Fiscal deduction for individual tax in 2005

2005 IS now drawing to a close. Everyone who has any kind of income should have made a tax plan and if this has not been done yet, IRS tax will only be a source of worry. All of us need to plan everything in our lives; taxes are no different – they are just another of our daily chores.

Knowing what we can deduct from our individual taxes is important in order to ensure our tax burden is minimised as much as possible. Some people are penalised unnecessarily purely due to their lack of knowledge.

IRS is the personal tax, which is applied to all individuals resident in Portugal and also to those who are non-resident but have income here.

What income must be presented?

You must fill out your IRS form if you are an employee or self-employed (i.e. if you use green receipts or have a company in an individual name), rent out properties, have financial investments (receive dividends) or if you have capital gains on selling shares and properties. If you are a pensioner and receive a pension that is over the annual minimum salary amount, then you must also fill out the IRS form.

Generally, the expenses that everyone can deduct from their IRS relate to the following: health, education and school, care homes, house, the purchase of recyclable energy equipment, life, personal accident and health insurances.

In 2005, fiscal benefits have been extremely affected by the government’s budget. To compare, in 2004, people were able to deduct the following fiscal benefits, also known as savings benefits, from their IRS declaration: home saving accounts, retirement saving accounts and share saving plans. Also, in 2004, the IVA (VAT) on the following expenses was deductible from IRS: food and drink, some vehicle repair services, as well as repair, renewal and maintenance services relating to domestic equipment.

In 2005, all the fiscal benefits mentioned above are not deductible. For 2006, the government budget will change the fiscal benefits again, but the deduction will be different from 2004 and not all of them will be made deductible again.

For 2005, you have the following types of deductions (see table below):

The IRS form should be submitted by March 15 for employees and pensioners, and by April 30 for all others. If you are an employee but have any of the other income mentioned above, such as income from rental properties, financial investments (dividends), or if you have capital gains on selling shares or properties, you will need to declare everything by the end of April.

The calculation of the IRS individual tax is made according to rates and usually they are updated according to the inflation rate. For 2006, they will increase by 2.3 percent, but the limits on the deductions mentioned in the table will also increase by 2.3 per cent. The maximum rate of IRS in 2005 is 40 per cent, but this is only applicable to income over 54,388 euros. In 2006, a new rate of 42 per cent will be introduced for income over 60,000 euros.

Finally, it’s important to be aware of what will change in 2006. Besides the change to the tax level on higher income which I have already mentioned, pensioners will be affected. Pensioners receiving over 7,500 euros a year will pay IRS. Up to 2005, they were exempt, however, next year, it will change for those pensioners receiving 535 euros a month.

Being aware of what deductions can be made is very important in order to reduce one’s tax burden. Make a fiscal plan – it will assist you and protect your pocket.