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IRS Tax Return 2014: what you need to know about the second phase

May is the month where takes place the delivery of the second phase of IRS tax return. So in case in 2014 you received one of these categories of income, you should deliver your IRS this month: local term rental income, local lodging income (short term lets to holidaymakers), fees from scientific, artistic or specialised services performed in Portugal, capital gains from property sales or financial investments.

Rental income in 2014 in Portugal (long term lets)

Who in 2014 had leased properties and thus earned rental income for long term lets, need to fill the annex F of the IRS. Please note that Landlords can deduct proven expenses incurred during the previous year in order to reduce the impact of tax payable. These are some of the expenses allowed: property refurbishment, council tax paid in 2014, insurance premiums, condominium expesnes, security, etc.

Some expenses are not allowed, such as purchase of new furniture, energy certification, installation of air conditioning, new irrigation system in the garden, etc.

Local lodging income (short term lets to holidaymakers)

For those taxpayers with activity registered at the tax office in 2014 or before, you need to submit a tax return in May, even that you had no income in 2014. You need to fill annex B and your tax will be based on your income, in case you are on the simplified regime or based on your profit, in case you are on the normal regime (annex C in this case).

It’s important that you issued and submitted all the invoices for your rentals in 2014, as this will be checked against the amounts declared on your tax declaration.

Fees from scientific, artistic or specialised services performed in Portugal  

If you are registered at the tax office as a sole trader, or if you’re not but you issued a single receipt in 2014 of business and professional income (Ato Isolado – unique act) you need to fill your IRS this month. There are two ways of self-employed workers being taxed: or by following the rules of the simplified procedure (the vast majority is in this scheme) or the rules of proper accounting.

What is the difference between the two schemes? In simplified scheme the IRS considers that 25% of your income is used for the expenditure necessary for the taxpayer to provide their service. Ie taxation levied only on 75% of the income of these workers. On the proper accountancy scheme, your tax is based on your profit.

This scheme is mandatory for taxpayers who have an annual income over 200,000 euros or for those that opted for it. In this case, taxpayers may submit expenses alluding to the exercise of their activity, and the net income is calculated by deducting charges to income. The services of a professional accountant are required for this.

Many self-employed forget to close its activity, when they stop providing professional services. In these cases, taxpayers must still submit the IRS in May. Please don’t forget to also fill the annex for Social Security payments, to avoid fines.

Capital gains from property sales

If last year you sold a house you need to declare this operation on your IRS. In fact, capital gains obtained by the sale of real estate must be declared to the tax authorities and are subject to taxation. For this you have to fill the Annex G.

In certain situations it is possible to be exempt from tax, for instance when concerning capital gains from the sale of real estate purchased or inherited before 1989. Nevertheless, taxpayers always have to declare these operations, irrespective if there was a gain or not and if it was a property purchased before 1989 (for this purpose fill Annex G1 concerning untaxed capital gains).

Please note that if you sold your main habitation property and use the entire amount from the sale to buy another house (for own and permanent housing), to build a home or purchase of land intended for the construction you will not pay capital gain tax.

Please remember, we can fill your tax return and assist you with all this bureaucracy, feel free to contact us as soon as possible and avoid any late submission fines.