Facts and myths about deductible expenses

Which expenses are deductible and which are not? Besides the fact that this is not clear to everyone, it is also handled very differently. Get the answer for your expense items here.

Expenses that directly relate to the business and expenses that are necessary within reasonable limits for the operation of the business are deductible as business expenses. This is the main rule and only these expenses are deductible. A private withdrawal (sole proprietorship) or profit distribution (BV) is not deductible as an expense and therefore does not reduce the result (revenue minus expenses) of the business or the tax liability.

Business expenses

Keep the following in mind regarding business expenses:
– expenses with a business motive may (in general) be deducted;
– expenses without a business motive may not;
– for some expenses with a business motive, a deduction limitation* applies.

* Limited deductible expenses. For some expenses, only the business portion is deductible. For example, business lunches and dinners (food and drinks), receptions, seminars, and study trips are only 73.5% deductible, or 80% in a sole proprietorship. Alternatively, everything above the threshold of €5,600.

Expenses with a private element

Are there business expenses that also contain a private element where no deduction limitation already applies? For a sole proprietorship, make the best possible estimate of this private element and do not include this portion (for example, 25% or 50%) in the deduction. In the case of a BV, look at where the emphasis lies and then decide whether you view the whole as business expenses or not. As long as you have a defensible position, you can engage in discussion with the tax authorities during an audit and prevent corrections from also resulting in fines.

A good example is internet costs for a home-based sole proprietorship. If you estimate, for example, that you use half for business, you can also deduct this half as a business expense.

Tax authority assessment

Furthermore, the tax authorities may only assess whether business considerations underlie the business expenses. It is therefore not possible for the tax authorities to take the entrepreneur’s seat and wonder whether certain expenses are smart or not. This is for the entrepreneur to consider and not the tax authorities!

Investments

Investments are expenditures from which the business benefits for longer than a year. Think, for example, of hardware such as a laptop or printer, or machinery or office furniture in your rented business premises. You may not take these expenses all at once, but must depreciate them over five years. To make this easier, expenses under €450 can be taken all at once. Note that this concerns the amount excluding VAT.

Examples of deductible expenses

Examples include the business costs of: office rent, office supplies, courses, car costs*, administration and tax advisory fees, legal fees, marketing costs, costs for hiring third parties, depreciation costs, bank fees, interest charges, mobile phone, printing, professional literature, public transport/taxi, personnel costs, software, subscriptions, insurance, etc.

* To the extent that it concerns a company car.

Specific cases

Fines are not deductible. Criminal activities can certainly be taxed, however. In that case, please be so kind as to skip AdminXper as your firm. 🙂 Do you have a company car? Then car costs such as petrol, garage, motor vehicle tax, and car insurance are deductible. Do you also use the car privately? Note that a (high) taxable benefit (bijtelling) may apply, which means this might not be advantageous at all.

Start-up phase costs

Costs in the start-up phase of the business are in principle deductible. Even if this is prior to the official formation of your company.

Non-business expenditures of a BV can in some situations be seen as wages on which payroll tax must be paid. This can apply, for example, to a shareholder who is employed by their BV.

Business kilometers in a private car

If you drive business kilometers with your private car you can charge a mileage allowance of €0.23. You must then keep a mileage log. If you drive few business kilometers, consider whether the time investment to calculate this is worth the effort.

Annuity as a pension provision

This is deductible within the rules of the annual margin and the reservation margin. Note that this is not deductible in your business but in your personal income tax return.

Disability insurance

All business insurances are deductible. This also applies to disability insurance. These are deductible in the income tax return and not in the business. An exception may be for disability insurance taken out with your BV, but this is less common and does not have direct advantages.

Extra deduction possibilities

Sometimes there are also extra deduction possibilities. This applies, for example, to the small-scale investment allowance (KIA) where you can deduct an additional 28% on top of the normal deduction. This was created as a stimulus for Dutch business. If you invest in a business asset above €450, you are in principle entitled to this. But note that for 2024, this must be above €2,800 on an annual basis. However, with an electric bike and some other investments, this target is quickly reached!

Home office

There are specific rules for the home office deduction. To qualify, there must at least be an independent business space with its own entrance, toilet, etc. If this is not the case, you cannot deduct these costs. If it is the case, check this section of the tax authorities’ website to see if you have deduction options. For entrepreneurs with a rental home there is an additional possibility for deductible costs under certain conditions.

Work clothing

Work clothing may be deducted. But beware, this is only possible with a logo on the clothing of more than 70 cm² or if the clothing is only suitable for work.

VAT

There is no VAT on bank fees and, for example, insurance. You therefore cannot deduct it.

Even though there is 9% VAT on food and drinks (such as business lunches and dinners), you cannot reclaim the VAT. The total amount including VAT is deductible as an expense in this case. If you drive many business kilometers in a private car, you cannot deduct the business costs, but you can reclaim the VAT on the car costs (partially) . Keep track of the odometer reading at the beginning and end of the year. Then see how many business kilometers you have driven and only reclaim the VAT proportionally for the business use.

URBAN LEGEND

The Great Urban Legend: ‘the more expenses the better’. After all, this reduces the taxes to be paid! You often hear wild stories about entrepreneurs who deduct everything as expenses. Do not be fooled. The first question is whether this is simply possible. Often this is just unjustified and they may only get away with it as long as they are not audited by the tax authorities. This is therefore incorrect and we do not accept these entrepreneurs as clients.

Furthermore: what do you achieve with many expenses? Yes, you might be able to deduct a lot. But isn’t the primary goal of your business to actually make a profit? And profit is the difference between revenue and expenses. The larger the profit, the better you are doing as an entrepreneur!

If you have also kept your fixed costs well under control, this can be exactly the difference that allows your company to survive in tougher periods while your competitors do not. So do not be misled and keep your (fixed) costs low! Paying tax is not fun, but it is a sign of success!

Thank you for reading and I would greatly appreciate it if you also leave your comments and questions under the blog. Then other readers can also benefit! You can contact us to go deeper into a specific deduction.