What to take into account when filing your income tax return

What to take into account when filing your income tax return

Spring brings us, year after year, the not-so-pleasant task of preparing our income tax return. Today we will see what you must take into account when doing it. 


Before we go into the details of income tax, let’s see what IRPF is. Personal income tax is a direct tax levied on the income generated by taxpayers during the fiscal year. It is paid by individuals resident in Spain, whether or not they are of Spanish origin. In other words, if you live and generate your income in London, you will not have to pay tax in Spain even if you are Spanish. If you are British but come to live in Spain and generate income here, then you will be subject to Personal Income Tax.

That income can take many forms. The main sources are:

  • Income from work: wages and salaries, but also pensions or unemployment benefits.
  • Performance of economic activities: that is, the income generated by businesses led by individuals, the self-employed.
  • Return on capital: this can be both furniture and real estate. The capital would be the interest on your savings, dividends from investments in companies, etc. The income that is generated by real estate capital is that which comes from renting a house, for example.
  • Capital gains: in the case of the sale of an asset, a capital gain minus losses, this can give rise to a capital gain that is also taxed in the personal income tax. 

4 Items to be taken into account when preparing the income tax return

1. Do you tax all types of income? Not all income is taxable. Some of them are exempted by law, either by considering them not subject or by designing an exemption for them. Let’s see an example of each case:

  • An income that is not subject is that which is subject to another tax, for example, inheritance and gift tax. If your parents donate a home to you, you will pay inheritance and gift tax and, let’s say, this increase in wealth will not be taxed on personal income tax.
  • An exempt income would be one that is subject to the tax but that the legislator has foreseen that it will not be taxed for some reason. For example, some literary and scientific prizes. If you are curious you can consult them here. 

2. Tax, of an income that is not exempt or not subject to tax, the whole amount? No, in general, from the income obtained you will be able to deduct the expenses that you have had to generate this income. Let’s see some examples:

  • Labour income allows you to deduct Social Security or the contributions you pay to professional associations, trade unions, etc.
  • Income from economic activities is not taxed on income but on income minus the expenses of the activity (self-employed quota, rents, local supplies, purchases of stocks, other services, etc.).
  • In the income from movable capital they also allow you to deduct the associated bank expenses such as commissions from the financial institution and similar.
  • In the income from real estate capital you can also subtract the expenses associated, for example, with the rent of the house (mortgage interest if you have, community expenses, etc.).

3. Does everything pay the same tax, all income and regardless of the geographical area? Not all taxes are the same. There are different scales so that, depending on the type of income you pay, you can pay more or less. Moreover, living in Catalonia, for example, is not the same as living in Castile and Leon. Although there are not excessive differences, there is a part ceded to the autonomous communities and there we can see different scales of the tax.

4. Does everyone pay the same? No. There are three things to point out in this sense:

  • Personal income tax takes into account personal and family circumstances. Consider issues such as the number of children, whether or not you or someone in your care has any type of disability and its degree, whether or not your spouse has an income, etc. 
  • In addition, the IRPR is a progressive tax: the more income you generate, the more tax you pay than proportionately.
  • Finally, the tax provides for some deductions depending on certain aspects it wants to protect: deductible are the amounts destined for habitual residence (only up to a specific year), the amounts you donate to non-governmental organizations or public interest associations, if you invest in young companies, if you rent housing to young people, and so on.
  • Finally, for practical purposes, for the 2018 tax return, remember that the deadline began on April 2 and will end on July 1, 2019. That for cases of simple income there is an appointment service at the Tax Agency and it should be remembered that the website of the Tax Agency provides many resources and help. 

If you have not yet filed your income tax return, get to work!

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