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Most individuals, especially those with incomes of $20,000 or less, will not have to pay taxes this year, thanks to the tax reform.  

Those who for years have carried the heaviest tax burden will continue to do so, because they will not see the gradual reduction in tax rates until after 2014; but for now, they can’t deduct much of their expenses, following the elimination of multiple tax deductions.

“There are various cases. Some taxpayers saved between $5,000 and $6,000,” said Rafael del Valle, an associate at UHY Del Valle & Nieves.

“But I have a client who’s going to end up paying $20,000 or more,” added Del Valle admitting that many of the last-minute changes implemented by the local Department of the Treasury have promoted that dozens of people like him and his accountant colleagues carry out all sorts of maneuvers to fill out their clients’ tax returns or enquire about which options are more beneficial for them.

“Those who have saved the most are people who earn less than $20,000,” Del Valle said.

The 2011 Internal Revenue Code exempted individuals whose Adjusted Gross Income was $20,000 or less.

According to data from the Department of the Treasury, that universe of taxpayers was nearing the 530,000 in the 2009 tax year.

“The vast majority of individuals experienced an improvement this year,” said Rolando Lopez, an associate at KPMG.

“But the bulk of the savings have been for the masses and not for the 15 to 20 percent of taxpayers who pay 70 percent of the (government) tax collections,” he said.

According to the government, the average savings in tax returns would be 25 percent this year.  In 2013, taxpayers with a net taxable income of $25,00 would get a 14 percent income rate. But it will not be until 2014 when taxpayers with a net taxable income of $45,000 or more will see a reduction in their tax rate from 33 to 25 percent.

For those who pay almost two thirds of the full collections of the exchequer for income tax, the reform will only be a sort of fine saving until its second phase is implemented, CPAs explained. This is only applicable starting in 2014, provided that the Treasury stabilizes its tax collections and the economy sees some improvement, according to the provisions of the new tax code.

The 2011 Internal Revenue Code eliminated the fixed deductions that were listed in detail for the personal use of car expenses, children school education expenses, child care, as well as nursing homes or care for the elderly, payments for home rent and made to the Municipal Income Collections Center for the main residence and education expenses of dependents.  

They also eliminated the benefit pertaining solar equipment expenses and donations to the Remediable Catastrophic Diseases Service Fund.

According to Rolando López, taxpayers with a considerable portion of passive income could pay more taxes than before, due to the gap between the elimination of deductions and the gradual low in tax rate, which was carried out in order not to have a considerable impact on the exchequer’s income flow.

According to Rafael del Valle, the tax reform has entailed a much more complex and confusing panorama for individuals with special entities, such as corporations for individuals or special associations, as a result of the alternate basic tax. The Department of the Treasury subsequently clarified the matter, explaining that when individuals have passive incomes at preferential rates, said income is calculated in a special annex (A2) to add it up to the salary and determine the tax rate they would pay.

The accountant especially explained that many individuals with special associations were affected because losses in special associations now can only be deducted against the income of another corporation, but not against the salary the person earns.  

“I have clients who decided to invest in real estate to have an additional income and now their properties have lost value and they can no longer deduct their losses in their association’s tax return,” Del Valle said admitting that the situation has urged citizens to file tax returns pursuant to the 1994 Code, though they just a few.


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