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simplified regime vs organized accounting

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When choosing a tax regime, it is essential to understand the differences between the simplified regime and the organized accounting regime. Each has its advantages and disadvantages, and the right choice depends on the characteristics and income of your business. This article explores both regimes in detail to help you make an informed decision.

Key Points

  • The simplified regime is easier to manage and has fewer tax obligations, being ideal for small businesses with a turnover of less than 200 thousand euros.
  • Organized accounting allows the deduction of professional expenses, but requires the hiring of an accountant and has more complex tax obligations.
  • The way profit is calculated varies between the two regimes: in the simplified regime it is calculated based on a pre-defined percentage, while in organized accounting it is calculated on a case-by-case basis.
  • Companies with higher turnover and operational complexity benefit more from organized accounting.
  • Consulting an accountant can be crucial in choosing the regime that best suits your business’s specific needs.

What is the Simplified Regime?

The simplified taxation regime is the most common option, and is assigned by default by the Tax and Customs Authority when an individual entrepreneur or self-employed worker starts a business. This is characterized by the taxation of income earned by applying coefficients, without considering the expenses of the activity.

Advantages of the Simplified Regime

One of the main advantages of the simplified regime is its simplicity. You don't need to worry about keeping detailed records of all your expenses, which can be a relief for many small business owners. The simplicity of the scheme allows you to focus more on your business and less on paperwork.

Disadvantages of the Simplified Regime

On the other hand, the main disadvantage is that you cannot deduct business expenses. This can result in a higher tax burden, especially if you have a lot of costs associated with your activity. In addition, the simplified regime is limited to a gross annual income of up to 200 thousand euros.

Who Can Opt for the Simplified Regime

The simplified regime applies to self-employed workers, such as freelance professionals and sole traders, with a gross annual income of up to 200 thousand euros. However, these workers may opt for organised accounting if they consider it more advantageous.

What is Organized Accounting?

Organized accounting is a tax regime for income from commercial, industrial or agricultural activities. Under this regime, you can deduct most of the expenses related to your professional activity and it is mandatory to have a Certified Accountant. This regime is mandatory for companies and freelancers or sole traders with an annual turnover of more than 200 thousand euros.

Advantages of Organized Accounting

  • Greater tax efficiency due to the responsibility of a qualified professional.
  • Expenses and earnings are assessed more rigorously.
  • Possibility of deducting most expenses related to the activity.

Disadvantages of Organized Accounting

  • Higher costs due to the need to hire a Certified Accountant.
  • Greater administrative and bureaucratic complexity.
  • Need to keep documents organized in tax files for years.

Who Should Opt for Organized Accounting

  • Companies, such as public limited companies or limited liability companies.
  • Self-employed professionals or entrepreneurs with a net annual income of more than 200 thousand euros.

Organized accounting is ideal for more complex activities and when expenses related to the activity are greater than 25% of income.

How is Profit Calculated in Each Regime?

Calculation of Profit in the Simplified Regime

In the simplified regime, the calculation of profit is done in a more direct and less bureaucratic way. It is assumed that part of the profits are expenses, using specific coefficients for each type of activity. For example, self-employed professionals have a coefficient of 0.35. This means that 35% of gross income is considered as expenses and the remaining 65% are taxed.

Profit Calculation in Organized Accounting

In organized accounting, taxable profit is calculated by subtracting from the gross annual income all expenses incurred in the exercise of the activity, without limit. This method allows for greater precision, as it takes into account all real expenses. If expenses are greater than income, a loss may be determined, which can be deducted from taxable profit in the following 12 years, with a limit of 70% of taxable profit in each year.

Organized accounting is ideal for larger businesses, where expenses are significant and varied.

Tax Obligations in Each Regime

Tax Obligations in the Simplified Regime

Under the simplified regime, you have fewer tax obligations and fewer extra expenses. For example, it is not mandatory to hire an official accountant. However, you cannot deduct expenses, as the Tax Authority considers that 75% of the income obtained is net and that the remaining 25% corresponds to expenses.

Tax Obligations in Organized Accounting

With organized accounting, you have more tax and administrative obligations. It is mandatory to hire a certified accountant to manage the company's accounting. In addition, all expenses and income must be recorded and justified with supporting documents. This regime allows you to deduct expenses, which can be advantageous for companies with high operating costs.

Note: The choice of tax regime can be changed until March of each year and will remain in force for one year.

When to Change Regime?

Indicators for Switching to Organized Accounting

If your business is growing and gross income exceeds 200 thousand euros in two consecutive financial years, it is a clear sign that you should consider switching to organized accounting. This regime offers a more detailed and accurate view of your business finances., which can be crucial for efficient management.

Indicators for Switching to Simplified Regime

On the other hand, if your income has decreased or your business has become less complex, the simplified regime may be more suitable. This regime is less bureaucratic and can reduce administrative costs. However, it is important to carefully analyze the characteristics of your business before making any decision.

The choice of tax regime should be made based on a careful analysis of the characteristics of your business. Consulting a certified accountant can be a valuable help in this process.

Costs Associated with Each Regime

Costs in the Simplified Regime

In the simplified regime, the associated expenses are generally lower. You don't need to hire a certified accountant, which significantly reduces costs. However, you cannot deduct all expenses related to your activity, such as travel, computer equipment or rent for commercial premises.

Costs in Organized Accounting

Opting for organized accounting involves hiring a certified accountant, which increases costs. However, this regime allows for the deduction of a greater number of expenses, including hiring the accountant, equipment maintenance, among others. In addition, there is the need to comply with legal obligations, such as preparing annual tax files.

Although organized accounting has higher costs, the possibility of deducting more expenses can compensate for this investment.

Impact on Business Management

In the simplified regime, business management tends to be more direct and less bureaucratic. The simplicity of tax obligations It allows you to focus more on the growth and day-to-day operations of your business. However, this simplicity can also mean less detailed control over your finances, which can be challenging in terms of long-term planning.

Management in Organized Accounting

Opting for organized accounting implies more rigorous and detailed management. With the support of a Certified Accountant, you will have a clearer and more accurate view of your business's finances. This can help you make more informed and strategic decisions. However, this regime also brings more bureaucracy and associated costs, which may be a factor to consider. Choosing the right regime It depends on the specific needs and complexity of your business.

Tips for Choosing the Ideal Diet

Billing Volume Analysis

Choosing the tax regime should begin with an analysis of your business's turnover. The higher the turnover, the more advantageous it will be to opt for organized accounting. If your business does not involve many expenses and the turnover is small, it may be more beneficial to stay in the simplified regime.

Consulting with an Accountant

If you have any doubts, consult an accountant. An expert can help you understand which regime is most appropriate for your specific situation, avoiding unnecessary expenses or loss of sources of income. Don’t hesitate to ask any questions you may have before making a decision.

Final considerations

In short, the choice of tax regime should be made based on the size and characteristics of your business. Remember that the regime you choose will be in force for one year, but it is not a decision for life. If necessary, you can change regime in the future.

Case Studies and Examples

Example of a Business in the Simplified Regime

Imagine you have a small craft shop. Opting for the simplified regime can be advantageous due to the reduced administrative burden. You don't need to hire a full-time accountant, which reduces costs. However, you must be aware of annual billing limitations.

Business Example in Organized Accounting

Now, think of a consulting company with several employees. In this case, organized accounting is more appropriate. It allows for more rigorous and detailed financial control, which is essential for managing a larger business. Despite the higher costs, accuracy and tax compliance pay off in the long run.

Choosing the right regime depends largely on the type and size of your business. Consider your needs carefully before making a decision.

Frequently Asked Questions

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