The most common mistakes in tax returns

The most common mistakes in tax returns remain largely unchanged. Typically, issues arise when claiming tax deductions. This year, it’s particularly important to pay attention to changes in the eligibility criteria for tax benefits for non-working spouses.

We’ve compiled a list of common errors made by taxpayers. For a more detailed understanding of this issue, you can always reach out to our 360WEDO specialists for advice. Simply submit a request through our website, and we’ll be in touch.

Failure to File a Tax Return

The primary mistake is when a taxpayer who is required to do so fails to submit a tax return altogether. According to § 38g of the Income Tax Act, anyone whose annual income subject to personal income tax exceeds CZK 50,000 must file a tax return for 2024, unless the income is exempt or taxed at a special rate.

Some individual entrepreneurs operating under the fixed tax (flat-rate) regime should also remember to file a tax return. An entrepreneur who has switched to the single tax regime must submit a tax return for 2024 if any of the following situations occurred in the previous year:

• The entrepreneur worked under an employment contract, regardless of the duration of employment.
  
• The entrepreneur performed work for another employer under an employment contract with monthly compensation exceeding CZK 4,000.
  
• The entrepreneur entered into a work performance agreement with monthly compensation exceeding CZK 10,000.
  
• The entrepreneur entered into a work performance agreement with monthly compensation up to CZK 10,000 and simultaneously signed a taxpayer declaration with that employer.
  
• The entrepreneur earned rental income from movable or immovable property exceeding CZK 50,000 during the year.
  
• The entrepreneur sold property that generated income over CZK 50,000, which was not exempt (e.g., real estate, securities, Bitcoin, etc.).
  
• They received non-cash income (gifts) exceeding CZK 50,000, which is not exempt (income from direct line relatives, selected indirect line relatives, or individuals living in the same household is exempt), as well as other miscellaneous income exceeding CZK 50,000 in accordance with Article 10 of the Income Tax Act.
  

An individual entrepreneur registered in the single tax system must file a tax return if they earned more than CZK 2 million in the previous year, became a VAT payer, or had an insolvency proceeding initiated against them. In such cases, the single tax system ceases to apply.

Self-employed individuals who decided to switch to the single tax system only this year must also file a tax return for 2024.

Failure to Submit a Declaration Electronically

A costly mistake, resulting in a fine of CZK 1,000, is failing to submit your tax return electronically when legally required to do so. Since all sole proprietors with an identification number have electronic data boxes, electronic submission is mandatory for virtually all sole proprietors.

Although self-employed individuals with a data box are required to submit their tax returns electronically, this does not necessarily mean they must use the data box itself. There are several options available for electronic submission. However, the declaration must be submitted in XML format.

What Options Are Available for Electronic Submission of a Declaration?

There are several options for electronically submitting a declaration. In addition to using a data box, you can use the online tax service on the Mojedane.cz website, the Electronic Filing Office (EFO) application, or third-party software.

Deduction of the Taxpayer’s Allowance for Only Part of the Year

The basic taxpayer’s allowance is not prorated and is always claimed in full on the tax return, regardless of the duration of the activity. For 2024, this allowance is CZK 30,840.

Errors in the Child Tax Bonus

Most errors occur with the application of tax deductions and bonuses. A significant number of mistakes are made regarding the child tax deduction. In 2024, the tax deduction for a dependent child in a jointly managed household is CZK 15,204 per year for the first child, CZK 22,320 per year for the second child, and CZK 27,840 per year for the third and each subsequent child.

A taxpayer is eligible for the child tax bonus if they have a dependent child living in the same household. A dependent child includes a minor child who resides in the same household, including the month they turn 18. This also applies to an adult child who is a student living in the same household and who ceases to be in the taxpayer’s care due to reaching adulthood. If multiple taxpayers have a child in the same household, only one can claim benefits for the same calendar month. This often leads to errors when both parents claim benefits. Additionally, benefits are sometimes claimed for the wrong number of months, particularly in cases of shared custody.

What is Considered a Spouse’s Income?

There are frequent issues with the deduction for a non-working spouse. A tax deduction of CZK 24,840 can be claimed for a spouse living in the same household as the taxpayer, provided their own annual income does not exceed CZK 68,000. The types of income excluded from the spouse’s own income are specifically listed in the Income Tax Act.

Excluded income includes parental allowances, state social assistance benefits, supplementary disability pensions, scholarships for continuing education in a future profession, social security benefits, financial assistance benefits, care benefits, state contributions to supplementary pension insurance with a state contribution, state contributions under the Construction Savings Act, and refunded overpayments of tax from the previous tax year.

On the other hand, examples of income that must be included are sickness benefits (e.g., maternity benefits), which are often overlooked. Similarly, some taxpayers mistakenly exclude unemployment benefits from their calculations. It is also important to note that the CZK 68,000 limit applies to gross income — that is, the total income before deducting any tax-related expenses.

Spouse Discount Reduced

Starting in 2024, only taxpayers living in a joint household with their spouse and a dependent child under the age of three can claim the spouse discount. To qualify, taxpayers must provide identification documents for their spouse and proof of the child’s identity and age.

Tuition Fees and Student Discounts Cancelled

For the 2024 tax year, both the student discount and tax bonuses for tuition fees have been eliminated. Since these fields are no longer included on the current tax return form, it will be easier to avoid errors related to this issue. Additionally, from 2024, employees will no longer be able to reduce their taxable income by the amount of trade union dues paid.

Incorrect Claim for Mortgage Interest Deduction

Another common mistake occurs when interest on a mortgage loan for housing is claimed by someone who is not the property owner or does not use it as their permanent residence, but rather for vacations or rental purposes. To qualify for the deduction, the mortgage must be used to finance housing needs, as specified in Section 15(3) of the Income Tax Act.

Please note that from 2021, the maximum annual limit for interest deductions has been reduced from CZK 300,000 to CZK 150,000, but only for properties acquired after January 1, 2021. For properties purchased before January 1, 2021, the limit remains at CZK 300,000. Special rules apply when refinancing a loan. If you refinance a loan for a property acquired before January 1, 2021, the CZK 300,000 limit still applies. However, if additional funds are used to secure the loan, the new limit of CZK 150,000 applies.

Many People Forget About the Declaration Appendices

When submitting a tax return, it’s essential to include both mandatory appendices to the form and supporting documents that verify the taxpayer’s statements. The most common attachments required with a tax return include:

• Financial statements
• Proof of taxable income from employment or self-employment
• Proof of donations
• Documentation for housing loans and the interest paid on them
• Proof of payments made under supplementary pension plans
• Proof of payments for private life insurance
• Proof of payment for exams confirming additional education
• Proof of a spouse’s income
• A separate sheet explaining the reason for filing an amended return
• A list for taxpayers claiming relief from double taxation

If you meet the requirements and wish the tax office to register your financial statements in the public register on your behalf, you must submit an additional attachment to the corporate income tax return form, specifically the “Application for the transfer of financial statements to the public register“.

Missing Signatures

Before submitting a tax return, it’s crucial for taxpayers to review and verify all forms carefully. If a taxpayer is requesting a refund of an overpayment as part of their tax return, both the tax return itself and the application for the refund must be signed. This is necessary because two separate documents are being submitted, and both require signatures. However, it’s common for the application for the refund of the overpayment to be missing a signature.

https://www.podnikatel.cz/clanky/nejcastejsi-chyby-danove-priznani-k-dani-z-prijmu-2024