How to Pay Less Income Tax (IRPF): Legal Techniques to Optimize Your Taxes

The Personal Income Tax (IRPF) is one of the main tax obligations we have in Spain, however, there are legal ways to reduce it. With good planning, along with knowledge of the available deductions you can access, you can optimize your tax return and reduce the amount you pay. We explain what you need to keep in mind and how you can achieve it.

IRPF and its impact on your finances

The IRPF is a progressive tax that taxes the income earned by individuals residing in Spain. This includes salaries, capital gains, savings income, and other types of income.

The amount you pay in IRPF depends on your taxable base, which is the sum of all your income minus the deductions allowed by law. Considering these points, optimizing the payment of this tax can free up resources for other needs or savings. However, how can you pay less to the Treasury? Here are some secrets on how to pay less IRPF.

Techniques to reduce the taxable base

Reducing the taxable base is one of the most effective ways to pay less IRPF. Below, we present some of the most common techniques, and don’t worry, they are all completely legal.

Personal tax deductions

Tax deductions are a key tool for reducing the taxable base and, therefore, the amount of IRPF you pay. A clear example of this is, if you purchased your main residence before January 1, 2013, you can benefit from a deduction for the acquisition of your main residence. With this deduction, you can deduct up to 15% of the amounts paid for the purchase of the home, with a limit of 9,040 euros per return.

Additionally, there are other deductions for family and dependents. If you have children under 25 or family members over 65 who are financially dependent on you, you can apply for additional deductions on your income tax return. These deductions vary depending on the autonomous community, so it’s important to check based on where you reside. 

To learn more about how to optimize your tax deductions based on expenses and investments, we recommend reading this article on the difference between expenses and investments.

Contributions to pension plans

Contributions to pension plans are another effective way to reduce the taxable base. By contributing to a pension plan, the amounts contributed are directly deducted from your taxable base, which can significantly reduce the amount of IRPF you pay. The general contribution limit for 2024 is 1,500 euros, although if you are over 50 years old or your employer makes contributions, this limit may increase.

These contributions not only provide an immediate tax benefit but are also a valuable tool for ensuring your long-term financial security. By reducing your taxable base now, you save money in the present while preparing for retirement.

Strategies to maximize reductions

In addition to the deductions mentioned, there are other strategies you can employ to further reduce your IRPF.

Investments in tax-advantaged products

Investing in tax-advantaged products not only optimizes your tax return but also helps you build solid wealth over the long term. An interesting option is crowdlending, a form of investment that allows you to finance projects in exchange for an attractive return. 

On Inversa, you'll find a platform to invest in loans to small and medium-sized enterprises (SMEs). Our platform allows you to diversify your portfolio and generate passive income. Additionally, with proper management, these investments can benefit from favorable tax treatment.

If you're interested in exploring more on how to optimize your investments, check out our 6 tips for investing in factoring, where we explain how to use alternative investments to maximize your tax benefits.

Donations and contributions to NGOs

Making donations to NGOs is not only a charitable act, but it can also help you reduce your IRPF. Donations to non-profit organizations allow you to deduct a significant percentage of the amount donated. In 2024, the first donations of up to 150 can be deducted at 80%, while the excess is deducted at 35%.

If you donate to the same NGO for three consecutive years or more, the deduction for the excess increases to 40%.

Tax planning and joint returns

Good tax planning is essential for optimizing your tax return. Analyzing the available options and making informed decisions can make a significant difference in the amount of IRPF you pay.

Good planning also involves analyzing all available opportunities. To improve your tax planning, you can check out how to plan family finances, and learn how to optimize every part of your income.

Long-term impact of tax planning

Long-term planning is a key point for optimizing your IRPF. Conducting an annual review of your tax situation, as well as adjusting your investments or contributions to pension plans based on changes in the law, will allow you to maximize deductions and minimize the long-term tax impact.

When is a joint tax return advisable?

A joint tax return can be beneficial for some families, especially when one of the spouses has low or no income. This option allows for additional reductions and may result in lower tax payments compared to individual returns.

However, before opting for a joint return, it is advisable to run a simulation. This way, you can evaluate which option is more advantageous for you and your tax situation.

Inversas recommendations for reducing IRPF

Optimizing IRPF payments requires a combination of planning, knowledge of available deductions, and the use of appropriate tax tools. Below, we present two additional aspects we know are crucial to maximizing your tax savings.

The importance of having tax advice

Having expert tax advice can make a big difference in the outcome of your tax return. A tax advisor will not only help you identify all available tax deductions and reductions but also guide you in long-term planning to minimize the tax impact in the coming years.

Tax legislation is constantly changing, so a professional in the field can ensure that you always comply with the regulations and take advantage of all the savings opportunities available to you.

Review your tax situation annually

Reviewing your tax situation annually is a practice that is essential for optimizing your IRPF payment. Every year, changes may occur in your personal situation, such as the birth of a child, the purchase of a home, or changes in your income, which affect your tax return. Therefore, with an annual review of your situation, you can adjust your tax strategies, ensuring that you always make the most of available deductions and possible reductions.

This review also guarantees that you can plan for the long term and create your investment strategies and contributions to pension plans.