news: IRS fiscal year 2012 – BACKGROUND INFORMATION

By Dennis Swing Greene

Deductions against the gross income

Most tax breaks come in the form of tax credits. After gross taxable income is reduced by any deductions, gross tax is calculated. The tax owed is then reduced by tax credits. While these tax credits have been reduced in recent years, it would be a mistake to overlook these opportunities to lower your tax assessment.

Category A – Salaries

• Mandatory social security contributions, or, if higher, 72% x 12 x National Minimum Wage; 2011 and 2012: €4,104;

• Increasing to 75% x 12 x National Minimum Wage (2011 and 2012: €4,275) provided that the difference results from expenses incurred with professional training provided by authorised entities, or to mandatory fees paid to professional associations;

• Severance payments paid by the employee when he terminates the labour contract without timely notice;

• Fees for the trade unions of up to 1% of the gross income, increased by 50%;

• Short-lived activities, deduction of expenses with health, personal accidents and life insurance premiums, with a limit of €2,096.10.

Category B – Self-Employed

• Simplified regime: there is no deduction of expenses;

• Organised standard accounting system: expenses related to the activities of the enterprise.

Category F – Rental Income

• Maintenance

• Repair expenses;

• Condominium expenses;

• Municipal property tax and charges;

Category G – Capital Gains

• 50% of the positive or negative balance arising from:

– Sale of immovable property;

– Sale of intellectual or industrial property, or know-how when obtained by the non-original author;

– Assignment of position in contracts regarding immovable property.

Category H – Pensions

• Deduction of up to €4,104 for pensions up to €22,500;

• The deduction will be progressively decreased for pensions up to €43,020;

• Trade union fees, up to 1% of the gross income, increased by 50%;

• Mandatory contributions to social protection systems and health coverage legal subsystems.

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Dennis Swing Greene is Chairman of the Board and International Fiscal Consultant for euroFINESCO s.a.