Errors in Income Reporting: What Tax Disputes Reveal
With less than a month remaining before the deadline for filing personal income tax (hereinafter “PIT”) returns, the Tax Disputes Commission (the Commission) reminds residents of the mistakes they can avoid when filing their returns. Errors most often arise from an incorrect assessment of the facts, an incorrect interpretation of legislation, or failure to declare all income.
Failure to declare part of one’s income is one of the most common PIT filing errors made by residents that are encountered in the practice of resolving tax disputes.
Not all income received is declared
The Commission notes that the Electronic Filing System (EDS) provides preliminary tax returns, but these do not always include all income received by the resident. Tax disputes reveal that residents forget to declare:
- income from individual activities received from natural persons, i.e., income received under a certificate or business license;
- income from online commerce;
- income from property rentals;
- royalty income;
- income from the sale of financial instruments (shares, etc.);
- income received from abroad;
- gifts from individuals who are not close relatives of the resident (parents, children, spouses, grandparents, grandchildren, brothers, sisters) exceeding 2,500 euros per year.
Income from joint property is declared by only one of the spouses
In the practice of tax dispute resolution, there are cases where only one spouse declares income from joint property. Income from the sale or rental of jointly owned real estate must be declared separately by both spouses, i.e., each spouse must separately declare their share of the income. It is presumed that income from jointly owned property is received equally, unless proven otherwise.
It is a common misconception that income from the sale of a residential property is tax-exempt
Residents make a mistake by failing to declare income from the sale of a residential property if they owned the property for less than 10 years (as of January 1, 2026—less than 5 years).
This income is tax-exempt only if the person declared their place of residence at that property during the 2 years immediately preceding the sale—not during earlier periods—or if the place of residence was declared for less than 2 years prior to the sale, but another residence was purchased within one year after the sale and the place of residence was declared there. This means that if a resident lived in and declared their place of residence not during the aforementioned period prior to the sale, but earlier, the exemption no longer applies, regardless of whether the period of declaration exceeded two years.
Another common mistake is that both spouses consider the income from the sale of the home to be tax-exempt, even though only one of them had declared their place of residence there. Since the income is divided equally, the spouse who did not declare their place of residence at the sold property may have to pay personal income tax on their share of the income.
The importance of documents substantiating expenses is often underestimated
When selling a residential house built in Lithuania that has been owned by the resident for less than 10 years, not only the purchase price of the property but also the construction costs incurred may be deducted from the income. To deduct construction costs from the proceeds of the property sale, the resident must submit documents substantiating the expenses that comply with the requirements of the Financial Accounting Act. The Commission recommends that residents collect documents substantiating expenses during construction (e.g., VAT invoices, contracts, receipts) to avoid problems when deciding to sell the property.
Failure to account for the fact that part of the income from self-employment is received from one’s employer
Residents should be aware that when part of the income from self-employment is received from one’s employer, the 30% allowable deduction method can no longer be applied to all income from self-employment received during the year. This means that even if only part of the income is received from the employer, this method can no longer be applied, and expenses can only be deducted based on amounts actually incurred and supported by documentation.
The tax return is forgotten after submission
After submitting the return, do not forget to check whether it has been filled out correctly, as the tax administrator, after reviewing the return’s data, may issue notices regarding deficiencies in the submitted document, request additional documents, or require the return to be amended. If the deficiencies in the return are not corrected in a timely and proper manner, a tax arrears may arise, on the basis of which late payment interest may be calculated.
How to challenge a tax administrator’s decision?
If you disagree with the decisions of the central tax administrator regarding the calculation of personal income tax or other taxes, you have the right to challenge them before the Tax Disputes Commission.
Upon submission of a complaint, the Commission issues a decision promptly—within 60 days of receiving the complaint. The examination of tax disputes is free of charge for residents, i.e., no stamp duty is required and legal representation is not mandatory; furthermore, the proceedings are confidential (the agenda is not published, and decisions are anonymized). An individual may choose how to participate in the hearing: in person, remotely, or request that the complaint be heard without their presence.
Last updated: 18-05-2026
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