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Self-employed? 6 year-end savings

The new year is upon us and with it comes the opportunity to exercise tax rights and save money. The date of realization of some of the benefits is the end of December and some even the end of November.

Attention! The savings that can be obtained in tax liability are relevant for those who owe tax. Those who are not taxed will not be able to realize these benefits.
We encourage you to examine which benefits are relevant to you and how they can be exercised:

Applying for a work grant (negative income tax)

A work grant is an additional income paid to salaried employees and self-employed persons aged 23 and over who have children or who are 55 years of age or older without children and whose income matches the criteria set by law.

An online application for a work grant for the 2021 tax year can be submitted until December 31, 2022. Online submission involves a one-time registration and identification process by answering identification questions or through post offices until November 30, 2022

Check if you meet the grant conditions using the Tax Authority’s simulator

For more information, visit the guide Work Grant for Employees and Self-Employed for the 2021 Tax Year on the Tax Authority website

Depositing money into pension savings

As of January 2017, self-employed individuals between the ages of 21 and 55 are obligated to deposit money into pension savings. Pension provision is in accordance with the level of income (in annual terms). For the first NIS 5,000, the self-employed will deposit 4.55%, for every shekel between NIS 5,000 and NIS 9,673, the self-employed are obligated to deposit 12.55%. For every shekel above an income of NIS 9,673, there is no obligation to contribute to a pension. A self-employed worker may increase pension insurance contributions up to 16% of his income and enjoy a higher tax benefit.

What to do?

If you did not deposit money into pension savings during the year, arrange the deposit until the end of the year.

Join pension savings (pension fund/managers’ insurance/provident fund) through a pension agent/insurance agent or directly with the company that manages the pension fund/provident fund. Deposit money by standing order or bank transfer. If you have not deposited the amount required of you, you will be notified by the IRS. You can get comparative information on pension insurance performance on the PensionNet website of the Capital Market Authority.

Depositing money into a study fund

A deposit into a study fund for the self-employed in the amount of up to 4.5% of annual income and up to NIS 11,745 per year is recognized as a recognized expense for income tax benefits.

What to do?

Join a continuing education fund if you don’t have one. You can get comparative information on the performance of study funds on the Capital Market Authority’s GamalNet website .

Provident Fund for Investment for the Self-Employed

An investment provident fund is an attractive savings channel for everyone, but for the self-employed it can be a particularly successful savings channel.

A few years ago, a law was passed requiring the self-employed to contribute to pensions. Many self-employed people are afraid to close large sums of money until retirement age, and therefore deposit only the bare minimum. However, it is clear to everyone that in order to continue living with dignity after retirement, it is advisable to save a higher amount at this time than the minimum amount prescribed by law.

An investment provident fund allows the self-employed to combine long-term savings with flexible savings, and thus not put all their eggs in one basket – an investment provident fund allows them maximum liquidity on the one hand and tax benefits on the other.

Social Security

52% of National Insurance contributions are recognized as a tax deduction, so if, according to the profit and loss statement, there is a need to increase National Insurance contributions, it is worthwhile to increase before the tax years and pay the National Insurance contributions.

A self-employed worker who pays National Insurance contributions through a standing order at the bank will be able to credit the payment for December 2021 (to be actually paid in January 2022) as a deduction in 2021, and thus be able to reduce the amount of tax payable in 2021, even though in practice the payment will be transferred to the National Insurance Institute only in January 2022.

What to do?

Download the forms from the National Insurance website, fill them out and submit them at your bank branch.

Tax credit for donations

Anyone who donated a cumulative sum of NIS 190 or more to a non-profit organization in 2021 is entitled to an income tax credit for that year, in the amount of 35% of the total donation.
The benefit will be given only if you donated to an entity holding a certificate under section 46 of the Income Tax Ordinance, such as Paamonim.

Donate to the Paamonim

Learn more about how to apply for a donation tax credit

Note: The above information does not constitute a substitute for professional and legal advice and the aforesaid should not be relied upon without consulting with a tax advisor, accountant, lawyer, who deals with the field before taking any action or making any decision. This is true only at the time of writing, and their correctness may change from time to time.

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