As a business owner, you know that financial planning plays a crucial role in your company's success. An important part of this financial strategy is identifying and utilizing business deductions. Deductions are expenses you can subtract from your taxable income, resulting in a lower tax bill for your company. In this blog, we discuss some of the most common business deductions and how you can use them to save money and grow your business.
You can only deduct your business expenses. Private expenses are not deductible. One of the most obvious business deductions is costs directly related to your business. This includes office expenses, rent, insurance, marketing costs, and expenses for necessary materials and equipment. Be sure to document and keep all these expenses carefully, as they are generally deductible.
This means, for example:
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Home Office
0%, with exceptions
Use this tool to determine if the costs for your home office are deductible.
Gifts (Food, Drinks, and Luxury Items)
Threshold of €5,100 for 2023; €4,800 for 2022; €4,700 for 2021
Food, drinks, and pleasure items used privately are not deductible.
Under the category of 'food,' business lunches and dinners (including tips) are included.
Under 'drinks,' think of coffee, tea, milk, and soft drinks.
By 'pleasure items,' we mean, among other things, cigarettes and cigars.
Representation, Conferences, Seminars, Study Trips
(including travel and accommodation expenses)
Threshold of €5,100 for 2023; €4,800 for 2022; €4,700 for 2021
Food, drinks, and pleasure items used privately are not deductible.
Instead of this threshold, entrepreneurs can deduct 80% of these costs for income tax purposes in their tax return. This percentage also applies to those with income from other work. For entrepreneurs subject to corporate tax, the percentage is 73.5%.
Under 'representation' are included, among other things, the costs of receptions. Gifts to business contacts generally fall under 'representation' as well.
For travel and accommodation expenses, you may deduct up to €1,500. However, if it was necessary for your work to attend a conference or similar event, this maximum does not apply.
Home Phone Subscription
0%
Business phone calls at home
100%
General Literature
0%
Professional Literature
100%
Work Clothing
100%
Work clothing is clothing that you can (almost) exclusively wear in the context of your business. This should be evident from the appearance of the clothing, for example: a uniform or overall.
If the clothing is also suitable for wearing outside your business, it must have a logo with a minimum area of 70 cm². The logo should refer to your business.
Personal Clothing
0%
Personal Care
0%
Briefcases, etc.
100%
Equipment and Instruments Not Part of Business Assets
0%
Fines
0%
Business Costs with private car
Fixed amount of €0.21 per kilometer. €0.19 in 2022 and 2021.
Public Transport, Taxi, and Air Travel
100% of actual costs
Keep proof of these expenses, such as train tickets or OV-chip card prints.
Vehicles for Representation
0%
Study Costs
Costs to maintain existing professional knowledge
Only deductible if they maintain existing knowledge, not for acquiring new knowledge.
source: Tax Authorities
How you deduct business expenses depends on two factors: the cost of your purchase and its expected lifespan.
Purchases Over €450 (excluding VAT) and Used for More Than 1 Year:
For items like machines, vehicles, or inventory, which cost more than €450 and last over a year, you must depreciate these costs over several years. This means you deduct a portion of the cost annually, based on the expected lifespan and residual value of the item.
Example:
If you buy a company vehicle for €30,000 and plan to use it for 4 years with an expected residual value of €6,000, the annual depreciation would be calculated as follows:
(€30,000 – €6,000) / 4 = €6,000 per year.
So, you would deduct €6,000 annually for the vehicle’s depreciation on your tax return.
Can I Deduct Costs Incurred Before My Business Was Established?
Yes, you can deduct costs incurred before officially starting your business, provided they benefit the business and are related to its preparation and establishment. Such costs might include market research or professional advice. It's crucial to document these expenses clearly and keep the necessary proof for tax purposes.
Should I Deduct Costs With or Without VAT?
Without VAT, if you can reclaim VAT in your VAT return.
If you don't need to submit a VAT return or can't reclaim VAT, deduct the costs including VAT on your income tax return.
Should I Keep Receipts and Invoices?
Yes, you should definitely keep them. You need to prove that you made these expenses and that they were for your business.
We provide customized advice for your questions about business expenses.
These are critical considerations for managing your business expenses and tax return, so it is highly advisable to seek advice to ensure you apply the right deductions to your specific situation. Contact us now for a personal consultation.
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