B Law & Tax
20 September 2023

Tax advisor: Is deduction the same as tax relief?

Deduct and deduct are two common terms in the context of Personal Income Tax (IRPF) that
are frequently used. These terms relate to opportunities to reduce the amount of tax payable,
something that the self-employed should understand.

When we refer to the deduction in the income tax return, we are talking about the possibility
of subtracting a percentage or a specific amount of expenses that are eligible for deduction
from the total taxes payable or taxable income. This means that by making certain expenses or
investments that meet the requirements to be deductible, the amount on which taxes will be
calculated can be decreased.

In addition, the deduction, which is sometimes called a reduction, consists of subtracting a
fixed amount from the total income that the self-employed person must report, i.e., from his
or her taxable base. This fixed amount subtracted directly from income decreases the total
amount on which the professionals tax burden is calculated.

In the case of a 15% deduction for the purchase of a primary residence with a mortgage
guarantee, if someone spent 10,000 euros on mortgage interest during the year, their tax
benefit would be 1,500 euros. In this scenario, the deduction is calculated as a percentage of
the expense and has an impact on the amount of tax the person must pay.

On the other hand, in the context of a deduction, if someone has a deduction of €2,000 due to
their contributions to a pension plan, this €2,000 is subtracted directly from their income
before calculating taxes. This means that the person will pay tax only on the income remaining
after applying the deduction.

In short, the deduction implies a reduction based on a percentage or a part of the deductible
expenses, which affects the amount of tax calculated on the total tax liability or the net taxable
income. On the other hand, the deduction involves subtracting a fixed amount from the
taxable base, directly reducing the income to be declared and, therefore, the amount of tax
that the person must pay.

B Law & Tax International Tax & Legal Advisors.


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