What are the best ways to deduct income tax?

Despite being useful, the declaration of deductible expenses requires attention to specific rules. To clarify the main doubts about deduction, the professor of Accounting Sciences at the Centro Universitário do Distrito Federal Deypson Carvalho answered questions asked to vehicles of the EBC by listeners of National Radio Agency and readers of Brazil Agency.

Today’s content is part of a special series on the 2023 Income Tax declaration. Brazil Agencywe have already published articles on how to start statement, how to declare income e how to make the correct statement of income and expenses with real estate. Already National Radio Agency, we have listed 31 questions and answers on the subject. To hear the answers, click on the players below.

Click here to read and listen to the complete IR 2023 FAQ series

What are the ways to deduct the amount paid in Income Tax?

To understand how to deduct income tax, you need to understand which expenses are deductible. Professor Deypson Carvalho explains that the deductible amount depends, firstly, on the type of taxation chosen.

The simplest model is the “simplified discount”. “The declaration program will use a 20% discount on the amount of taxable income, limited to a total of R$16,754.34, replacing all legal deductions”, he says. Deypson even points out that this discount does not require documentary proof.

The other option is the “statutory deduction” taxation model. Contrary to what happens with the “simplified discount”, proof of deductible expenses is required. The rules are also more complex. The deductible expenses in this model are as follows:

• BRL 2,275.08 per dependent
• The amount paid in full as court alimony
• Education expenses limited to R$3,561.50 per person
• Full expenses paid to doctors, hospitals, clinics, laboratories, health plans and official pension.
• Supplementary pension expenses up to 12% of total taxable income.

All rules apply to dependents and spouse or partner for joint or separate declaration cases.

What education expenses are refundable?

Expenses with education of the holder, dependents and food is one of the ways to deduct Income Tax. However, there are some rules that leave people with doubts. One of these people is reader Edmilson Martins Junior. “I am always in doubt regarding educational institutions and what type of company can enter the restitution process. Do pre-university or language courses come in?”, he asks.

According to Professor Deypson Carvalho, the list of deductible education expenses in the IR is as follows: early childhood education (comprising day care centers and preschools), primary education, secondary education, higher education (comprising courses undergraduate and graduate courses) and professional education (comprising technical and technological education).

“Expenditure related, among others, to preparatory courses for civil service exams and/or entrance exams cannot be deducted; language classes, other courses and acquisition of uniforms, books and others”, says the teacher.

The individual annual limit for the deduction of education expenses is R$ 3,561.50 per person (dependent or food holder). “The amount of expenses that exceed this limit cannot be used even to offset expenses of less than R$ 3,561.50 made with the declarant or with another dependent/feeding party”, he explains.

In the Annual Adjustment Statement, the total amount paid for each educational institution must be informed, even if it is higher than the annual deduction limit. Thus, the field “Non-deductible portion/reimbursed amount” must be filled in in case there are non-deductible tuition expenses.

How to declare and deduct medical expenses?

Unlike education expenses, medical expenses are not limited in the amount of income tax deduction. The only rule is that the payments must be related to treatments of the holder, dependents or, even, food (provided that the health expense occurs as a result of a court decision). Deductible expenses are as follows:

• Doctors, dentists, psychologists, physiotherapists, occupational therapists, speech therapists, hospitals, with laboratory tests and radiological services, orthopedic devices and orthopedic and dental prostheses;
• Payments to companies domiciled in Brazil intended to cover expenses with hospitalization, medical and dental care and to entities that guarantee the right to care or reimbursement of these expenses;
• Payments made to the geriatric facility qualified as a hospital, pursuant to specific legislation; to specialized establishments related to the instruction of people with physical or mental disabilities and to the company or entity where the taxpayer works, or the foundation, fund and assistance society, in case the entity maintains a direct agreement to totally or partially cover such expenses.

These expenses must be proven. “Payments of medical expenses are supported by documents containing the name, address and, in the case of the beneficiary (person or company to whom payments are made) resident or domiciled in Brazil, their CPF or CNPJ registration number, which may be replaced by check made to the beneficiary, issued by you, your spouse or dependent”, says Deypson.

For people with physical or mental disabilities, a medical report attesting to the state of disability and proof of payment to specialized entities for this purpose are required. In the case of orthopedic devices and prostheses and dental prostheses, the medical or dental prescription and the invoice in the name of the beneficiary are required. If the medical expense refers to a dependent or beneficiary, the taxpayer must inform the name of the dependent or beneficiary in the statement, Payments Made form.

How to deduct income tax through donations?

One way to deduct income tax is through some types of donations. Reader Pierry Bós even has a question about this: “I always have a doubt when I make my statement about what types of donations can be deducted? For example, you help someone with a basic basket or even pay tithes to the church: can these things be deducted from the Income Tax?”, he asks.

The answer to Pierry Bos is no. In fact, donations subject to tax deduction are those made to funds for the Rights of Children, Adolescents and the Elderly National, district, state and municipal or donations and sponsorships made to programs to encourage culture, audiovisual activity and to sport.

“The legislation does not allow the deduction of donations made directly to charitable entities. Donations made, for example, through tithing and food baskets are not provided for in federal legislation to be reduced from the IR calculation base or the tax due”, he explains.

The sum of the deduction is limited to 6% of the tax due determined in the declaration. This limit is calculated by the program itself and the deduction only applies to the statement in which the taxpayer opts for the legal deductions.

Donations made directly in the declaration to funds for the rights of children and adolescents must be informed in the form “Donations Directly in the Declaration”, in the tab “Children and Adolescents”.

To read and listen to all the articles in the IR 2023 Tira-Dúvidas series, access the special page.