Why February is the most important month for your finances

Most South Africans only start thinking about tax when July arrives and it’s time to submit returns. What many don’t realise is that some of the most powerful tax-saving opportunities happen before the tax year ends in February and missing them can mean paying more tax than necessary. 

Used correctly, the last month of the tax year allows you to legitimately reduce your taxable income, improve your disposable income, and even increase the likelihood of a refund from Sars. 

Here are some of the most effective ways to use February to your advantage: 

1. Top up your Retirement Annuity (RA) 

 Make a lump-sum contribution to your Retirement Annuity before the end of February. 

Before contributing, forecast your total annual income for the tax year. This should include all income sources such as bonuses, incentives, rental income, and any pension withdrawals.  

 You can deduct up to 27.5% of your taxable income, capped at R350 000 per year. Many people don’t realise that using RA contributions strategically can significantly reduce their marginal tax rate and result in a larger tax refund. If you’ve received a bonus, for example, directing part of it into an RA can materially reduce the tax you pay on that income. 

 A financial advisor can help you calculate how much of your contribution is still deductible and how to structure it efficiently.  

2. Maximise your Tax-Free Savings Account (TFSA) 

 Contribute up to the annual limit before 28 February. The annual TFSA limit is R36 000, with a lifetime limit of R500 000. All growth, including interest, dividends, and capital gains is completely tax-free, and withdrawals in retirement are also tax-free. This makes TFSAs one of the most effective long-term tax-planning tools available. 

 Unused annual allowances cannot be carried forward. The earlier you start, the greater the benefit of long-term tax-free growth. 

3. Use the Capital Gains Tax (CGT) annual exclusion 

 If you are selling assets such as shares or property, plan the timing carefully. Individuals receive a R40 000 annual CGT exclusion. If your gains exceed this amount, consider spreading disposals across two tax years to make better use of the exemption. For example, selling part of an investment in February and the remainder in March.  

4. Donate to registered charities 

 Donations of up to 10% of your taxable income are tax-deductible, so donate to a registered Public Benefit Organisation that can issue a Section 18A certificate. Ensure you receive and retain the Section 18A certificate for your tax return. 

5. Claim medical aid contributions and expenses 

 Review your medical aid contributions and settle any outstanding out-of-pocket medical expenses before the end of February. You receive a monthly tax credit for medical scheme contributions, and additional credits may apply for qualifying medical expenses not covered by your scheme. 

 Keep all receipts for self-funded expenses. If you or an immediate family member has a disability or impairment, ensure the correct SARS forms are completed to qualify for additional tax benefits. 

6. Finalise travel and home office claims 

 If you receive a travel allowance, ensure your logbook is fully updated with all business kilometres travelled up to 28 February. If you work from home, confirm that you meet SARS’ strict criteria, including a dedicated workspace and spending more than 50% of your working time at home, before claiming home office expenses. 

 7. Pro bono work for charities 

If you provide professional services at no cost to a registered charity, it may be possible to obtain a Section 18A certificate for the value of those services, which can reduce your tax liability. 

Importantly, don’t wait until the last day of February, as transaction delays can push contributions into the next tax year. 

 In conclusion, February is not just the end of a tax year, it is an opportunity to take control of your tax position and improve your financial outcomes. 

* Chetty is the head of advice at Vouch.

 PERSONAL FINANCE