Why do you want to know how tax optimization works?

The IRPF section table helps establish, proportionally, the percentage of taxes that each worker pays based on their income.

It is time to make the Declaration of Income and one of the keys to understanding how the payment of Personal Income Tax works is to know what the personal income tax brackets consist of. Learn more here https://offshorecitizen.net/.

These sections indicate what percentage of taxes must be paid by each taxpayer and are escalating, increasing in proportion to their gross income, proportionally; the philosophy behind this mechanics is to reduce the tax payment of those who have lower incomes and to increase one of the highest rents.

In this way, the sections of the IRPF for 2017 are presented below:

Personal income tax sections for 2017
Tax baseRetention
€ 0€ 12,45019%
€ 12,450€ 20,20024%
€ 20,200€ 35,20030%
€ 35,200€ 60,00037%
More than € 60,000Four. Five %

How tax optimization works

As you can see, the Income Tax table assigns the payment of taxes progressively. In addition, each section should not be understood as a tight block in which a certain percentage is taxed for the total income, although these barely exceed the limit of the new section by a few hundred euros.

In practice, this flexibility means that each worker pays a certain percentage for the money accumulated in each tranche, not for the total income obtained in the maximum tranche. Let’s see it with an example:

Imagine that a worker earns 21,000 euros gross per year, which in fiscal jargon is called “work performance”. Should I then pay 30% of taxes from the total annual salary for having exceeded the limit between sections in only 800 euros? No. In reality, the IRPF payment of this taxpayer would remain as follows:

Tax base: € 21,000
SectionTo turn off
The first installment: pay 19% of € 12,450€ 2,365.5
The second tranche: pay 24% for 7,750 (the difference between the first and second tranches)€ 1,860
Third tranche: (pay the difference between your income, € 21,000, and the tranche limit: € 20,200)€ 240
Total to pay without taking into account other fiscal and personal data€ 4,465.5

In this way, we see how the taxpayer has not had to pay the total of his income based on the retention percentage of the third tranche – 30% – by “spending” between installments only 800 euros.

Thus, from this total to be paid, the withholdings that have already been practiced throughout the year, as well as the possible deductions to which the taxpayer is entitled, must be reduced.

Who is required to present the income tax return

Knowing the IRPF tranches is a useful way to understand why we pay a certain amount of money to the Treasury in our annual income statement. However, not all taxpayers need to make this statement.

Thus, although the Treasury specifies that, in principle, “all individuals who are resident in Spain are required to declare all taxpayers,” there are a series of exceptions that we review:

Who is exempt from filing the income tax return
Workers whose annual gross salary (work income) is equal to or less than € 22,000Provided they come from a single payer.When there are several payers, provided that the sum of the second and subsequent amounts in the order of amount does not exceed the sum of 1,500 euros.When the only work income consists of passive benefits.
The limit is set at € 12,000 per year in the following casesWhen the income from work comes from more than one payer and the sum of the amounts received from the second and remaining in order of amount exceed the amount of 1,500 euros per year.When compensatory pensions of the spouse or annuities are received for non-exempt food.When the payer of work income is not required to retain.When full returns to work are received subject to a fixed rate of retention.
Income from movable capital and capital gains subject to withholding or deposit on account, with a joint limit of 1,600 euros per year.The capital gains from transfers or reimbursements of shares or participation of collective investment institutions are excluded from the joint limit of 1,600 euros per year.
Imputed real estate income, treasury bill yields and subsidies for the purchase of officially protected homes or appraised prices, with a joint limit of 1,000 euros per year.Those who have had, exclusively, patrimonial losses lower than 500 euros are also excluded.