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Going to do the IRS for the first time? know the essentials

the time has come doing the IRS for the first time and you’re already breaking out in a cold sweat just thinking about doing math and filling out forms? There’s no reason for that, not least because the math is already done and the forms have simple instructions that tell you what to put in each field.

The good news is that you don’t need to be a financial expert and that if you can’t find the answer to your queries, you can contact the Tax and Customs Authority (AT) services by phone or email. electronic way and ask your question.

On the Finance Portal itself, you will find leaflets, instructions and FAQs to clarify some of the most common questions and that can help those who are new to these tasks.

If you are going to do the IRS for the first time, it is normal for it to take a little longer to understand the process, but after that you will see that it is relatively quick.

However, you should avoid waiting for the deadline, as by then the system may be more overloaded or even fail.

Basic information for those who will do the IRS for the first time

If you have just started to earn income or if you delegated the delivery of the declaration to someone else and this year you will even have to do it alone, it might be a good idea to start with the most basic and general information.

The first thing to know is that the IRS (Individual Income Tax) relates to income (salaries, pensions, property income, etc.) earned in the previous tax year. I.e, in 2023 you are delivering the statement corresponding to what you earned in 2022.

How do I submit the IRS return?

Another fundamental aspect to take into account is that, currently, the declaration can only be submitted electronically, that is, through the Finance Portal. Therefore, and if you haven’t asked for the access password yet, this will be the first step to be able to move forward.

Until when can I deliver?

The delivery of Model 3, that is, the income tax return, must be done in April 1st to June 30th. The deadlines are the same for employees and self-employed workers.

Expenses that serve to reduce the tax to be paid or increase the reimbursement (the so-called deductions) are already entered automatically, as well as income from work or pensions. So forget about the calculating machine, at least for now.

Who has to file the IRS return?

As the name implies, this tax is levied on income, in cash or in kind, of residents in Portugal, even if earned abroad or in a different currency.

We normally associate the IRS with income from work, not least because this is the largest slice of income declared to Finance, but it is not the only one. In total, there are six types of income which must be communicated and which must be taken into account when completing the Model 3 declaration and its respective annexes.

Earnings resulting from work are in categories A and B.

Category A

These are the income obtained through the work for others, that is, the wages or allowances paid to you by your employer over the past year. If you did an internship and were paid for it, the income is included in this category and must be declared in Annex A.

Category B

Here come the so-called green receipts or self-employed workers. It also includes business and professional income from agricultural, commercial, industrial, livestock or forestry activities.

These incomes are declared in Annex B (if you are in the simplified regime or if you issued isolated acts) or in Annex Cfor those who have organized accounting.

What if you have income from both categories?

The declaration concerns the earnings obtained through one or several categories, so you must declare what you have earned in both.

Self-employed workers also have to deliver the Annex SS (relating to Social Security).

What other income can be declared?

Also subject to tax are, for example, capital income (Category E), that is, money earned through financial investments.

Normally, interest on term deposits, Savings Certificates and bonds are excluded, since the tax on these income is already withheld by the bank.

The IRS declaration also focuses on property income (Category F) or the sale of real estate and purchase of shares (Category G).

the pensionssuch as alimony, old age, retirement or disability or survival, as well as temporary or lifetime income (Category H) must also be declared.

Do bank accounts go into the IRS return?

if the accounts belong to a bank that is not headquartered in Portugalmust be declared in Annex J.

Regarding digital bank accounts, it depends on whether or not the institution is recognized as a bank by the Bank of Portugal.

Who does not have to deliver the declaration?

There are, however, exceptions. Some people, either due to the amount or the nature of their income, are exempt from submitting a declaration.

This waiver concerns amounts that have been received separately or cumulatively.

Salaries and pensions

In order to be exempt from delivering a declaration, the amount must be equal to or less than €8,500 (€4,104 in the case of alimony) and cannot have withholding tax, that is, IRS discounts throughout the year.

isolated acts

The annual amount must be less than €1,772.80 (4 X the Social Support Index which, in 2022, was 443.20 euros) and there must have been no other income.

Other cases

Other cases in which there is exemption from submitting a declaration relate to subsidies or subsidies under the Common Agricultural Policy (CAP) with an annual value of less than €1,772.80. Also excluded are income from capital that has already been taxed at source.

Even so, these exemptions are not valid if you opt for joint taxation, receive temporary and lifetime income that are not intended to pay pensions or have income in kind.

How many declarations must a family submit?

Woman doing math on a calculator while filling out a tax return

It all depends on the income and age of the children, but also on the most favorable option, that is, the one that allows you to pay less tax or receive a larger refund. Sounds confusing? Let’s do it by steps.

I still live with my parents. Do I file the declaration alone?

Children, adopted and stepchildren, of legal age and under 25 years oldcan be considered dependents and included in the household income tax return, even if they are no longer studying.

It is enough that they continue to live with their parents and that they do not receive, per year, more than 14 minimum wages (which in 2022 was 705 euros).

Thus, if you are up to 25 years old and last year you did not earn more than 9870 euros (705 € x 14), nor did you make any withholding tax, you can submit the IRS statement with your parents.

However, and as the sum of income will be divided by all elements of the household, parents may be penalized in terms of taxes.

Therefore, it may compensate for the dependent, even if not required by law, to present an individual declaration. I.e, it will always be better to simulate first to choose the most favorable option.

And if I live with my partner, how many declarations do I submit?

It all depends on the so-called taxation regime, that is, whether you want income and expenses to be considered together or separately.

In the so-called separate taxation, each individual submits their statement with their own income and expenses that entitle them to a discount from the IRS (deductions).

In joint taxation, only one declaration is made with the income of the entire household.

It should be noted that, for the declarations to be delivered together, the holders must have the same tax address.

Joint or separate? What’s the best?

To see which is the most advantageous option, you should do three simulations: one for you, another for your spouse or de facto partner and a third together. Then compare how much you would have to pay or receive in any case and choose the one that is most advantageous.

The fact that you opt for one of the possibilities this year does not mean that you have to keep that option next year.

What is Automatic IRS?

A great advantage for those who are going to do the IRS for the first time and do not know much about taxes is the possibility of resorting to the so-called Automatic IRS.

This is a fairly simple option, since the declaration is already filled out. In this case, just check the data, confirm that the values ​​(such as expenses and income) are correct and confirm.

The bad news is that this option not available to everyone. Self-employed workers in the simplified regime registered as “other service providers” cannot benefit from the automatic declaration. The same happens if they accumulate independent activity with work for others. Those who have organized accounting, for now, are also left out.

Taxpayers who obtain income from capital (category E), property income (category F) and equity increments (category G) are also excluded from the Automatic IRS.

How to submit the declaration?

Thus, and as we have already seen, to deliver the declaration you have to access the Finance Portal and in the menu select IRS, then the two options IRS Automatic or Deliver Declaration will appear.

If you have to opt for the second option, you should follow the instructions for filling it out or, even simpler, consult the step-by-step guide prepared by the Ekonomist.

In the end, don’t forget to check if everything is right. You can also, by clicking on “simulate”, find out how much you will pay or receive in tax.

Once the process is complete, just wait for email from AT that validates the statement or asks for corrections. If everything is right, only next year will you have to worry about a new declaration.

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