How Income Tax Works and How to Pay Less Tax Legally

Main points to highlight

Understanding how Income Tax works.
Advantages and disadvantages of the Complete and Simplified models.
Deductible expenses that may reduce the amount due.
Importance of including dependents correctly in the declaration.
Ways to take advantage of discounts on renovations and real estate investments.

What is Income Tax and how does it work?

Income Tax is an important federal tax in our tax system.

It is charged on the income of those who work. Federal Revenue takes care of everything, including deadlines and rules for paying the GO.

If you earned more than a certain amount, you need to file an Income Tax return.

This helps to avoid problems with the Federal Revenue.

In 2025, anyone who earned more than R$33,888.00 must declare Income Tax.

The deadline for this is from March 17 to May 30. If you are late, you may be subject to fines.

Those who have to pay Income Tax include those who earned more than R$$ 30,639.90.

Also those who have assets valued above R$800,000.00.

And who invested in the stock market.

Furthermore, anyone who earned more than R$153,199.50 from rural activities must also declare.

There are two ways to declare: complete and simplified.

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Declaration Type	Benefits
Complete	Recommended for those who have many deductible expenses, such as health and education, as it lists all possible deductions.
Simplified	Ideal for those who have few deductible expenses, it applies a standard discount of 20% on taxable income, limited to R$ 16,754.34.

THE Federal Revenue leaves the statements available in March.

Tax refunds begin May 30, 2025. Seniors and people with special needs are served first.

Declaration Models: Complete and Simplified

When we choose between the full statement and the simplified statement, we must think carefully about our expenses and income for the year.

Each type has its advantages and disadvantages. This can greatly change how much we pay or get back.

THE full statement It is good for those who have many expenses that can be deducted, such as health and education.

These expenses must be borne by the taxpayer or his/her dependents.

This model is best for those who earn more than R$83,771.70 per year, or R$6,980.97 per month.

It is essential to keep receipts for these expenses for at least five years.

THE simplified statement gives a discount of 20% on taxable income, up to R$16,754.34.

It's a good choice for those who don't have many expenses to declare.

This option does not require proof of expenses, which helps save time and avoid tax problems.

See the main differences between the two declaration models:

Aspects	Full Statement	Simplified Declaration
Type of deduction	Actual expenses with proof	Standard discount of 20%
Deduction limit	No absolute limit	R$16,754.34
Recommended profiles	Annual income exceeding R$83,771.70	Lower volume of deductible expenses
Requirement of evidence	Yes, keep for 5 years	No

Until the deadline, we can change our minds about the choice of statement.

But once you send it, you can't change it anymore. That's why it's crucial to choose well before sending it to Federal Revenue.

Deductible Expenses: Health, Education and Others

Health and education expenses are well known to IR deductions.

There is no limit to deducting medical expenses. We can include consultations, exams and medical procedures in the declaration.

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Spending on education is also important.

Each person can deduct up to R$3,561.50 per year. This includes school fees and higher education.

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Dependents are also considered in the declaration.

We can deduct R$ 2,275.08 per dependent per year. This helps to reduce Income Tax.

Keeping receipts of expenses is essential. Therefore, IR deductions are accepted by the Federal Revenue Service.

Contributions to private pension plans are also deductible.

For example, up to R$121,000 of annual taxable income can be deducted. If we earn R$100,000, we can deduct up to R$12,000.

Expense Type	Deduction Limit
Education	R$ 3,561.50 per person per year
Dependents	R$ 2,275.08 per dependent per year
Private Pension (PGBL)	12% of taxable income
Medical Expenses	No limit

For those who choose the simplified model, the deduction is 20% of the income.

But it does not exceed R$ 16,754.34. This is a good option for those who do not have many specific expenses.

To take advantage of these deductions, it is important to organize well.

Make sure you have all the documents in order for the declaration.

How to make the most of dependents on your Declaration

Include IR dependents in your IR statement can be a great strategy. It can help to reduce tax and save a lot.

The deadline to file your Income Tax return in 2025 is from March 17 to 30. Understanding the rules and advantages of including dependents is essential.

You can include children, stepchildren, spouses and other family members.

This depends on your financial situation and age. Children and stepchildren under 21 or up to 24 years of age who are studying can be dependents.

Children or stepchildren with disabilities may also be included, as long as their income does not exceed certain limits.

Parents, grandparents and great-grandparents can be dependents if they received up to R$ 24,511.92 in 2023.

Include IR dependents can greatly reduce the tax. This is especially true if the dependent has a good income.

For each dependent, the annual deduction is R$ 2,275.08. This can be very useful for reduce tax.

It is important to report all income, expenses and assets of dependents.

It is also necessary to prove expenses with documents.

In cases of shared custody, only one parent can declare a dependent.

It is important to avoid declaring dependents twice to avoid problems.

The IR program does not automatically evaluate whether to include dependents in the IR statement is advantageous.

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Therefore, it is recommended to carry out simulations to find the best solution.

Organizing and saving documents throughout the year makes filing your return much easier. This helps you avoid problems with the IRS.

Errors must be corrected quickly to avoid fines.

This way, we can maximize the benefits of including dependents in the IR statement and save more.

Advantages of choosing the right type of Declaration

Choose between the full statement and the simplified one is essential.

This helps to take advantage of the IR advantages and doing a good tax planning.

Each type has its benefits, such as deductions and ease of use.

In the full statement, we can deduce education expenses up to R$ 3,561.50 per person.

Health expenses have no limit, which is great for those who spend a lot on health.

Additionally, there is a deduction of R$ 2,275.08 per dependent, reducing the tax.

THE simplified statement, in turn, allows an automatic deduction of 20% from income.

The limit is R$ 16,754.34, perfect for those who have few deductions.

It is ideal for those looking for ease in filling out.

The Federal Revenue program helps you choose the best IR statement. Simply enter deductible income and expenses.

The deadlines for submission are from March 1 to May 30, 2025. The limit for taxable income is R$ 33,888.

So, it is important to analyze our finances and expenses.

This way, we can choose the best model for our situation, ensuring the best IR statement.

Deductions in the Declaration: Renovations and Other Expenses with Real Estate

You IR deductions are very important when making the declaration of assets.

The IRS allows spending on renovations. This helps to justify the increase in property values.

The property value update must include expenses for renovations paid in the same year as the declaration.

For example, for the 2024 Income Tax Return, expenses from 2023 are considered.

Imagine a property financed for R$150,000. By 12/31/2023, R$40,000 had been paid and R$10,000 had been spent on renovations.

The final declared value will be R$ 50 thousand.

For paid-off properties, renovation costs are added to the purchase value from the previous year.

Allowed spending types include:

Construction, expansion and renovations with projects approved by municipal bodies.
Small works, such as painting and repairs to tiles and plumbing.
Public works, such as curbs and road paving.

It is essential to detail expenses. Include the invoice number, purchase date, amount spent and supplier.

For services provided by individuals, the receipt must include the date of execution, the provider's CPF number and the value of the service.

When selling a property, the capital gain is taxed at 15%.

For example, a property purchased for R$ 300 thousand and sold for R$ 600 thousand would have a profit of R$ 300 thousand.

This would result in a tax of R$ 45 thousand.

With the declaration of improvements of R$ 100 thousand, the value of the property in the declaration increases to R$ 400 thousand.

This reduces the profit to R$ 200 thousand and the tax to R$ 30 thousand.

Thus, there is a saving of R$ 15 thousand.

These expenses must be equivalent to at least 1% of the property's market value.

The capital gains reduction factor reduces the IR calculation basis.

To keep receipts, the deadline is 5 years.

It is important to remember that only evidence from the same year as the declaration can be included.

Additionally, platforms such as QuintoAndar issue rental income reports.

These incomes are important for the declaration of assets and to make the most of the IR deductions.

Income Tax for Self-Employed Workers: Possible Deductions

The *self-employed income tax* declaration may seem complicated, but there are several deductions that make this process easier.

Working as a freelancer offers tax advantages.

This includes operating expenses and up to one-fifth of household expenses if the work is done from home.

Let's better understand how to optimize these deductions.

For those who work independently, it is crucial to keep detailed track of expenses.

This includes operating expenses such as telephone, office supplies, office space rental and utilities.

We cannot forget the deductions for publication and special clothing necessary for professional activity.

Many self-employed people use their own homes as a workspace.

In this case, *independent taxation* allows you to deduct up to 1/5 of your work-related household expenses.

This aspect is especially beneficial for reducing the incidence of Income Tax.

In addition, there is the possibility of deducting contributions to unions and associations, as well as expenses for congresses and seminars.

These expenses must be necessary for the self-employed activity and there must be no reimbursement.

It is important to remember that all these deductions must be recorded in the Cash Book.

It is worth noting that Income Tax rates for self-employed workers vary from 7.5% to 27.5%, depending on the amount received.

The social security contribution (INSS) varies from 11% in the Simplified Social Security Plan to 20% on the self-employed worker's remuneration, respecting the ceiling limit.

Let's look at some critical numbers.

If the taxable income from the previous calendar year is R$33,888.00, the self-employed person is required to declare Income Tax.

For rural activities, this amount increases to R$169,440.00.

Exempt or non-taxable income totaling R$1,400,000.00 also requires declaration.

Simples Nacional is another relevant aspect, simplifying taxation by allowing the collection of several taxes in a single guide, the DAS.

*Self-employment deductions* are essential for the financial health of these professionals.

They allow everyone to pay only what is fair.

Private Pension: How it can help reduce taxes

Contribute to a plan of private pension income tax type PGBL can be a good strategy.

This helps reduce taxes. You can deduct up to 12% from your taxable income in Income Tax.

To do this, it is necessary to invest in this plan and also contribute to the INSS.

THE private pension There are different types of taxation. There is regressive and progressive taxation. The choice between them affects the tax reduction.

In the regressive model, tax rates are higher in short periods. They decrease over time.

Investment Period	Tax Rate
Up to 2 years	35%
From 2 to 4 years old	30%
From 4 to 6 years old	25%
From 6 to 8 years old	20%
From 8 to 10 years old	15%
Over 10 years	10%

In progressive taxation, rates vary from 0% to 27.5%. They depend on the income bracket.

But remember, the progressive table starts at 15% and increases annually.

Here's an example: Maria earns R$200,000 per year.

She spent R$ 18,000 and invested R$ 24,000 in a PGBLThis increased your deductions, reducing your taxes and increasing your refund.

To have the minimum rate of 10% in the regressive table, Maria would need to maintain the investment for 10 years.

This shows that the private pension income tax is essential for retirement. It helps reduce taxes and optimize resources.

Investments that help reduce income tax

You IR investments are important to reduce the tax.

Supplementary Pension Plans, such as the PGBL, are great examples. They allow IR exempt profits.

To invest in PGBL and reduce taxes, the deadline is December 30th.

These plans allow you to deduct up to 12% from your gross income.

For example, if you have R$420,000 in income, without the PGBL, you pay R$400,000 in tax.

But, investing R$ 50 thousand in the PGBL, you pay R$ 350 thousand, saving R$ 13,750.

In the regressive regime, the rates change over the investment period:

Period Maintained	IR rate
Up to 2 years	35%
From 2 to 4 years old	30%
From 4 to 6 years old	25%
From 6 to 8 years old	20%
From 8 to 10 years old	15%
Over 10 years	10%

In the simplified statement, the PGBL is not used.

However, there is no tax on pension contributions. This helps to multiply investments over time.

And, after 10 years in the PGBL, the tax drops to 10%, much lower than the 15% of common applications.

Real Estate Investment Funds (FIIs) also help reduce taxes.

They offer income exempt from income tax to individuals, as long as they meet certain requirements. This makes them a good option for IR investments.

It is crucial to analyze each investment from a tax perspective before investing.

This way, we can maximize tax benefits and ensure IR exempt profits whenever possible.

Rental and Income from Real Estate: Possible Deductions

Homeowners who rent out properties can take advantage of several deductions.

Income tax on rental property has varying rates. This can result in the tax you pay being much lower.

For example, if the monthly rent is up to R$2,259.20, you do not pay tax.

If it is from R$ 2,259.21 to R$ 4,664.68, the rate goes from 7.5% to 22.5%. There are specific deductions for each range.

Income Range (Monthly)	Aliquot	Deductible Portion
Up to R$ 2,259.20	Free	Free
From R$ 2,259.21 to R$ 2,826.65	7,5%	R$ 169.44
From R$ 2,826.66 to R$ 3,751.06	15%	R$ 381.44
From R$ 3,751.07 to R$ 4,664.68	22,5%	R$ 662.77
Above R$ 4,664.69	27,5%	R$ 896.00

Additionally, expenses such as property tax and condominium fees can be deducted. This helps to reduce the tax even further.

But remember, the IRS can ask for proof of these expenses for up to 5 years.

Donations and Social Investments: Reducing Taxes Legally

To the IR donations are a great way to help social causes and save on taxes.

In Brazil, we can take up to 6% of tax with donations to children's rights funds.

This not only helps society, but also reduces income tax.

You tax benefits donations go beyond children's funds. We can give up to 7% of the tax to sports and 4% to culture.

Companies also have advantages, being able to deduct up to 30% from investment in culture.

Donation Type	Individuals	Legal Entities
Children and Adolescent Funds	6% of IR due	1% of IR due
Sports Projects	7% of IR due	2% of IR due
Cultural Projects	6% of IR due	4% of IR due
Federal Public Utility Entities and OSCIPs	–	2% of operating profit

In 2022, the donation potential was R$1.4T 9.65 billion.

But only R$ 278 million was donated. This shows that we can do much more. Let's make a difference together!

Common Income Tax Return Mistakes and How to Avoid Them

It is very important to avoid mistakes when filing your Income Tax return. This helps to avoid IR fines and financial problems.

A common and serious mistake is not including your own income or that of dependents.

It is essential to include all income for the year.

Another common mistake is to replace commas with periods or not include decimal places. This can significantly change the values you declare.

For example, R$ 1,000.00 can be entered as R$ 100.00.

It is also a mistake to classify taxable income as exempt, which can cause problems with the IRS.

Forgetting to include dependents, such as scholarship recipients, is another common mistake.

Not having receipts or invoices for medical expenses is also rejected by the IRS.

Providing incorrect bank details may delay your refund for up to a year.

Declaring non-deductible expenses, such as courses, may lead to the declaration being rejected.

Failure to declare purchased goods or updating values incorrectly can also result in fines.

Therefore, it is crucial to review everything before submitting.

Many mistakes happen due to lack of preparation.

Therefore, it is best to start filing your return in advance. This helps to avoid mistakes and makes the process easier.

Common Error	Possible Penalty	Solution
Omission of Income	Severe Fines	Include all income
Replacing Commas with Periods	Discrepancies in Values	Review all values
Income Misclassification	Problems with the IRS	Check correct classification
Include Dependents without Income	Error in Declaration	Add income of dependents
Medical Expenses Without Receipts	Rejection of Expenses	Keep valid receipts
Incorrect Bank Account Details	Delay in Refund	Review bank details
Non-Deductible Expenses	Rejection of the Declaration	Certify allowable deductions
Failure to Declare Acquired Assets	Fines	Declare all assets correctly

To avoid IR declaration errors, it is important to start early and review everything carefully. This way, we can avoid fines and have a smooth process.

How Income Tax Works: Conclusion

This article has shown several ways to legally reduce your Income Tax.

It is crucial to understand how Income Tax works.

It is also important to know which statements are most advantageous and how to maximize deductions.

Using all deductible expenses, such as health and education, is essential.

In addition, declaring dependents correctly brings benefits. Opting for private pension plans and investing in real estate and donations also helps.

For freelancers, these strategies are even more important.

It is vital to avoid errors in the declaration and use free services for tax consultations.

Planning our finances well not only complies with the law.

It also makes resource management more efficient and fair, meaning we legally pay less tax.

Economy

Andre Neri March 24, 2025