How to Prepare for Year-End Tax Settlement: 4 Tips to Get a Bigger Refund

Year-end tax settlement season is coming around again. Year-end tax settlement is the process of squaring up the taxes you prepaid over the year: if you paid too much, you get a refund, and if you paid too little, you pay the difference.

If you prepare well, you can get a bigger refund than you expected. In this post, we'll take a detailed look at how to maximize your refund during year-end tax settlement.

1. Adjust the ratio of credit card and debit card spending

The key to year-end tax settlement is making good use of the difference in deduction rates between credit cards and debit cards. Credit cards have a deduction rate of 15%, while debit cards and cash have 30%, so it's important to spend in the right proportion.

• Credit cards: use only up to 25% of your annual income
• Debit cards and cash: pay for spending above 25% of your income with a debit card or cash

For example, if your annual salary is KRW 40 million, it's advantageous to use a credit card up to KRW 10 million, which is 25% of that. After that, if you pay for spending above KRW 10 million with a debit card or cash, you'll get a higher deduction rate and a bigger refund.

2. Boost your tax savings by splitting family spending

You can maximize your tax savings by dividing spending according to each family member's income. In particular, having the higher earner handle large expenses lets you make the most of the deduction limits.

For example, the spouse with the higher income can take care of large expenses. This way, you can use the deduction limits that come with a higher income as efficiently as possible.

Also, if you have parents with no income, it's a good idea to pay small expenses such as living costs under your parents' name and then claim the dependent deduction. This way, you can receive additional dependent deduction benefits.

3. Use deductions tailored to your situation

If you make the most of deductions tailored to your personal situation, you can get an additional refund. Typical deductions include the dependent deduction we covered above, the education expense deduction, and the pension savings and retirement pension deduction.

• Education expense deduction: Children's education expenses from kindergarten through university can be deducted, so prepare your education expense payment certificates in advance.
• Pension savings and retirement pension deduction: Pension savings can be deducted up to KRW 6 million and retirement pensions (IRP) up to KRW 3 million, so you can make additional contributions at the end of the year to take advantage of the deduction.

4. Don't miss tax credit items

Tax credits are items with high deduction rates and big tax-saving effects. Medical expense and donation tax credits in particular have high deduction rates, so it's worth checking them carefully.

• Medical expense deduction: If the medical expenses you paid for yourself and your dependents exceed 3% of your income, you can receive a 15% deduction. However, cosmetic and plastic surgery costs are excluded, and there is no separate deduction limit.
• Donation deduction: Donations such as Hometown Love Donations (Gohyang Sarang Gibu) or donations to religious organizations have high deduction rates. Donations of KRW 100,000 or less are 100% deductible, and amounts over KRW 100,000 receive a 16.5% deduction.

For example, if your annual salary is KRW 40 million and you spent KRW 1.2 million or more on medical expenses, you can receive an additional tax credit. As for donations, if you donated KRW 200,000, KRW 100,000 is 100% deductible and the remaining KRW 100,000 gets a 16.5% deduction.

Wrapping up

Finally, use the year-end tax settlement simple calculator offered by the National Tax Service's Hometax, Toss, Naver Pay and others to check your refund in advance. It's also a good idea to prepare the necessary deduction documents ahead of time.

• Prepare your medical expense receipts, education expense payment certificates, donation receipts and so on in advance.
• Refunds are usually deposited into your account after mid-March, so be sure to complete your document submission within the deadline.

I hope you prepare well for year-end tax settlement this year and get the biggest refund possible! That wraps up our look at 4 tips for getting a bigger refund during year-end tax settlement. If you found this post helpful, please tap the heart below and share it widely. Thank you.