When Deducting Expenses
Mistake #10. Expenses such as grocery purchases, and the home phone, among other expenses, are deducted.
How to avoid making this mistake: Only those expenses that are strictly necessary for conducting business or company activities can be deducted.
Mistake #11. Medical and dental professional fees, hospital and funeral expenses, or donations are deducted in monthly prepayment or estimated tax returns.
How to avoid making this mistake: The above-mentioned expenditures are deductible for individuals, but only when preparing their annual return.
Mistake #12. Deductions are made for expenses without there being an invoice, or a receipt for professional fees, or a lease that satisfies all requirements; deductions for expenses with only a receipt (for the purchase) are also made.
How to avoid making this mistake: In order to deduct any expenditure, purchase or investment, you must have proof, whether it is the invoice, receipt for professional fees or the lease. A bill of sale or sales receipt is not enough for a deduction; if you deduct anything using a bill of sale or sales receipt, the authority may impose sanctions and collect unpaid taxes along with adjustments and surcharges.
Mistake #13. Expenses are deducted using invoices issued in another person’s name.
How to avoid making this mistake: In order for you to be able to deduct any expenses, the invoice, receipt for professional fees or lease must be in your name, otherwise it is not deductible.
Mistake #14. Deducing the purchase price of an automobile, as well as expenses related thereto, when said vehicle is for personal or family use.
How to avoid making this mistake: Investments in automobiles as well as expenses related thereto are deductible only if the automobiles are used exclusively for income-generating operations.
Mistake #15. The taxpayer submitted a notice of operation suspension due to having stopped working or having closed the business; however, subsequently resumes operations and issues receipts or invoices but fails to notify the Tax Administration Service (Servicio de Administración Tributaria or SAT) of the resumption of operation.
How to avoid making this mistake: If you suspend operations, and subsequently resume same, either in the same regime or another, you must notify the SAT of the resumption of operations in order to be able to issue tax receipts, and where applicable, you must restate the economic activities and corresponding obligations according to the new operation.
Mistake #16. When sales or services are provided to the general public, some taxpayers do not provide bills of sale to their customers; or, if they have tax-receipt type cash registers, they do not issue the receipt.
How to avoid making this mistake: When making sales or providing services to the general public, and customers do not ask for an invoice, they should always be given a bill of sale or, if applicable, the receipt from the tax-receipt type cash register, regardless of whether or not they ask for it. Failure to provide tax receipts from sales or services is an infraction of the law and is punishable by a fine and/or closure of the establishment.
If you do not issue receipts, customers can report you to the SAT and you will be sanctioned; in turn, you can report providers that do not comply with said obligation.
Mistake #17. A person who is registered as a real property landlord or lessor decides to open a business and has invoices printed with the Tax Identification Card he already has, without notifying the SAT.
How to avoid making this mistake: If a person decides to conduct an activity other than, or in addition to, the activity as given to the SAT, s/he must submit a notice restating the business or gainful activities/operations and obligations; once this change has been effected, s/he can have the tax receipts printed and file returns for each of the regimes.
Mistake #18. Submits a notice of change of official address (address used for tax purposes); nevertheless, continues to issue invoices or receipts with the previous address.
How to avoid making this mistake: Once the change of official address notice is submitted, the receipts subsequently issued must contain the new address given to the SAT.
Mistake #19. Turn over original documents to the accountant or agent/administrator, such as invoices and income and expense report, so that they may file the return and make the tax payment, but not request that said documents be returned, nor ask to be given the original of the acknowledgement of receipt to verify that the returns were submitted.
How to avoid making this mistake: All original tax documents must be kept for a period of 5 (five) years at the official address used for tax purposes as noted with the SAT; as such, you are encouraged to not release originals to others and to always ask for the acknowledgment of receipt from the accountant for the returns filed.
The accounting includes the invoices for income and deductions, log or record books, and returns, among other documents.
Mistake #20. Not keep the accounting ledger(s)
How to avoid making this mistake: Generally, all taxpayers are required to keep accounting records, i.e. they are required to maintain a record of income and expenses in ledgers, either simplified or general, depending on the tax/fiscal regime they were registered in; failure to do so will result in a sanction. To learn more about accounting ledgers, visit the Taxpayer Assistance Module nearest you and inquire as to your actual case.
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