There are three words that all taxpayers want to run into, and they are: “pre-tax deduction”.
You have probably heard phrases like: “you can deduct this from your taxes” or “those are deductible expenses” and you have wondered if you really understand how everything related to this concept works. In fact, many people are not clear that there is a tax deduction, how it can be done, or how to request it.
What are pre-tax deductions?
To explain what pre-tax deductions are, you should know that when paying your taxes you can reduce the total amount of the tax contribution. The most common is that these kinds of expenses and subsequent deductions directly affect the way in which professionals and companies use the money for their benefit.
A pre-tax deduction is a reduction in the total amount of a person’s or organization’s tax liability upon encountering a payment that lowers their taxable income. They are usually expenses that you incur as a taxpayer during the year, which are subtracted from your gross income to calculate the amount of taxes owed that you must pay.
You should not confuse tax deductions with exemptions. A tax exemption is a tax that you will not pay. On the other hand, a tax deduction will start from the assumption that you have already paid said tax and, due to certain conditions stipulated in the current regulation, they will return the money to you.
How do tax deductions work?
To carry out a successful tax deduction, it is very important to fill out your annual return correctly and comply with the guidelines to make it valid. The process has some important limits to be aware of and requires presenting the appropriate documentation for the SAT to review, this implies:
- Have the invoice. All expenses subject to a deduction must be duly verified by means of their respective invoice or an equivalent receipt that is endorsed by the SAT, for which a purchase note does not serve as proof. Said evidentiary instrument must be in the name of the taxpayer.
- Do not exceed the established amount. For individuals, there is an amount limitation, since the amount that you want to deduct as a taxpayer must not exceed 5 salaries Units of Measurement and Updating (UMA) or 15% of the income you declare, whichever is less.
- Deductions of legal persons. Legal entities also need to present the deductible expenses through an invoice and have paid by electronic transfer, preferably. In the case of donations, they cannot exceed more than seven percent of the company’s profits.
The deductions can give you a balance in favor of the taxes that you must pay when you make your annual declaration. Do your paperwork on time and in the right way to achieve it, now you just need to know what is tax-deductible.
What is tax-deductible?
There are certain expenses that natural and legal persons can include as tax-deductible. In the case of individuals, there are personal expenses and those related to the activity they perform.
Health Deductions
You can deduct health expenses if they were for you or for direct relatives such as spouse, partner, parents, grandparents, children, or grandchildren.
- Health fees. The doctors, dentists, psychologists, psychiatrists, or nutritionists that you require and who provide you with services must have a professional degree.
- Health expenses. Hospital expenses and medicines are included when they are in the same hospital bill.
- Other expenses. Nurses’ fees, clinical tests or studies, the purchase of prostheses, recovery devices, and insurance premiums for medical expenses.
education deductions
- Tuition payments for education from preschool to high school are deductible.
Other deductions
There are other deductions such as funeral expenses, interest on mortgage loans, donations to institutions authorized by the SAT, and contributions of money for retirement.
- Natural persons with business activity can also deduct those expenses necessary to carry out their profession. For example, dentists can deduct purchases of their tools and appliances.
In the case of legal entities, the concepts allowed by the SAT focus on the expenses and investments that result in the operation of the business, for example:
- The expenses that are made in merchandise or rent of offices.
- Changes to the final price granted to the client.
- Donations.
- Uncollectible credits.
- Payments to the Mexican Social Security Institute.
- Payments to Unemployment Insurance.
- Contributions to pension fund reserves or retirement funds.
