Taxation of the self-employed

“Most of the time, they are the result of important knowledge gaps in tax law, but also of a lack of time or planning, which is often not filled with adequate professional help. The result is higher costs in the tax bill and the risk of sanctions,” he recalls. martha zaragozaCEO of BragOnline tax advice for freelancers.

Based on the analysis of the case history covered in this advisory, these are five of the main reasons that lead many self-employed people to pay more than they should.

1.-Poor management of deductible expenses

Self-employed people can deduct a number of expenses as long as they are related to their job. The problem is that sometimes they do not include all the deductible expenses that they could or, on the contrary, others that are not applicable to the activity in which they are engaged.

According to the Declaring, a self-employed person can have more than 100 deductible expenses and the most common situation is not knowing all of them. “Deductible expenses are the real key to paying less tax as a self-employed person, as they reduce the tax base on which the quarterly and annual taxes payable are based,” it said.

Expenses that raise more doubts among self-employed people include diets, travel and fuel costs, or water, electricity, telephone and internet supplies for self-employed people who work from home. “For example, internet expenses are only 100% deductible if the self-employed person has taken out an individual line for the exclusive use of their business and telephone-related expenses must be a telephone number that is not for personal use ‘ they recalled during the consultation.

They also point out that the solution to avoiding these mistakes is not always to hire the services of a manager, since “managers are usually dedicated to presenting the models and in some cases settling bills and recording expenses. However, they only record the expenses incurred by the self-employed; If he does not know the deductible expenses applicable to his activity, the manager will not take them into account”. However, it is also common to fall into the opposite error, namely to present as deductible expenses that do not really correspond to this category within the specific activity.

2-Schedule quarterly tax payments in advances

When freelancers get used to forecasting in advance how much they will have to pay at the end of the quarter, they can make better decisions. The example mentioned in Declaring is that the freelancer might slightly delay the delivery of a finished project to the client in order to make a more favorable decision at that time, such as E.g. invoicing in the following quarter, making a purchase that can be included in your tax return as a deductible expense, applying for a VAT payment deferral or even applying for a loan to cope with the situation.

However, instead of anticipating situations such as the one described, it is common for self-employed people to file their taxes a few days before the deadline set by the Treasury without knowing what the tax outcome will be; that is, how much you have to pay. “And sometimes it can also be important sums,” they recall.

3.- Not presenting all models in time

A self-employed person can submit up to 11 different models to the tax office between quarterly and annually. If they are not submitted on time, this has economic consequences for the self-employed. The severity of these depends on how long the filing is delayed or whether the filing is voluntary or due to a Treasury Department request.

“It often happens that a small change in the activity of the self-employed leads to a change in their tax obligations, and it is easy not to see the need to present a new model,” they warn, giving as an example “when the self-employed person suddenly rents a premises to carry out his activity, which obliges him to submit form 115, or if he makes expenses from European suppliers, he must submit form 349.”

4.-Not optimizing the annual income statement

As we said in point 2, with forward planning or in real-time, the self-employed person can know how much the income tax bracket still needs to increase so that they can make the decision not to take on new clients or delay their bills .until the next fiscal year.

Another possibility is that you decide to invest in a financial product, such as insurance or a pension plan, or make other purchases for your business. All of these decisions allow you to pay less or get more back at the end of the year, but they must be made upfront to act.

They also emphasize in their statement that “the forecast of the total amount of taxes to be paid at the end of the year – the so-called profit tax – is an essential tool for the self-employed to correctly price their services, because it allows them to know how much the Treasury will be paying from its Margin keeps, and can add it to the price”.

5.-Ignore all procedures when you have a manager

“To think that with the help of a manager we can streamline tax returns can lead to a different shock or anger,” they warn, especially – as they recall – considering that in the event of a surprise in the event of a mistake, the person responsible the Ministry of Finance or the financial authorities is the self-employed person, not his superior.

Thus, if the self-employed does not notify the manager that his conditions have changed, the manager will not provide certain samples and the self-employed would commit an offense punishable by the Treasury.

Regarding the annual income statement, the manager only records the income and expenses that the self-employed person passes on to him and gets the result to be paid or returned. But you won’t be able to closely monitor every little detail, which can mean the difference between paying large sums of money or paying nothing or even getting your money back.

The conclusion is that it is your responsibility to monitor and be aware of all your duties as a freelancer even when hiring the services of a professional.