The general structure of the tax system

Tax | It’s time to close the quarter and deduct all receipts and expense invoices. It is possible that you have realized that you have many receipts in your wallet and you are not sure if VAT is deductible or not.

As always, in our blog we want to make your day-to-day procedures easier, that’s why we’ve prepared a list of all those expenses that you can deduct!

By reading this article you will learn:

  • What is deducting VAT?
  • What can I deduct?
  • What expenses can not deduct?

What is deducting VAT?

Deducting means that we can partially or totally deduct the tax, rate, or another charge that falls on certain products, according to what the Administration establishes. 

We must distinguish between expenses for personal income tax relief service purposes and those that reduce VAT, which does not always coincide.

Finally, all this will come from input VAT. Remember that there are two types:

  • Supported (or deductible ): derived from your purchases of goods or services.
  • Earned (or passed on): the one you charge your customers.

A photographer, for example, can deduct 21% VAT on a camera that he uses for work. 

But if you try to do it with ski equipment, it is very possible that the Treasury will be suspicious and subject you to an inspection. 

Therefore, you can ONLY deduct expenses “affected by economic activity”.

What can I deduct?

Once you have all this clear, the most basic things you can deduce will be:

Job material

  • A computer or the work tool you use.
  • Stationery and office supplies: pens, paper, notebooks, agendas…
  • Business cards, promotional material, etc.

Other expenses

  • Gasoline: the one you use to go to work, visit a client, etc
  • But be careful, since certain vehicles, such as those cataloged for the transport of goods, do allow you to deduct the cost of fuel and the corresponding VAT. 
  • In all other cases, you will only be able to deduct 50% of the VAT on the car and the expenses it entails without giving further explanations to the Tax Agency. 
  • Diets: as long as they are during your working hours there will be no problem.
  • Work software, for example, the Quipu billing program, as it helps in your business administration and work management.

What can’t I deduct?

Tickets for purchases at the supermarket, bars, or clothing (as long as the profession justifies it) are not deductible. Nor are fines and penalties, donations, and even expenses related to tax havens.

Difference between deducting and deducting taxes

At this point in the story, there are those who confuse, and to a certain extent, it is normal, the concepts of deducting and deducting taxes.

What is tax relief

Tax relief is the figure that allows us to pay a lower amount of tax, and subtract a smaller amount from our tax base. 

That is why when we say that something is tax deductible, we mean that not paying taxes for it will allow us to have to face a lower payment than expected, or benefit from a greater attribution, as happens when we receive an inheritance. 

The most important thing of all is to be clear that deducting something is subtracting it from the tax base, the amount of money we have before applying taxes. 

In this way, the subsequent application of taxes on it will tax the result much less.

Are tax relief and deduction the same?

No, deducting and deducting do not mean the same thing and the best way to understand it is the following: that something deducts means that it is exempt from tribute, or any tax, while the fact that something deducts means that it saves us part of a tribute, but that does not eliminate it completely.

In the case of deductions, the law includes certain situations in which some taxpayers can benefit from paying a little less, but that’s it. 

As we said at the beginning, it is common to confuse the concepts of tax relief and deduction because, in the end, both translate into paying less money and increasing the profitability of our business, which in the end is what matters. 

Of course, now that you are clear about what each thing means.

You will be able to use these two figures to your advantage with greater knowledge of the facts.

Greater knowledge

These are the most common expenses among self-employed professionals and SMEs. From here, you can continue deducting everything that meets the three fundamental characteristics explained throughout the text.

Remember that to justify the deductible expenses, you should not convince your friend or your manager, you should eventually convince the Treasury if their technicians do an inspection. 

If at any time you doubt whether you can deduct an expense, think: 

In the event of an inspection, will I be able to justify that it is directly related to my work activity? That’s the key!

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