There are occasions in which certain terms lead us to doubts and ignorance that can cause fines or major problems with the Treasury. For instance, Do you know what the tax base is?
This concept must be taken into account when making invoices, but it is also used to know how much tax must be paid. We will talk about it below.
What is the tax base
According to article 50 of the General Tax Law, the tax base is:
"The amount of money or of another nature that results from the measurement or valuation of the taxable event."
In other words, it is one that encompasses all the income that is had, both in money and in kind.
We are going to put an example. Imagine that you are self-employed and work for eight clients. You make an invoice to each one and, when the quarter arrives, you need to know what the tax base is for your income, but also for your expenses.
Thus, the tax base of income is the sum of all those invoices that you have made to clients. Now, as you know, the invoices have a base price on which taxes such as VAT and personal income tax are applied. Knowing this, the tax base is not the total of the invoice, but the price before applying those taxes.
Let's say you have eight invoices of six hundred euros each. Your work is worth those six hundred euros, but you have to make the invoice with VAT and withholding personal income tax. Therefore, that invoice will be €600 + VAT (21% of €600) – Personal Income Tax (15% (sometimes 7) of €600).
In the case of expenses, the same thing would happen. The VAT that has been applied to you is broken down, as well as the IRPF, and on that basis is how the taxes to be paid are applied.
What does the tax base include?
Focusing on the tax base of invoices or income, there are several elements that can be included in it. The main ones are the following:
- Income from work for others. That is, your salary if you work for someone else.
- Income from self-employment. That is, the invoices that you issue as a freelancer and that are your income.
- Rentals.
- Capital gain income.
- Dividends.
- Pensions
- Annuities.
- Canons.
- Lottery prizes.
- Prizes in cash or kind.
- Income in kind.
Taxable Base vs. Taxable Base
Many times these two concepts tend to be thought to be the same, but in reality they are not. In fact, one depends on the other.
The taxable base is the one that is used to calculate the IRPF. And the taxable base is the one that is used to know what the value of the taxable base is.
Let's explain it in another way.
- Liquidable basis: is the tax base before deductions and reductions are applied.
- Tax base: It is the difference between the gross income and the reductions and deductions.
It is true that on many occasions it is the same, but there may be cases in which this does not happen.
How to calculate the tax base
If at some point you have to calculate the tax base, because you don't have it and you only have the final amount, you can do it. In fact, the formula is as follows:
Tax base = Gross income – Deductions
That is, you have to put the amount you earn and subtract the deductions that have been applied to you.
For example, following the previous topic, of a self-employed person and an invoice of 600 euros. If you have paid 636 euros in total, If you want to find out what the tax base is, you would have to follow the formula:
Tax base = Gross income – Deductions
Tax base = 636 – Deductions
And what would those deductions be? As we have said before, we have VAT, which is 21%, and personal income tax, which is 15% (this added). Therefore,
Tax base = 636 – VAT (126) + Personal Income Tax (90)
Tax base = 600 euros.
The three methods for calculating the tax base
As you have seen, knowing what the tax base of a bill it is easy to take out. What you may not know is that this method is called "direct estimation".
Actually, when calculating this term, three methods can be used:
Direct estimation method
It consists of obtaining the real data of the person to be able to determine the tax base regardless of what they have to bear (IRPF, VAT...).
Objective estimation method
It is one in which, through modules, magnitudes or ratios, an average tax base is obtained. I mean, it's not real. but it is an average of what, due to these conditions, is thought to be its average.
Of course, this may or may not be close to reality (both for and against).
Indirect estimation method
It is carried out by the Tax Administration itself, in such a way that he carries out some expert reports with which he reasons and determines the appropriate tax base.
This is used when there is no way to calculate it with the previous methods and also the person does not have the accounting books, has not filed a return, there is no updated data...
Is it clearer to you now what the tax base is?