point: tax-free savings accounts
If there is one product that keeps coming up in personal finance conversations, it is the tax-free savings account.
A Tax-Free Savings Account allows you to invest money without paying tax on the growth. That means no capital gains tax, no dividend tax, and no tax on interest earned within the account. Over time, that tax-free compounding can significantly boost your final returns.
You do not need a high salary to get started. Many providers allow contributions from as little as R250 per month. The annual contribution limit is R36,000 per tax year. Staying within that cap is crucial, as exceeding it triggers penalties.
Timing matters. If you contribute the full R36,000 before the end of February, you can contribute another R36,000 as soon as the new tax year begins in March. In effect, you could move R72,000 into tax-free growth within a short space of time.
That is a powerful move, especially for younger investors who still have decades for their money to grow.
There is also flexibility. Unlike retirement products, you can withdraw funds from a Tax Free Savings Account if you need to. However, there is a catch. Any amount you withdraw cannot be replaced later. The contribution room is lost permanently. So while it can help in emergencies, it works best when left untouched.
The heavy hitter: retirement annuities
While tax-free savings accounts focus on long-term growth without tax on returns, retirement annuities offer an immediate benefit.
Contributions to a retirement annuity reduce your taxable income for the current year. You can contribute up to 27.5 percent of your taxable income, capped at R350,000 per year. Whatever you contribute reduces your taxable income by that amount.
For example, someone earning R250,000 a year who contributes R1,800 per month, or R21,600 annually, would lower their taxable income by that R21,600. The estimated tax saving in that case is about R4,920.
In simple terms, you are investing for retirement while the tax savings effectively soften the cost.
Growth within a retirement annuity is also tax-free. But unlike a tax-free savings account, access is restricted. Funds are preserved until retirement, and investments must comply with Regulation 28 limits, which are designed to encourage diversification and reduce risk. That means less flexibility but also built-in protection.
Which one should you choose
The answer depends on your goals.
If your main objective is to reduce your tax bill immediately and you are focused on long-term retirement planning, a retirement annuity is a strong option.
If you value flexibility and want tax-free growth that can also support other goals, a tax-free savings account makes sense.
Ideally, advisers suggest using both. For those on tight budgets or just starting out, beginning with a tax-free savings account can be practical. As income grows, adding a retirement annuity can improve overall tax efficiency.
Why the February deadline matters
The end of the tax year is more than just an administrative cutoff. Once the clock strikes midnight on the final day of February, the opportunity to reduce your 2025 taxable income closes with it.
In a climate where South Africans often feel stretched by rising costs and economic pressure, missing a legitimate chance to lower your tax bill can feel like leaving money on the table.
The message from financial advisers is clear. Whether you are topping up your tax-free savings account or making a final retirement annuity contribution, acting before the deadline could have lasting benefits for both your tax position and your long-term wealth.
Sometimes the smartest financial move is not about earning more but about using the system wisely. And with only weeks to go, this may be your final warning to do exactly that.
Follow Joburg ETC on Facebook, Twitter, TikT
For more News in Johannesburg, visit joburgetc.com
Source: Business Tech
Featured Image: Moneyweb
