Will IRS deductions be pre-filled in your online declaration?
Yes. Based on the data generated by the e-billing system, online IRS’s forms will now include the fields of registered expenses that have been completed. The system works like this: When you ask for an invoice with your tax number, the merchant communicates this data directly to the Tax Authority (AT). This information is then added to your page on the Finanças Portal. Each expense (health, education, restaurants, family, overhead, etc.) is allocated as a credit to your IRS. You have no need to add up invoices because the work has already been done for you. However mishaps can occur; invoices may be missing. So the data must be checked.
Are all invoices registered by the tax authorities?
That’s the idea. However, there may be problems in the communication of invoices. First, the taxpayer must ask to have their tax identification number (“NIF”) to be included on the receipt. Then the merchant reports the transaction to the Tax Authorities. The bill must be appropriately “classified” by the type of expenditure because not all are of equal worth when calculating tax credits.
You need to check that invoices are correct on your page and have been inserted properly. If some are missing, you will have to register these invoices (note that merchants have until the 25th of the month following the issue of the invoice to do so) or properly allocate invoices (the AT may not have allotted a given expense to the right category). This verification must be done by the taxpayer prior to 15 February 2016.
Which expenses can you use?
Theoretically, just about everything, but with limits:
A. General family overheads: this category has a maximum credit of €250. To reach this level, you must spend €715 a year.
B. Health expenditures can discount 15%;
C. Education is worth 30%;
D. Housing credit on interest and rents can also count on up to 15%;
E. Tax incentives can give partial tax relief for certain expenses such as:
a) contributions to retirement plans; b) medical insurance; c) donations to charities;
F. Alimony and child support payments are allotted 20% tax relief;
G. Nursing facilities and home care expenses up to 25%;
H. 15% of VAT paid in restaurants, hairdressers and car repair shops up to €250.
The amount of your total credits also depends on your level of income. Lower earners have a higher ceiling.
Note from the author: Parenthetically, wouldn’t a simple “standard deduction” as is used in the USA or a comprehensive “personal allowance” as in the UK make life much easier and be more cost effective for everyone, including the tax man, rather than this baroque bureaucratic jumble? Isn’t it time for a renewed “Simplex”?
What happens to those without internet access?
Currently, almost 90% of the 5 million IRS declarations in Portugal are reported electronically via internet. Of the remaining 10%, half of these households do not pay IRS because their income is too low. The remaining 5% of taxpayers who do not have internet access can either get help privately or seek assistance at their local Finanças office.
Dennis Swing Greene is chairman and International Tax Consultant for euroFINESCOs.a.
eurofinesco.com