Where to invest your money to reduce your taxes?
Paying fewer taxes is an aspiration shared by all taxpayers. If the search for tax relief provides a specific and not little pleasure, it must nevertheless adapt to certain regulatory constraints. You probably know the operating principles of tax taxation and some “tools” of tax exemption.
Are you sure you are not missing out on “a treasure trove” of sound advice and making good use of all your tax relief options? Esteem the following ten tips as a providential tax “giveaway” and see if you couldn’t enjoy them a little … just for fun.
WHAT IS INCOME TAX?
Any person domiciled in France for tax purposes is liable for income tax or corporation tax (IS) for companies, as are persons domiciled abroad for tax purposes but receiving income from a French source.
Directly levied by the State, the so-called direct income tax is calculated on the sums received by the tax household. The tax household can be constituted in several ways: a single person, a married couple, a married couple with dependent children. It will be calculated on the salaries and all the sums received by the natural persons who make up the household (wages, rents received, pensions, dividends, etc.).
It is a progressive tax: the marginal tax rate is linked to taxable income. The higher it is, the more the rate increases between 0% for the lowest and 45% for the highest. The household composition according to the number of shares that make it up is also taken into account for the tax calculation.
1. Invest in an FCPI or a FIP
The same type of mechanism exists favouring investment in mutual funds for innovation (FCPI) or local investment funds (FIP), which are themselves dedicated to financing the development of companies that do not. Are not listed.
Regarding FCPIs, the taxpayer can expect a tax reduction of 18% of payments made with a ceiling of € 12,000 for a single person or € 24,000 for a couple. Be careful; if the units are not kept for at least five years, you lose the tax advantage and will even have to reimburse the tax reduction you obtained.
Taxpayers who invest, until December 31, 2016, in Mutual Funds for Investments in Innovation (FCPI) benefit from a tax reduction equal to 25% of the investment within the limit of 24,000 euros for a married or civil partnership and 12,000 euros for a single person. To benefit from the tax reduction, you must:
- Commit to keeping FIP or FCPI units for at least five years from subscription
- Not to hold, with your spouse, your ascendants and descendants, more than 10% of the fund’s units.
- Not to hold directly or indirectly more than 25% of the rights in the profits of the companies whose securities appear in the fund’s assets, or to have held this percentage of the rights at any time during the five years preceding the subscription.
2. Invest in film production (Sofica)
If you are domiciled in France, you can benefit from a tax reduction if you subscribe to the initial capital or to a capital increase of companies financing cinematographic or audiovisual works (SOFICA) before December 31, 2016. The Minister must approve the money of the Sofica of the Economy and Finance. The results financed must be approved by the president of the National Center for Cinema and Animated Image.
The tax reduction equal to 36% of the investment from January 1, 2011, taken into account in the double limit of 18,000 euros per year or 25% of total annual net income. The rate can be increased to 43% from January 1, 2011, when SOFICA meets certain specific conditions in terms of financing. This device previously took the form of a charge against the annual global income.
3. Build up retirement savings (PERP, PREFON, Madelin)
Contributions paid in 2016 to the People’s Retirement Savings Plan (PERP), to the PREFON, COREM and CGOS supplementary retirement plans are deductible from overall income up to the limit indicated on the 2016 income statement.
The PERP (Popular Retirement Savings Plan), ancestor of the PER, is a current savings product accessible to all. Not only does it allow you to prepare for retirement by providing an exit nest egg that will provide additional income, but also it allows contributions to be deducted from your taxable income.
Please note, within the limit of 10% of the net professional income received. Another advantage that should not overlook: social security contributions are not supported during the constitution of savings, and the sums paid into a PERP are not retained for the calculation of the taxable assets at the IFI, the tax on real estate fortune.
4. Invest in the capital of an SME
Taxpayers who subscribe to the capital of an unlisted company, upon creation or on the occasion of a capital increase benefit from a tax reduction. The system is applicable for payments made until December 31, 2016.
It is an investment in the capital of companies less than five years old, in the start-up or expansion phase, which employs less than fifty employees and has a turnover and a balance sheet total of less than € 10M during some exercises. The tax reduction is equal to 25% of payments made (22% from January 1, 2011), taken within the annual limit of 50,000 euros (single person) or 100,000 euros (couple).
5. Invest in tax-exempt real estate
Tax exemption refers to most of the existing legal provisions which give a taxpayer the possibility of reducing the amount of his income tax and his Fortune Solidarity Tax. It is one of the motivations and criteria for choosing an individual when investing. Several measures such as the Pinel law or the Malraux law allow real estate tax exemption in the real estate sector, provided specific rules are respected.
For example, if you bought accommodation between January 1, 2007, and December 31, 2010, in a hotel residence with a social vocation, you are entitled to a tax reduction of 25% of the cost price, taken into account in the limit of 50,000 euros (single person) or 100,000 euros (married or civil partnership).
Housing must be rented bare for at least nine years to an operator approved by the State and committing to rent at least 30% of the housing to people in difficulty. The tax reduction is spread out at a maximum of 2,084 euros (single) or 4,167 euros (couple) per year.
Taxpayers can also benefit from a tax reduction for investment in a furnished rental residence. This system, therefore, only concerns income from furnished rentals, subject to the industrial and commercial profit regime. The tax reduction, chargeable over nine years (at the rate of one-ninth per year), applies up to 25% of the cost price and takes into account within the limit of 300,000 euros (18% for investments made in 2016).
6. Reduce taxes by doing energy-saving work
You can benefit from a tax credit if you spend in favour of energy savings and sustainable development in your primary home in France, whether you own it, rent it or occupy it free of charge.
Expenses incurred during the year are entitled to a tax credit at the rate of 15% or 50% depending on the relevant equipment or acquisition listed by law.
7. Generate a tax credit with home helpers
Suppose you are domiciled in France for tax purposes. In that case, you can benefit from a tax reduction or a tax credit if you incur expenses for services rendered by an employee at your primary or secondary residence located in France.
The sums paid for the employment of an employee at home give rise to a tax advantage which takes the form of:
- Tax credit for those who carry out a professional activity or are registered as a job seeker for at least three months during the year of payment of expenses.
- Tax reduction for those who do not meet these conditions or when employment is exercised at the residence of a person over 65 years of age is a beneficiary of the Personal Autonomy Allowance. The credit and the tax reduction are equal to 50% of the expenses withheld within the limit of € 12,000.
8. Invest part of your wealth tax in an SME
Provided that your wealth tax does not exceed € 50,000, you can subscribe to the initial capital or to capital increases of unlisted SMEs (the repurchase of shares not being eligible for the tax advantage) or invest directly, at through a holding company or a local investment fund (FIP). Eligible SMEs must have less than 250 employees and have a turnover of less than € 40M or have a balance sheet total of less than € 27M.
Their activity must be industrial, commercial, craft, agricultural or liberal to the exclusion of management of movable assets and activities of management or rental of buildings. The tax advantage took the form of an ISF reduction equal to 75% of your investment and capped at € 50,000. In the case of the FIP, it is only 50%, with a cap reduced to € 10,000.
9. Donate to charity
A single global ceiling (20% of taxable income) and a single reduction rate (66%) apply for payments (donations or contributions made without consideration) as well as the abandonment of income or products, made for the benefit of specific organizations of general interest, respecting the legal conditions defined by the tax code.
Under certain conditions, natural persons who pay grants to non-profit organizations of public interest benefit from a tax reduction subject to producing a receipt.
10. Buy a non-polluting vehicle.
The State has taken measures to encourage motorists to buy or rent cars (“clean vehicles”) running at least in part on LPG, CNG or electricity, to reduce gas emissions, dangerous pollutants or greenhouse gas.
The tax credit is 2000 € and is subtracted from the amount of your income taxes. If this tax credit is greater than the amount of tax due, the excess is refunded to you. Thus, even a person who does not pay income tax can benefit from the tax credit.
UNDERSTAND THE PRINCIPLES OF TAXATION TO REDUCE YOUR TAX
In France, as in many countries, income from work is not the only one subject to tax. Heritage, such as real estate or income from the capital, are also subject to tax. However, the tax applied differs.
The flat tax
Income from capital, generated by financial investments, has been subject to the “ flat tax ” since 2019, also known as the One-Time Lump Sum Levy. This income must also be declared to the tax authorities each year and is considered in the calculation of income tax.
Another yet different tax system: the Tax on Real Estate Fortune (IFI). Coming to replace the ISF (wealth tax), the IFI follows another logic. This tax applies to taxpayers whose real estate assets exceed a certain threshold. It is in addition to income tax.
Personal and corporate taxation
Understanding the intricacies of personal and business taxation is essential to know how to reduce your income tax. To guide you in this complex process, do not hesitate to be accompanied by a professional. Selenium makes its knowledge in this area available to its customers.
Have you figured out how to complete your next return with a smile? In addition to the satisfaction of reducing your tax bill, you will probably have the pleasure of:
- To change cars without having a bad conscience (since it is to protect the planet),
- To show altruism by supporting humanitarian action,
- To make you “your cinema” or almost,
- Dodge in good faith household chores or maintenance work on your primary residence to promote the employment of home help,
- To prepare for the time when you will do nothing but think about yourself (retirement).
Where to invest your money to reduce your taxes?