Which Expenses Are Deductible? A Guide for Individuals and Businesses
Which Expenses Are Deductible? To help you plan your expenses as best as possible, check out this guide for individuals and businesses!
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Have you ever wondered why some expenses are deductible and others are not in your income tax return?
In this guide, we'll show you how to optimize your tax return.
So you will save on taxes by understanding which expenses are allowed for individuals and legal entities.
We will explain the permitted categories and the criteria for deduction.
This will help you get the maximum return and minimize your tax bill.
Main Highlights
- Difference between deductible expenses for individuals and legal entities.
- How child support can impact your tax return.
- Medical and educational expenses: what is allowed to be deducted.
- Importance of Cash book for self-employed workers.
- Limitations and exceptions you need to know to avoid problems with the IRS.
Introduction to Deductible Expenses
Deductible expenses are expenses that the law allows to be subtracted from gross income.
This helps to decrease the income tax that we pay. This includes expenses for health, education, and social security, among others.
To better understand, let's look at how these expenses have changed over the years.
We will analyze the number of invoices issued and the amount of tax deductions.
This analysis shows how these deductions affect the income tax that we pay.
| Year | Number of Invoices Issued | General Family Expenses (R$) |
|---|---|---|
| 2013 | 732,369,618 | 646,476,259 |
| 2014 | 677,122,117 | 665,469,802 |
| 2015 | 872,579,534 | 764,331,189 |
| 2016 | 923,949,913 | 836,823,448 |
| 2017 | 1,035,863,006 | 934,940,717 |
| 2018 | 1,084,994,882 | 936,565,032 |
| 2019 | 1,303,087,839 | 1,034,036,169 |
| 2020 | 1,239,396,922 | 1,157,964,180 |
| 2021 | 1,375,105,481 | 1,228,545,611 (Estimated) |
The number of bills and household expenses have increased, indicating that more people are taking advantage of tax deductions.
Knowing about these expenses is crucial to reducing income tax that we pay.
Read also: Taxes in Practice: How to Choose the Best Tax Regime for Your Company
Deductible Expenses for Individuals
To the deductions for individuals are crucial in income tax return. They help lower what you pay.
Medical expenses, education, alimony, and private pensions are some of the most common.
Each one has its own limits and rules.
For example, in the full model, you can deduct up to R$ 3,561.50 per taxpayer in education expenses. This applies to all levels of education.
For dependents, the limit is R$ 2,275.08 per person. Medical expenses have no limit, but proof is required.
Contributions to private pension plans, such as the PGBL, are also deductible.
But only up to 12% of taxable income. Rent is not deductible, but must be declared.
Vaccinations and school uniforms are not deductible.
Medical expenses, such as dental consultations and treatments, are deductible without limit.
But it's essential to have the right documentation. Follow the IRS rules to ensure deductions are accepted.
| Expense Type | Deduction Limit |
|---|---|
| Education | R$ 3,561.50 per taxpayer |
| Dependents | R$ 2,275.08 per dependent |
| Private Pension (PGBL) | 12% of taxable income |
| Medical Expenses | No limits |
| Social Security Contribution | No limits |
Understanding the deductions allowed by the Federal Revenue Service helps you optimize your declaration.
This way, you can take better advantage of tax benefits.
Deductible Expenses for Legal Entities
Companies can reduce their taxes by paying less.
This is because they can deduct several expenses.
These include salaries, production and marketing costs, and social contributions.
To benefit from these deductions, it's important to document each expense thoroughly. This way, the company follows the law and pays less taxes.
The revenue threshold for using the real profit regime is R$$78 million.
This regime requires that expenses be well documented.
The IRPJ rate is R$151,000.00 on adjusted net income. There is an additional R$101,000.00 for income exceeding R$1,000,000.00 per month.
For example, an adjusted net income of R$155,000.00 would result in a total IRPJ payment of R$36,750.00.
To take advantage of tax benefits, it is crucial to know which expenses can be deducted.
Personal expenses of partners and fines cannot be deducted.
Unproven expenses or non-incentivized donations cannot be deducted either.
On the other hand, operating expenses are deductible. This includes salaries, production costs, and marketing.
But these expenses cannot be computed in the costs.
Since 01/01/1996, it is not allowed to deduct provisions, except for vacation and 13th salary.
Food provided by the company can be deducted, but only if it is for all employees.
Donations are deductible up to 1.5% of operating profit for non-profit educational institutions and 2% for civil entities.
Depreciation and maintenance expenses are not deductible if they are not for production or marketing.
It is essential to follow tax law.
Expense documentation must include invoices, receipts, and contracts.
Additionally, repairs that extend the useful life of the asset by more than one year must be capitalized.
This means they cannot be deducted immediately.
It is important to follow specific rules, such as the deductibility of interest on equity and losses on the receipt of credits.
The table below shows some common deductions:
| Expense Type | Deductibility | Observation |
|---|---|---|
| Salaries | Deductible | Includes labor charges |
| Production Costs | Deductible | Required documentation |
| Marketing | Deductible | As long as proven |
| Social Contributions | Deductible | Dependent on legislation |
Reducing the tax burden allows companies to offer better prices.
This improves your profit margins and competitiveness. Good expense control helps you avoid errors in tax deductions.
Therefore, the tax benefits for companies are great.
But it is necessary to manage tax deductions accurately and in accordance with the law.
++ 5 Steps to a Well-Planned Annual Budget
How to Use the Cash Book to Deduct Expenses
THE Cash book It is essential for those who are self-employed or have small businesses.
Helps document financial transactions, allowing you to deduct work-related expenses.
Independent professionals and freelancers benefit greatly from Cash book.
It's not mandatory for all companies. But recording everything daily helps you better manage your money.
For companies with revenues of up to R$1.8 million, the Cash book is important.
They must report cash flow. It's crucial to organize inflows, outflows, and balances into specific columns.
The Federal Revenue's Carnê-leão program facilitates the management of Cash book.
Helps you follow bookkeeping rules, keeping your finances in order.
Expenses such as third-party salaries, taxes, and office costs can be deducted.
You need to have the right documentation for this.
On the other hand, it is not possible to deduct expenses such as repairs to your own property.
They also do not include property rentals. Therefore, using the Cash book correctly is very important.
Adopt the Cash book helps a lot with financial organization. It makes it easier tax accounting and ensures control over income and expenses.
Limitations and Exceptions to Deductible Expenses
It is essential to understand the restrictions on tax deductions and the IRPF exceptions.
This helps avoid problems with tax authorities. It also ensures you take full advantage of permitted deductions.
Undocumented or unrelated expenses related to income are not deductible.
Additionally, there are limits on some deductions.
For example, the education limit is R$ 3,561.50 per dependent. The deduction per dependent on the full tax return is R$ 2,275.08.
INSS contributions are unlimited if you have taxable income.
However, for private pension plans (PGBL), the limit is 12% of taxable income.
For example, with an income of R$ 100,000, the maximum deduction is R$ 12,000.
“The adjustment of deductible limits was well below inflation, which significantly affects the use of permitted deductions.”
| Type of Deduction | Limit |
|---|---|
| Education | R$ 3,561.50 per dependent |
| Dependent | R$ 2,275.08 |
| Domestic Employee | R$ 1,171.84 |
| Simplified Model | R$ 16,754.34 |
| PGBL | 12% of taxable income |
| Donations Encouraged | 6% of the income tax due |
Conclusion
This guide has shown how deductible expenses are important for individuals and businesses.
Following Decree No. 9,580/2018 helps reduce taxes. This makes the tax planning more efficient.
To deduct expenses, you need to have documents such as invoices.
Common expenses, such as equipment, are deductible if proven.
++ How inflation impacts your money and what to do to protect it
However, personal expenses, such as restaurant meals, are only accepted on business trips.
To make the most of tax benefits, it is crucial to have good financial organization.
Expenses for courses and social security contributions are also deductible.
This way, you follow the law and save a lot on Income Tax.
