Are you confused by the IRS Green Receipts? Are you self-employed, or do you have a side hussel or pastime to supplement your income? If the answer is yes, you have a tax and contribution requirements just like other workers have. That is, you must deduct a portion of your salary for Social Security and your income is subject to taxation by the IRS.
It is understandable that at first, especially if you do not have an accountant, all of this may appear perplexing. Do not worry, though; we are here to help. Everything you require to make the IRS if you pass green receipts is covered in this blog.
What are green receipts, exactly?
You can bill a business for the services you have rendered by using green receipts.
The green receipt merely serves as documentation that you have been paid a specific sum for the provision of a service for tax purposes. They comprise the service provider's name, the value of the services, VAT, and withholding tax (where applicable).
Who must provide a green receipt?
All individuals who are self-employed. This applies whether or not you accumulate with a professional activity as an employee. You must open the activity with the Finances and pass green receipts, even if it is merely a supplemental pastime.
The only exception to this is if you are doing a one-time job which is an isolated act.
What kind of income is considered by the IRS for people who pass the green receipts?
Iin accordance with Article 3 of the Personal Income Tax Law (CIRS) the following are considered income:
Profits to be used for personal purposes, including those from any service supply activity, whether it be technical, artistic, or of a scientific nature;
Coming from intellectual or industrial property, or when gained by the original owner, through the disclosure of knowledge relevant to expertise amassed in the industrial, commercial, or scientific sectors.
Assets or capital, as well as capital gains resulting from the transfer of activities generating professional and business revenue to an individual's patrimony;
Received as payment for the performance of the activity, including its decrease, suspension, and termination as well as the relocation of its exercise;
Grants;
Or money earned through one-off actions.
IRS will withhold taxes for those who pass a green receipt
In the case of employees, the withholding tax is the percentage that is directly deducted from the pay in order to pay state taxes. So, the withholding tax is a tax payment that is made to the state rather than to you.
If you fall under the category of exemption, meaning your annual income was less than 12,500€, you are excused from this requirement.
The rates used are listed in Article 101 of the CIRS as follows:
11.5% to revenue from isolated acts and self-employment activities not covered by article 151 of the CIRS.
16.5% when discussing category B income from industrial, informational, or intellectual property assets;
20% of money earned through scientific, artistic, or technical endeavors by Portuguese nationals who do not live there permanently;
25% of income derived from occupations covered by Article 151 of the CIRS.
Even exempt individuals have an option for IRS withholding tax
The green receipt, which indicates that no withholding tax was taken, does not imply that you will not make IRS payments. In actuality, you only avoid paying taxes if the amount of your income falls below the threshold that is regarded as the bare minimum for existence. That is, if your income in 2023 is less than 9,870€.
In this way, even if you are free from withholding tax, you can do so if it is possible and you want to prevent unpleasant surprises in the future. The Treasury will settle accounts which are overpaid the following tax year with refunds.
Delivery of Green Receipts to the IRS
The IRS's deadline for submitting returns for the fiscal year 2022, which includes a large number of dependent workers and green receipts for the self-employed, is from the 1st of April to the 30th of June 2023.
Self-employed individuals' income falls under IRS category B. As a result, if you are using the simplified scheme, you must complete Model 3's Annex B, and if you are using organized accounting, you must complete Annex C. Remember that as long as you have an activity open, you must submit na IRS declaration.
How should the taxable amount be determined?
Whether you selected an organized accounting scheme or a simplified accounting scheme, there are different standards for calculating the amount of taxable income.
Simplified Accounting Scheme
Self-employed people who do not choose the organised accounting regime and make less than 200,000€ annually are included in the simple regime.
According to article 31 of the CIRS, the amount subject to tax under the simplified regime is equal to 75% of the gross yearly income.
The amount of income that is subject to IRS tax in the tax period when the activity first began and in the tax period after that is 37.5% and 56.25%, respectively, if you do not have income from dependent work, pensions, or if the activity has not been closed for less than five years.
There are further operations that are outside the purview of those listed in article 151 of the CIRS that are subject to a 35% tax, with a lower tax rate of 17.5% and 26.25%, respectively, for the first and second years of activity.
Organised Accounting Scheme
To begin with, if you are a participant in this program, you must have a qualified accountant.
According to the IRC Code, your taxable income is determined by subtracting your gross income from the costs you expended to achieve it. That is, you can write off the majority of your costs.
Yet, there are some details that, according to Article 33 of the CIRS, are not deductible for tax purposes:
Payment of income holders, subsistence allowances, use of one's own vehicle for work-related purposes, meal allowances, and other advantages with a remunerative purpose.
The deduction of costs (amortizations, interest, rentals, energy, water, and telephone) cannot exceed 25% of the total properly documented expenses if the property of one's own residence is assigned to the activity.
If a fiscal year has losses, the IRS is not required to be paid. As long as the annual deduction does not exceed 70% of the taxable profit, these can be deducted from profits for the next 12 years.
IRS Green Receipts: What are the allowed costs?
The following expenses are recognised (according to Article 31 of the CIRS), in addition to the specified deduction of 4,104€ or the mandatory contributions to social protection schemes, if they exceed 4,104€:
Staff costs and charges incurred for pay or salary that are disclosed, provided that the Tax Authority is informed;
Rentals paid for properties used for business;
1.5% of the real estate's Tax Asset Value (VPT) designated for commercial or professional use.
Additional costs associated with the purchase of products or services necessary for the activity (matters of current consumption, electricity, water, communications, car rents, insurance, occupational contributions and travel, etc.)
It is important to remember that you can only deduct 25% of the value of the last three if they are also related to personal activity. For general and family expenses, the remaining 75% will be used.
Automated IRS for independent contractors
Since 2021, the self-employed under the streamlined regime who engage in the provision of the services included in the table referred to in article 151 of the IRS Code are also covered by the automatic IRS.
It is important to be aware that if you are a self-employed individual classified in the category of "Other service providers," you will not be allowed to make automatic IRS. The same thing occurs whether you combine independent work with employment or if you have organised accounting scheme.
Keep a track of the important dates with the 2023 Tax Calendar, so that you can have all the information you require regarding your tax return.