One of the most common questions new entrepreneurs ask is: "Which expenses are deductible in bookkeeping?"
At its simplest, the answer could be that all expenses that can directly be expected to promote the conduct of business are deductible in bookkeeping. However, this summary often does not ensure full understanding of deductions. In this article, we aim to describe as precisely as possible which products or expenses are deductible, especially for private traders.
Add private traders expenses directly in the UKKO Entrepreneur service
To add an expense, you need a receipt, such as a purchase receipt or an invoice in PDF format. When adding an expense, the service guides you to categorize the expense correctly for accounting records and asks for the necessary additional information. Always remember to note the payment date!
The UKKO Entrepreneur team will process your expense, request additional information if necessary, and add the expense to your bookkeeping. The UKKO Entrepreneur service also handles the submission of periodic self-initiated tax returns, better known as VAT returns and EU summary reports. At the end of the year, the service fee includes the preparation and submission of the tax return. Our clients can also report other deductible expenses for the tax return, such as home office deductions. This information is requested separately in a tax return survey that opens at the turn of the year.
Deductible expenses for private traders:
Here is a list of deductible expenses, with more detailed expense categories listed below.
Direct business purchases and business start-up expenses:
- Consumable work tools and supplies, and other expenses included in the executor’s invoicing
- Business planning, license applications, and potentially purchased business consulting
Additionally, expenses that support and develop business activities:
- Office supplies
- IT software and licenses
- Small acquisitions
- Marketing expenses
- Home office expenses
- Representation expenses
- Professional and newspaper subscriptions
- YEL contributions/pension expenses/pension payments
Deductible office supplies include:
- Pens
- Notebooks
- Stamps
- Similar small consumables used in regular office operations
Deductible IT software and license costs:
- Microsoft Office software license fees
- Other necessary software and licenses for your business, e.g., Photoshop for photographers
Small acquisitions include:
- Printers
- Phones
- Laptops
Note that small acquisitions are deductible up to 3600 € per tax year.
Marketing expenses are deductible and include, for example, the cost of printing the company logo on work clothes.
Home Office Expenses: If you work at home and have a dedicated space for work, you can deduct the proportionate share of your home expenses. For example, if a home office occupies 20 square meters of a 100-square-meter apartment, you can deduct 20% of the apartment's expenses. Expenses for a separate rented workspace can be deducted by adding the expense receipts directly to the bookkeeping. The deduction for a home office can be made either based on actual expenses or as a standard home office deduction on the annual tax return.
Representation expenses: Half of representation expenses are deductible when they are related to improving customer relationships. Representation expenses are costs that could otherwise be interpreted as meeting expenses but are unusually high, such as costs higher than a typical lunch.
Professional and newspaper subscriptions: Subscriptions ordered for business use are deductible, as well as professional literature.
YEL contributions/pension expenses: These can be deducted either by the business or personally. Note that membership fees for professional associations and unemployment funds are always deducted in personal taxation on the tax return.
These rules are not without exceptions, so it's a good idea to verify the eligibility of deductions with the tax authorities or UKKO Entrepreneur service customer support.
When you add an expense to the UKKO service, our team will always check the expense and the receipt. If the expense is not deductible, you will receive a message from us and possibly a request for additional information. We strive to ensure that expenses in a grey area are not recorded in the bookkeeping and will always ask for clarification if it is not clear how an expense relates to your business.
Remember: To add an expense, you need a receipt showing the VAT rate of the purchase or expense. This is especially important when paying with a payment terminal—ensure you get a receipt with the purchase and VAT rate itemized, as the receipt from the payment terminal often only shows the total amount.