Limit of personal expenses will be $5,344.08 to apply to a reduction in income tax

Personal expenses to apply for the income tax reduction will be capped at $5,344.08, which is equivalent to seven basic family baskets. That value is already known once the National Institute of Statistics and Census (INEC) published on January 6 that this basket closed December at $763.44.

Workers must present a projection of personal expenses in January taking into account this limit, and they must compulsorily complete the annex of expenses that supports them. It is that although the deduction of personal expenses as it was known no longer exists, this record is necessary for the reduction of a tax credit.

What you should know about the income tax for natural persons in Ecuador

And it is that as of 2022, when the tax reform was applied, natural persons can make use of a reduction in income tax caused by their personal expenses, applicable before allocating tax credits to which there is place in accordance with the law. The Internal Revenue Service (SRI) explains on its website that for the calculation of the reduction in personal expenses, the value of the basic family basket in force as of December of the fiscal year for which the income to be declared corresponds.

The basic fraction deducted for this year is $11,722, this is updated each year based on the Consumer Price Index and that also adjusts the section and reduction of personal expenses. This basic fraction is taken into account to determine if the taxpayer can apply the 10% or 20% discount.

If the gross income of the taxpayer (all remunerations, including tenths, reserve funds) does not exceed the equivalent of 2.13 basic fractions —in this case, $24,967.86—, 20% of personal expenses may be deducted from the tax ; and, if it exceeds that value, you can only apply 10% of said expenses.

For one case and the other, the formula is applied: R= L x 20% or R= L x 10%, where R is the reduction for personal expenses, L is the value that is less between the projected personal expenses of the annual fiscal period. and the value of the basic family basket multiplied by seven.

That is to say that for the reduction the lesser of the two values ​​is applied: seven times the basic basket or the amount supported in invoices. Thus, if the limit is the value equivalent to seven basic baskets determined by the INEC, for this 2023 it would be $5,344.08 (which results from multiplying the December basket of $763.44 by seven). In the event that income does not exceed 2.13 times the deducted fraction ($24,967.86), then they may be deducted up to $1,068.82, which is 20% of $5,344.08. And if the income exceeds 2.13 times ($24,967.86), then only $534.41 can be deducted, which is 10% of $5,344.08.

Who could pay less income tax in 2023?

The personal expenses that will be considered for the calculation of the reduction correspond to those carried out for the concept of: housing, health, food, clothing, tourism and education, including in this last item the concepts of art and culture, provided that such expenses are supported by validly issued sales receipts that are in the name of the taxpayer or their dependents. (YO)