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Deduction of costs of doing business

24.07.2019

Taxes in IP are not humane. However, it is possible for entrepreneurs to reduce the taxable amount of their profits. This can be done by applying tax credits and by deducting the cost of doing business from your total income. Then only what was actually earned will be taxed.

If you want to take advantage of this opportunity, it is very important to keep all receipts and invoices, and also be able to confirm that your expenses were related to business activities.

But do not get carried away and subtract everything. Below are three categories of costs: what can be deducted, what can be deductible, and what cannot be deducted.

What can be written off as costs of doing business:

  • Food, drinks, including wine, cigars and cigarettes, hospitality, conventions, seminars, study trips (including travel and accommodation costs), etc.
    The food category includes business lunches and dinners (also tips). Drinks should be understood as: coffee, tea and other non-alcoholic drinks. "Hospitality" includes expenses for receptions, celebrations and entertainment. For these costs, you can deduct the portion of the total costs that exceeds the € 4600 threshold. Thus, if you spent less than 4600, then nothing can be subtracted, but if more, for example, 5900, then 5900-4600 = 1300 can be subtracted.
    Or, instead of the € 4,600 threshold, you can also deduct 80% (profit minus business tax) or 73,5% (profit minus corporate tax) from your tax return.
  • Special literature (related to the professional field)
  • Work clothes, namely clothes that you can wear exclusively within the framework of your business. This should be visible in the appearance of the garment (eg uniform or overalls). If your work clothes are also suitable for wearing outside of your company, they must have a company logo of at least 70 cm2.
  • Portfolios, etc.,
  • Business travel: public transport, taxi and plane,
  • Business phone calls from home.

What can be written off, but with restrictions and special conditions:

  • Moving. When you move for business reasons, you can deduct the costs of transferring the required property. In addition, you can also deduct a fixed amount. In 2017, 2018 and 2019 it is € 750.
  • An official car, it is very important to calculate everything correctly, as it may turn out that it is completely unprofitable. Since, according to the rules, an employee has the right to drive no more than 500 km per year on a company car on personal matters, which is not enough. In this case, it is necessary to maintain the administration of the mileage and be able to prove that the car was used only for business travel.
  • The use of a personal car for work purposes also requires careful preliminary calculation, so that it does not turn out that the work of the administration is more than the benefits of its conduct. Sometimes it is more profitable to simply issue travel compensation in the amount of 19 cents per kilometer (in some companies, other compensation amounts are possible).
  • Maintenance of a second home, outside the permanent place of residence, in case of business trips. If you have to pay for (second) housing outside of your home for work purposes, these costs can be deducted for two years.
  • Workplace at home. Provided that he has a separate entrance and a bathroom. We will talk about this in detail in one of our next publications.

Don't even try to subtract:

  • Purchase of general literature not related to your professional activity
  • clothes (except for work clothes),
  • personal insurance,
  • a workplace at home, if it does not have a separate entrance and a bathroom. There are a few more cases, but they are the exception to the rule.
  • fines,
  • equipment and tools that do not belong to business
  • Vessels (ships) for representational purposes (Vaartuigen voor representatieve doeleinden)

In addition, in some cases, you cannot write off the entire cost of your equipment, you can only write off the depreciation of this equipment. To make it clearer, consider example:

Let's say you are a photographer, but you have not been registered as an entrepreneur. A computer, a camera and other accessories necessary for earning income, the price of which (one unit) is more than 450 euros excluding VAT, are considered assets. They cannot be fully taken into costs, but only depreciated from them.

The depreciation of such equipment is considered within 60 months (unless otherwise specified in the technical characteristics) from the date of purchase.

Let's say you bought a camera for 1000 euros in August 2016. Its price excluding VAT = 1000 / 1,21 = 826,45. Amount of depreciation per month = 826,45 / 60 = 13,77. Depreciation starts September 2016, ends August 2021.

But it turned out that you did not provide any services as a photographer either in 2016 or in 2017. And they began to provide them only in 2018. Because If you are not an entrepreneur, then you cannot deduct the costs of 2016 and 2017 from income (there were none). In doing so, your camera was cushioned.

In 2018, you started as a photographer and earned 500 euros.
You can take 12 months into costs at 13,77 = 165,24
Total taxable income = 334,76

In 2019, you saw that you were doing well and decided to register a business (registered with KvK). You can now balance your camera at residual value. By January 1, 2019, its cost was:
camera price minus depreciation Sept. 2016 – Dec. 2018

Depreciation over 28 months = 16 x 13,77 = 385,56.
Thus, the price of the camera (excluding VAT) is 826,45 – 385,56 = 440,89
It will be possible to take into expenses all the same 13,77 per month through August 2021 inclusive.

 

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