The year 2022 is coming to an end, and this is the time for each of the 600,000 self-employed in the State of Israel to check if they have taken advantage of the significant and unique tax benefits that the state grants them for deposits to pension savings and a continuing education fund.
The tax benefits are granted by the state and are a kind of "guaranteed return".
The total value of the tax benefits for the self-employed on the deposits in the pension savings and the training fund can reach a "guaranteed return" of tens of percent, and there are only a few days left. You should not miss this tremendous window of opportunity.
In order to receive tax benefits, a self-employed person may deposit into pension savings (such as a provident fund for savings, a pension fund, etc.) up to 16.5% of his annual taxable income up to an income ceiling of NIS 213,600 = NIS 35,244.
For example, a self-employed person whose taxable income is NIS 200,000 and who deposits about NIS 33,000 will receive tax benefits worth about NIS 15,000, that is, a "guaranteed return" of 44%.
The training fund in the head
A training fund is the most favorite savings product of the self-employed, and this is because of the liquidity of the funds and the significant tax benefits that accompany it.
For the purpose of receiving tax benefits, a self-employed person may deposit 4.5% of annual income from a business or profession up to an income of NIS 270,000 (= up to NIS 12,150).
For example, a self-employed person whose taxable income is NIS 200,000 and who deposits NIS 9 will receive tax benefits worth about NIS 4.4, that is, a "guaranteed return" of 49%!
Despite the above, most self-employed people tend to deposit a higher amount of about NIS 19,000, and why?
Because the training fund is the only product where you can save and enjoy an exemption from capital gains tax at the rate of 25% on the real profit.
The exemption is limited to a deposit amount of NIS 18,960, as of this year.
This exemption is unique and its value can reach tens of thousands of shekels over many years.
Bottom line, quite a few self-employed people avoid saving in education and pension savings funds, due to a lack of awareness and/or a desire to increase cash flow in the short term.
This is a huge mistake because the loss is big and threefold - loss of immediate tax benefits in the form of a "guaranteed return" of up to tens of percent, under-savings and under-insurance which may lead to enormous financial difficulties in the future.
Consult the insurance agent to deposit into the various savings, in order to neutralize the triple loss and turn it into a triple profit.
The writer is a VP at Quality Insurance and Finance, and a member of the Finance Committee at the Chamber of Insurance Agents
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