Reducing your taxes: the 6 best solutions for tax exemption!
Taxation is one of the major expenditure items on the French budget. Faced with a cost of living that continues to rise, in relation to income that unfortunately does not keep up with inflation, many taxpayers try to combine a financial approach with a tax process to hope to reduce their taxes. Here is an overview of the best tax exemption solutions.
Reduce your taxes: Yes, but which ones?
Taxes and duties enhance the taxation of taxpayers, some mandatory, others depending on the situation. They are part of the list of so-called “constrained” monthly expenses, in other words expenses that cannot be exempted (rent, credit, insurance, transport, etc.) which represent more than 30% of the household budget.
It is obviously the income tax (IR) that first comes to mind, and it is indeed he who will be able to benefit from the tax exemption procedures. It alone accounts for 25% of net government revenue, just behind consumption tax. The funds paid are allocated to the national budgets for education and research, defense and national security, and finally regional development.
Other taxes and duties are added to the annual expenses. We will retain the local taxes which are the property tax (TF) levied on property owners on built or unbuilt properties, the housing tax (TH) gradually abolished for all French people, but maintained however on second homes , the household waste collection tax (TEOM) which is linked to the property tax but assumed by the usufructuary of the accommodation. These taxes are not tax exempt. However, some taxpayers may be exempt, in particular on conditions of age, situation or resources.
Finally, we will mention two taxes related to property, which are first of all the real estate wealth tax (IFI), which has replaced the ISF. It only applies to real estate assets, to real estate assets estimated at more than 1.3 million euros. In return, he is no longer eligible for the tax exemption offered by the ISF. Finally, the denier, the tax on capital gains on movable and immovable property in the event of the sale of real estate, the total price of which exceeds €15,000 and which is not the principal residence of the seller. This is also not tax exempt.
Reduce your taxes: Take advantage of tax exemption plans
In general, the best way to reduce your taxes will be to enroll in one of the many existing tax exemption procedures. These devices are of course legal, and put in place with the aim of encouraging investment and financing the economy. It may then be a question of benefiting from a tax deduction, or even a tax reduction, or even a tax credit.
- Tax deduction: This is an amount that is deducted from income, before the amount of tax is calculated. It directly impacts the annual taxable income. These include, for example, alimony paid for children in the event of separation of parents, or mileage costs related to the use of the personal vehicle for home-work journeys if they are greater than the flat-rate allowance for common law of 10% for professional expenses from which all taxpayers benefit;
- The tax reduction: Unlike the deduction, it is subtracted from the amount of the calculated tax. This is for example the case of donations to associations. It only applies if a tax is due, and in no case gives the right to recover the amount. As the result is largely similar, these first two notions are often confused, and it is their addition that leads to the net tax;
- The tax credit: Different from the first two, the tax credit is an amount due by the State, reimbursed at the time of the annual declaration. This is the case for energy renovation work or childcare costs. Also, it will either lower the amount of tax due if the latter is greater than the amount of the tax credit, or be paid back to the taxpayer in the case of non-taxation or overtaxation.
Tax exemption procedures
There are many tax exemption procedures, but let’s take a look here at the 6 most advantageous systems in terms of taxation.
1 – Save for the long term
The objective is to encourage savings to finance the economy, and in particular government bonds. This is probably the best way to tax your income today. Savings, whether it is life insurance or a retirement savings plan, today offers multiple advantages. Apart from the fact of constituting an available capital to concretize its projects, it makes it possible to make payments exempt from tax at the entrance, to take advantage of the facilitation in the transmission of the inheritance by possibilities of designating beneficiaries and thus escape , in part, to inheritance tax.
2 – Invest in stone
Real estate has been known for years to be a smart investment, as it presents a low risk of devaluation. It is possible to acquire housing under the Pinel system, which offers a tax reduction to investors in regulated real estate. The amount of the rent will be regulated according to ceilings fixed by zone, the resources of the tenants will not have to exceed a regulated ceiling either, the duration of commitment of the lease will have to be at least 6 years to be able to benefit from a tax advantage corresponding to 12% of the cost price, and 18% if the lease is for 9 years. In addition, the investor in the Pinel law system will be exempt from property tax for the first two years of the property.
The Denormandie device offers a similar process, but it is aimed at investors in old properties to be renovated. The tax exemption is obtained thanks to the regained energy performance and the rental of the property with also regulated ceilings.
3 – Invest in company shares
This is another way to invest in real estate. Investing in SCPI (Civil Real Estate Investment Company) or OPCI (Organism for Collective Real Estate Investment) promises a great tax advantage. In addition to an acquisition at a lower cost since it is a long-term investment where only the bare ownership is acquired over the duration of the dismemberment, the absence of property income allows it not to be taxed by tax. on real estate wealth. It is therefore a great tool for tax exemption and real estate acquisition, which must be thought of in the long term to be viable.
4 – Invest in SMEs
Support for innovative entrepreneurship of Small and Medium Enterprises offers a tax reduction of up to 18% of the amount of the investment. The FCPI (Innovation Mutual Fund) and the FIP (Proximity Investment Fund) allow these profitable investments.
5 – Carry out energy renovation work
In its ambition for energy transition in the face of the climate emergency, the State has put in place a series of aids to ensure that the use of fossil fuels is limited in favor of renewable energies, and to combat the loss of energy. , in particular by reducing the number of so-called thermal strainer housings. Among them, a tax credit can be granted, corresponding to 30% of the expenses incurred for work to improve the energy performance of housing. This work includes thermal insulation, the installation of solar or photovoltaic panels, the installation of a charging station for electric vehicles, the insulation of attics, etc. This work is a good way to reduce tax, also save on consumption bills and gain comfort.
6 – Donate
66% of donations made for the benefit of associations which pursue a non-profit goal, and which present a disinterested management, a social object and which do not exist for the sole benefit of a restricted group of individuals, are tax deductible on income. On the other hand, a ceiling is set at a maximum of 20% of the overall net taxable income. Supporting just causes makes it possible to tax your own income, the approach is rather beautiful.
Limited tax exemption
Tax exemption is a process that can sometimes reduce your income tax considerably. However, an overall cap on tax benefits, called tax loopholes, is set at €10,000 per taxpayer per year. This ceiling is identical to all French households and households. Only advantages linked to the personal situation (effects of the family quotient, aid for the elderly or disabled, etc.) or linked to an action without consideration (donations to organizations of general interest) are exempt from the base of €10,000 tax loopholes.