The term ‘deductible expenses’ may sound to us from some conversation with our self-employed friend, but if we propose to define it maybe we have difficulties. It is also true that during a few beers we do not usually get very technical. We can come to know that it is something ‘good’: it is the money that we return from the expenses we make for our work or for the company we have. Little else.
However, it is important to be clear about what these expenses consist of, which are and which are not. It is about our own economy and we must be informed of it. Since Blegal We do not want to leave you in the shade, so in this article we tell you everything you need to know about deductible expenses, some examples of them (and some others that do not) and what conditions an expense must meet for it to be. Here we go!
The clear stuff (and the thick chocolate): what is a deductible expense?
Let’s get to the basics: what exactly is a deductible expense? This is the sum of accounting disbursements (expenses we pay), operating and financial that, according to the regulations, are allowed to be deducted from gross income (what we earn). The deductible expenses translate into savings in the amount of taxes we pay to the Tax Agency.
It is necessary that we comment on more related vocabulary: the tax base.
This term refers to the amount of an invoice, without taxes such as VAT or personal income tax having been added. Once we have added the taxes to our tax base, we are left with what is known as the tax quota.
The accounting regulations specify what type of expenses can be subtracted from the tax liability, in addition to the requirements for doing so. In addition to knowing the specifications, it is also necessary to keep the accounts up to date and be informed about what the Tax Agency considers or not deductible expense.
Something important: requirements for an expense to be deductible
The fact of saving the money you pay to the Tax Agency is wonderful, but it does not come without certain conditions:
- The expenditure in question must be necessary to carry out an economic or business activity. You have to justify that the disbursement of money in question is ‘for work’, that is, the context is relevant. There are expenses that for one activity can be considered deductible but for another not.
- They have to be justified with an invoice; A common ticket would not do.
- These expenses must be reflected in the books of accounts. .
- They must be fully demonstrable. This is like a judgment, you need proof that the expense has been made, paid for and is relevant.
- The expense must be accrued within the tax period that touches it. This means that you cannot claim the refund and deductible expenses 2 years later, for example. The tax period usually coincides with a calendar year. You must apply for deductible expenses within the year in which you make the disbursement.
And now, the list: types of deductible expenses
The Tax Agency has a total of 26 deductible expenses. They are as follows (with a little explanation):
- All materials necessary for the performance of the work (office supplies, raw materials for manufacturing, etc.).
- Employee remuneration (such as extra pay or salaries).
- Social Security contributions by the company.
- Contributions to the RETA (Special Regime for Self-Employed Workers). Eye here in companies that “pay” the self-employed quota of the administrators since that is a remuneration in kind of the administrator not only an expense for society.
- Compensation for damages caused (dismissal or early retirement).
- Subsistence allowances, locomotion expenses and stays due to business trips.
- Employer’s contributions as a promoter of pension or corporate social welfare plans
- Staff costs (training, Christmas lots, premiums for insurance contracts…)
- Living expenses related to the work performed. They must be specific to their tasks, carried out in catering establishments and by electronic payment.
- Rental of movable or immovable property.
- Maintenance costs of the property/s
- Payment of supplies (electricity, water, Internet…).
- Expenses for independent professional services (such as servers).
- Insurance premiums
- Works that are carried out by other companies, even if they are part of the production itself.
- External services, such as banks or advertising.
- Expenses produced by financial resources of third parties.
- Input VAT only if it is in the special regime of the equivalence surcharge or in the agriculture, livestock and fishing regime.
- Non-state taxes and surcharges.
- Amortization provisions.
- Provisions for simplified direct depreciation, when the elements begin to be amortized from their putting in conditions for their operation.
- Losses due to debtors’ insolvencies (they must meet any of the circumstances provided for in
Art. 13
of the LIS) - Patronage in expenditure on activities of general interest (defence of human rights, the environment, culture, health, promotion of constitutional values, etc.).
- Patronage in collaboration agreements in activities of general interest.
- Some expenses that do not appear in the previous points, such as expenses for attending congresses, purchase of books or acquisition of non-amortizable instruments.
- Tax-deductible provisions, such as expenses corresponding to environmental actions and those inherent to risks derived from repair and revision guarantees.
It is important to understand that in case of an inspection even if an expense is within this list it may not be accepted. The AEAT can descend to investigate each expense in more detail or simply reject all those that it does not consider duly justified in documentary form.
Wait a minute… What expenses are NOT deductible?
Just as we must know what expenses are deductibles, we also need to have some knowledge of those that are not. A non-deductible expense is one that cannot be subtracted from the tax liability. This type of expense would not be related to the work done or the activity of the company, so they could not be deducted from the tax base.
However, even if they cannot be discounted, they must be present in the accounting accounts. They are usually indicated as such, although they can also be broken down.
The Second List: Types of Non-Deductible Expenses
All non-deductible expenses are published in the BOE,
but we will provide you with a small summary of the list.
Non-deductible expenses are:
- Own funds.
- Corporate taxes.
- Fines and penalties.
- Gambling losses (casinos, lottery…).
- Donations and donations.
- Pension funds.
- Tax havens.
- Debt.
- Expenses exceeding 1 million euros.
- Impairment of securities representing participation in the capital or equity of entities.
- Income abroad (the refusals obtained through a permanent establishment and those obtained by companies that are members of a temporary union operating abroad).
Recapitulation
Whatever the size of your business, it is key to have accounting support from an advisor to help you understand what expenses are deductible for your activity and to have in an orderly manner all the documentation that the Treasury can ask you for in future inspections.
We hope that this article has clarified doubts about what deductible expenses are, what types there are and what are not. The latter are equally important because they must be reflected in the accounting of the company or the efforts of the self-employed. We have also been able to deal with other terms, such as the tax liability and the tax base, directly related to the addition or subtraction of deductible expenses. We hope that this small expense guide has helped you to better understand how the tax base and deductible expenses work.
If you have any other questions about the management of these expenses or simply need more information about this or other processes, contact us. At Blegal we are the only law firm that encompasses all your needs with commitment, dedication and energy. You can meet some of the people behind our firm and learn about the legal services and fees we offer.
For information on related topics visit our page on
Fiscal and Tax
.
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