Guide to the main allowances to be taken into account in the 2013 personal income tax return (I)

It is that time of year again when we have our annual appointment with the Tax Authorities. Therefore, before the period for filing our tax return ends on June 30, it is advisable to review any changes that have taken place over the last tax year.  Besides the facilities which the tax authorities are offering taxpayers to fulfill this obligation, such as providing draft returns and tax data, the PADRE program or the possibility to download tax data online, regard should also be had to the allowances and new conditions that enable us to reduce our tax bill.

Today’s article focuses on the main allowances that can be applied to income: salary income, economic activities income, income from immovable and movable capital.

Salary income: Employees

Taxpayers who receive salary income can deduct:

• Contributions to social security or to mandatory mutual funds for public officials.
• Fees paid to labor unions and professional associations, where membership is obligatory in order for the taxpayer to perform his work, capped at €500 per year.
• Legal defense costs derived directly from litigation between the taxpayer and the employer, capped at €300 per year.

Economic activities income: Traders and professionals

Traders and professionals can deduct the expenses incurred in the pursuit of their business, such as supplies, professional services, personnel costs, social security contributions, etc. with the following particularities:

• Expenses relating to assets used simultaneously for economic activities and private needs cannot be deducted. However, they can be deducted exceptionally if the private use is secondary, irrelevant and on days or at times when the economic activity is interrupted. This special rule does not apply to passenger cars, motorcycles, aircraft or sports or recreational boats.
• Amounts paid for insurance contracts arranged with welfare mutual insurance societies, where the professionals are not included in the special social security regime for self-employed or autonomous workers, and which serve as alternatives to that special regime, can be deducted subject to the limit of 50% of the maximum contribution established for nonoccupational contingencies.
• Health insurance premiums for the taxpayer, his or her spouse and children below the age of 25 can be deducted, capped at €500 per year for each insured person.
• Traders and professionals who elect to apply the simplified direct assessment regime may deduct 5% of their net income (i.e., the difference between revenues and expenses) as unsupported provisions and expenses, without submitting an invoice or any other document.
• As support to entrepreneurs, taxpayers that commenced an economic activity in 2013 and determine their net income using the direct assessment method, may reduce their positive net income by 20%, up to a maximum of €20,000 euros (in other words, the amount of net income on which the reduction applies could not exceed €100,000 per year).
• Traders and professionals can apply to the tax payable the incentives and measures to encourage business investment established for corporate income tax purposes, except for the reinvestment tax credit.

Income from immovable capital: Real estate lessors

In relation to the lease of real estate, all the expenses necessary to obtain income can be deducted, such as the following:

• Non-State taxes and surcharges levied on the real estate (such as real estate tax).
• Expenses for administration, security, concierge, etc.
• Insurance premiums for civil liability, fire, robbery, broken windows, etc.
• Amounts paid for services, supplies and depreciation of the property.
• Interest on loans to acquire, improve, repair and maintain the real estate, provided that the total amount to be deducted does not exceed the sum of gross income obtained.
• Balances of doubtful receivables where the debtor is subject to insolvency or where more than six months have elapsed between the time when the first step is taken by the taxpayer to collect the debt and the end of the tax period.
• In residential leases, the net income is reduced by 60%, increased to 100% where the lessee is between 18 and 30 years old, has net salary or economic activities income that exceeds the public income indicator (€7,455.14 per year) and notifies the lessor of the fulfillment of these requirements.

Income from movable capital: Financial investments

Regarding financial investments, if dividends, interest or insurance benefits are received, there are few deductible items.

• Dividends can benefit from an exemption of up to €1,500.
• Expenses for administration and custody of marketable securities can be deducted.
• Regarding income from the provision of technical assistance, the lease of movable assets, businesses or mines, or from subleases, the gross income can be reduced by the expenses necessary to obtain that income and any impairment of the assets or rights from which the income derives.

Garrigues Tax Department