Opinion – Marcia Dessen: Deductible expenses reduce income tax

Many taxpayers are scared when they discover that they will have to pay more tax when submitting the Income Tax return and that the lion, not satisfied with everything he has collected throughout the year, wants more.

At this point in the season, there is nothing that can be done to reduce the tax burden on 2021 earnings, but it is possible to pay less tax in the coming years if we know how to reduce the size of the lion’s bite.

Income that can generate additional tax payments or reduce the amount of the refund is taxable income. The most common are from salary, including vacations, commissions and bonuses, rental properties, pensions, social security benefits and the sale of variable income assets such as stocks and real estate funds.

For taxpayers whose income comes primarily from taxable income, the only way to pay less tax is to make the most of deductible expenses, including contributions made in 2021 to a PGBL-type pension plan, which can reduce the amount of tax to be paid in 2022.

This is a different deduction from the others because the taxpayer will pay tax, in the future, on the deferred amount; the tax benefit consists of postponing the payment of the tax and, depending on the chosen tax regime, reducing the IR rate.

To benefit from the tax deferral, the taxpayer must use the complete income tax return, in addition to being a contributor to the General Social Security Regime (INSS) or to the Special Social Security Regime (public employees).

The tax incentive is limited to 12% of taxable income earned in the previous year. Other income, such as exempt or taxable exclusively at source, is not included in this account.

As it is a tax deferral, the incidence of Income Tax remains, being due upon redemption or receipt of the income benefit. The taxpayer will pay tax on the total amount received, on interest, as in any other taxable investment, and on capital because the time has come to settle accounts with the lion and pay the tax that was not collected in the calendar year in that the contribution has been made.

The choice of taxation regime is very important, as the tax benefit is expanded when the taxpayer chooses the definitive taxation that adopts the regressive rate table. You will stop paying 27.5% (or the rate applicable to your income bracket) in 2022, to pay 10% after ten years from the date of each deposit.

For taxpayers who choose the taxable regime that adopts the progressive rate table, the benefit is limited to tax deferral, without, however, reducing it.

The Revenue warns that the amount redeemed is taxable income even if the amount was equal to or less than the limit of the first range of the progressive table and must be added to taxable income in the annual adjustment statement in the year of receipt.

There is a lot of information about the deductible expenses allowed. For all the rules and conditions, see the IRS Questions & Answers Guide Questions and Answers Dirf 2022 — Portuguese (Brazil).

Next week, the last of this series on the income tax return, the column will address the most frequent errors, both operational errors that can put the declaration in the fine mesh and strategic errors, which prevent the taxpayer from reducing the lion’s bite. without getting out of line.