Sunday, September 25, 2022

Difference between tax relief and deduction

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Tax The terminology and the very wording of the tax laws use both words as synonyms, but they are not. 

Therefore, we must explain what their difference is.

If we have doubts.

The safest criterion to differentiate one from the other is that the deduction is applied in that percentage while the relief is usually applied in its entire amount.

The deduction is not the power to remove expenses from income, it is a benefit that the Law gives to the person who pays the tax for reasons of economic policy such as promoting the purchase of houses.

Having or adopting children, giving donations, contributing to the artistic world, etc.

What is a relief for?

it is intended that you pay taxes on your profits (that net profit) so you must calculate them by adding your income and subtracting the deductible expenses.

In other taxes, the meaning is the same: if we sell a financial asset, they will charge us a tax relief service for the profit we have obtained (the difference between its sale price and the purchase price) and we will be able to deduct the expenses of the operation.

such as commissions. that we pay for the operation to the bank or financial intermediary.

What expenses are tax-deductible

As we have just seen, the general rule in economic activity is that the expenses necessary to obtain income are deductible, that is, if we have a factory they will be electricity, telephone, rent, cleaning and maintenance, and machinery ( through amortization ).

salaries and other personnel expenses, and other expenses of a similar nature.

However, we cannot deduct electricity or the telephone in our house because they are things that we consume in our lives not to produce income but for our personal consumption.

There is another simplified system in which it is not necessary to keep track of tax-deductible expenses.

In the simplified system, the Treasury calculates the net return based on certain data or modules, so we do not talk about tax relief here.

In indirect taxes such as VAT, the taxpayer deducts (here it will mean relief) the tax quotas that he has borne.

subtracting them from those that he has collected to carry out the liquidation and periodic payment of the tax.

Deduction for Investments in the Canary Islands

Likewise, said deduction regime for investments will also apply to individuals who carry out business or professional activities in the Canary Islands, with the same conditions and restrictions established by the regulations of the Income Tax of Individuals for the application to the subject’s liabilities of said Tax of the incentives or stimuli to the investment established in the Corporation Tax.

Contemplated in article

Therefore, it is configured as an incentive that allows the tax bill to be reduced by allowing a certain percentage of the amounts invested in new fixed assets to be deducted from the tax quota.

The deduction

In turn, it is also allowed to apply the deduction on used fixed assets, provided that they have not previously benefited from the deduction and represent an obvious technological improvement for the company, and belong to one of the following categories: machinery, installations, and tools, process and information equipment and interior and exterior transport elements, Excluding vehicles that may be used for their own use by persons directly or indirectly linked to the company. Investments made under a financial leasing regime may also benefit from this deduction, with the exception of buildings.

Investments in the Canary Islands

bonus for the production of tangible assets and the Reserve for Investments in the Canary Islands with exceptions.

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