How can you lower your taxes in order to receive tax benefits? We cover all you need to know in this article.
Do you want to discover what costs can reduce your tax bill? or even to get a refund? Before you submit your yearly IRS, you can maximise your costs if you do some smart planning. This is due to the possibility that the IRS will consider all of your expenses from the prior year to be deductible.
How do tax deductions work?
It is a means to take advantage of tax benefits by lowering the amount of taxes owed or by receiving refunds, benefits that come through IRS deductions. To help lower the amount of this tax, you can deduct expenses related to education, health, houses, maintenance, VAT (upon proof of invoice), real estate, and family overheads, which may potentially have a substantial influence on your wallet.
Nearly all deductions made to the IRS count
As long as you do not go over the limits, almost everything qualifies for deductions and lowers the IRS amount owed to the state.
Costs are automatically added to your Financial Portal profile (Portal das Finanças), but only the ones you confirm and disclose are taken into account. This is due to the fact that unpaid invoices are not included in the IRS collection deduction category. By doing this, you might be passing up a chance to increase your deductions.
What are the maximum IRS expenditures?
Companies must submit invoices to the Tax and Customs Administration that are accurately marked with your Tax Identification Number (NIF) (AT).
Depending on the IRS tier you are in, different overall deduction limits are imposed. The deductions per household and in the case of joint taxation, must not exceed the following limits as per Article 78(7) of the Personal Income Tax Law (CIRS):
There is no cap for households with taxable income of less than 7,112€;
There is a cap of 1,000€ to 2,500€ for households with taxable income of between 7,112€ and 80,882€;
There is a cap of 1,000€ for households with taxable income of over 80,882€ per year.
What costs will be tax deductible for 2022?
You have undoubtedly already determined that you must "organise" your spending into a number of different categories when it comes time to prove the expenses you incurred in comparison to the prior year, i.e. in 2023 when you must submit paperwork to the IRS for the expenses that took place in 2022. We describe the kind of expenses that each category refers to:
Family Expenses
Almost all daily costs fall within this area. Take water, power, gas, communications, recreation, the supermarket, petrol, and apparel as examples.
You are only allowed to deduct the IRS from 35%, or a maximum of 250€. If a couple chooses joint taxation, the cap is 500€, with 250€ allotted to each spouse. Families with a single parent are eligible for a 45% deduction, up to 335€.
Health Expenses
Up to a maximum of 1,000€, households are allowed to claim 15% of their medical expenses through the IRS.
You can claim the following items as tax deductions under this heading:
Consultation costs,
Examinations,
Treatments,
Hospitalizations, and
Medications.
Masks, alcohol gel, eyeglasses (including frames), lenses, nappies for incontinent people, ambulance transportation for non-urgent patients, and health insurance payments are additional deductible charges.
However, a prescription is required for health expenses covered by the 23% VAT. Also, you must link that prescription to your invoice on the Finance Portal's e-invoice page.
Training and Education
IRS deductions for educational expenses are 30% off and have an upper limit of 800€.
These costs include tuition for schools, daycare facilities, and pre-school, as well as fees for tuition, books, and textbooks, as well as meals, transportation, and rental costs for displaced children. The maximum margin for these costs is 800€, and they are 30% deductible.
Property Expenses
If the bank loan was contracted by the end of 2011 and was for the purchase of a permanent residence for you or a tenant, you may be able to deduct the interest costs from your taxes. The IRS allows a 15% deduction for these costs, up to a maximum of 296€ per household. However, a greater cap is available to households with an income that is taxable up to 30,000€. That can go up to 450€ at most.
Also, up to a maximum of 502€ per household, rent payments for permanent housing paid under the RAU may be written off by the IRS at a rate of 15%. The cap may increase by up to 800€ for households with an income subject to tax up to 30,000€. For households that have relocated their primary residence to the interior of the country, there is also a rise in the deductible limit of up to 1,000€ for a period of three years.
Nursing Home Costs
Spending for home assistance, nursing homes, other senior support facilities, and houses for people with disabilities are all included in this IRS deduction.
Your expenses or those of someone in your home, including your parents, grandparents, uncles, and siblings. In this scenario, their salary cannot be more than the minimum wage.
You are allowed to deduct 665€ if you look after your parents or grandparents and you are listed as their primary carer. You can subtract 525€ for each of the two elderly. Your parents or grandparents are not permitted to make more money than the minimum pension.
VAT is necessary per invoice
Also, you receive a tax benefit that is equal to the proportion of VAT that is deducted from expenses in different business sectors.
A 15% deduction is allowed for VAT on expenses for repairing cars and motorcycles, lodging and dining, hairdressers, and veterinary services, and a 100% deduction is allowed for fees associated with monthly transport passes. The maximum IRS deductible amount is 250€ in both cases.
Individuals with Disabilities
You may additionally deduct your expenses if you have a disability level of 60% or more or if you look after family members.
25% of life insurance premiums that exclusively cover the risks of death, incapacity, or retirement from old age;
30% of education and rehabilitation costs (no cap);
For each taxpayer with a disability, a deduction equal to 4 times IAS is made from the collection; for each person you care for with a disability, a deduction equal to 2.5 times IAS is made.
For each taxpayer with a disability, a deduction equal to 4 times IAS is made from the collection; the amount doubles when the degree of disability is greater than 90%.
Child Maintenance
The IRS allows for a deduction of up to 20% of the soabilities that can be demonstrated to be child maintained and not reimbursed by those who have children and pay child maintenance to their children or other guardians as ordered by judge or judicial agreement.
Retirement Savings
You also receive tax benefits if you make investments or save money for retirement. All of them can be subtracted from the collection, whether they are PPRs, pension fund certificates, or state pension certificates.
There is a maximum for this deduction, which is 20% of the premiums paid for retirement life insurance, such as the Retirement Savings Plans (PPR):
Age | Minimum Investment
| Deduction Granted |
<35 Years | 2 000€ | 400€ |
35 to 50 Years | 1 750€ | 350€ |
>50 Years (not retirered) | 1 500€ | 300€ |
Rehabilitating Real Estate
You can reduce up to 30% of the costs incurred for the rehabilitation of:
Properties located in urban rehabilitation areas and recovered in accordance with their rehabilitation strategies;
Leased properties that may be subject to a phased-up rent increase under Articles 27 and following of the NRAU, which are the subject of rehabilitation actions, may be deducted from the collection in the IRS up to a maximum of 500€.
You are not eligible to deduct for the rehabilitation of other properties that do not match these conditions.
International Double Taxing
You are eligible for an international legal double taxation tax credit if you received revenue from several categories while travelling overseas. This credit will be the lowest of the following amounts and is deductible up to the maximum of the applicable special rates:
Income tax paid abroad;
A portion of the IRS's revenue, before deductions, that corresponds to taxable income abroad, less any IRS-specific deductions.
Donations
By giving money to charitable organisations, you can reduce your tax liability and receive a 25% IRS tax deduction.