Explore the New Optional Tax for services rendered in Puerto Rico

September 12, 2019
Administrator business man financial inspector and secretary making report, calculating balance. Internal Revenue Service checking document. Audit concept; Shutterstock ID 574879378; Job: NL Q3 Comercial; Client/Licensee: Banco Popular; Other: Comercial

This article is a collaboration of the Puerto Rico Society of Certified Public Accountants

By CPA Cecilia C. Colón Ouslán, CGMA, Esq.
Past Chairman of the Board of Directors – Puerto Rico Society of Certified Public Accountants

If you are self-employed and provide services, either as an individual or as a corporation, be advised that for taxable year 2019, you will have the option of paying a fixed income tax rate instead of the regular rates.

How do you know if you are eligible? The Puerto Rico Society of Certified Public Accountants says that you are eligible if at least 80% of your total gross income during the taxable year was obtained as a result of your rendered services.

You must meet two requirements in order to benefit from the Optional Tax:

  • Make sure all your income was reported on an Informative Declaration – Whoever pays for your services has the obligation to report all disbursements in the new Form 480.6SP “Informative Statement of Services Provided”. Any other income obtained during the taxable year that does not correspond to professional services must be reported on the appropriate informative return (using forms 480.6A, 480.6B, or 480.6C).
  • Pay your taxes – You are required to pay the entire amount of taxes that apply to the gross income you generated. You can pay it either through tax withholdings at source or by making estimated tax payments. You cannot have outstanding debt with the Puerto Rico Department of Treasury at the time you file your return. If you have a corporation, you must make sure that you cover the balance of the income tax that wasn’t withheld at the source. You must do this no later than the deadline to file the last installment of the estimated tax. If you provide services as an individual, you will have until January 15 of the year following the end of the taxable year to make the final estimated tax payment. If you provide services through a corporation, your last installment for the estimated tax will be the 15th of your last month of the year.

What tax rate applies to you?

That will depend on your total gross income. Examine this table:

If your gross income was: The tax payment will be:
$100,000 or less 6%
In excess of $100,000, but not more than $200,000 10%
In excess of $200,000, but not more than $300,000 13%
In excess of $300,000, but not more than $400,000 15%
In excess of $400,000, but not more than $500,000 17%
In excess of $500,000 20%

Remember that if you choose the Optional Tax you won’t be able to deduct work-related expenses on your income tax return. If you don’t have a corporation and provide services as an individual, you won’t be able to claim the deductions and exemptions that you used to claim in Schedule M and in Schedule A of the individual income tax return. If you provide services through a corporation, you won’t be able to claim expenses on the corporation income tax return.

Before you make any decision, talk to a Certified Public Accountant (CPA) to conduct a detailed analysis together and determine if the Optional Tax gives you better tax benefits. If you have a corporation, you must complete this analysis no later than the due date of the estimated tax payment’s last installment. If you file as an individual, do so on or before January 15, 2020.

For more information, read these tax-related articles: Your Business’ Deductions According to the 2018 Tax Reform and Do you make payments to suppliers? Here are the Informative Declaration’s new requirements.

We also invite you to learn about the solutions we have for business owners like you; please go to: popular.com/en/business/

 

Banco Popular de Puerto Rico (Popular) has no affiliation or relationship with the Puerto Rico Society of Certified Public Accountants. This article is informative in nature and does not represent an endorsement or an accuracy guarantee thereof. Popular or any of its affiliates, subsidiaries or related parties are and will not be liable for any special damages, direct or indirect, incidental or as a result, including, but not limited to, profit losses arising from or related to communications, articles or counseling provided by the Puerto Rico Society of Certified Public Accountants or that may arise from the information contained in this article. Popular focuses on providing banking services, and therefore does not engage (directly or indirectly) on providing any type of tax, accounting, human resources, training or marketing services. If you require any of these services, you should consult a competent professional of your choice. Popular is in no way liable for the outcome of any related endeavor if you decide to voluntarily communicate with the Puerto Rico Society of Certified Public Accountants.

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