Limited deductible expenses for self-employed workers

As a self-employed person, you can deduct many business expenses from your profit. That way, you pay less tax. But unfortunately, not all costs are fully deductible. In this article, we will tell you which costs are only partially deductible (limited deductible costs). We will also explain what mixed costs are and what to look out for in your bookkeeping.

What are limited deductible expenses?

Limited deductible expenses are expenses that you may not deduct in full from your profits. The tax authorities have strict rules to prevent abuse of these and ensure that entrepreneurs do not claim too many high deductions.

What are mixed costs?

By mixed expenses, we mean expenses that are both business and personal. Here, you can only deduct part of these costs for business purposes. So make sure you properly distinguish between business and private use.

Difference between mixed costs and limited deductible costs

Overview of limited deductible expenses

Here is a list of expenses that you can only partially deduct. Not everything is as simple as you might think.

Representation expenses (food and drinks)

Unfortunately, that lunch with your client is not fully deductible. Only 80% of your restaurant expenses are deductible. Corporate gifts and drinks are also covered by this rule.

Car expenses (for private use of a business car)

Do you have a business car and also use it privately? If so, you will face an additional taxable benefit. That means you cannot deduct part of the car expenses. And how much is that? That depends on the CO2 emissions of your car. So if you like eco-friendly driving, the additional taxable benefit might be a bit lower.

Costs for conferences, seminars and study trips

Nice, such a study trip abroad, but the tax authorities want to know whether it is really business. After all, if your trip has a private touch, some of the costs may be considered private and not deductible.

Cost of clothing and personal care

Workwear is only deductible if it is really business. So fancy trousers are not deductible, but business clothing with a logo is. And a luxury beauty treatment? Unfortunately, not deductible either. So sometimes it is difficult to make your expenses business-like.

Fines and traffic fines

Fines, whether a traffic fine or tax fine, you can never deduct. This is because the government does not want you to make a profit from your unlawful actions. Too bad, but that's how it works, unfortunately.

Costs for workspace in your home

Do you work from home as an entrepreneur? Then you can only deduct expenses if your workspace is an independent space, with its own entrance and sanitary facilities. So just a corner in the living room does not count. You really need to have a separate workspace to benefit from tax breaks.

Why are some expenses limited deductible?

The Inland Revenue makes sure you don't accidentally use private expenses as business expenses. This prevents abuse and keeps tax benefits fairly distributed. So it helps you, as an entrepreneur, to keep everything neatly within the rules.

How do you record limited deductible and mixed expenses in your accounts?

When accounting for limited deductible and mixed expenses in your records, it is important to stay sharp. This will help you keep an overview:

• Mixed costs: Calculate the business percentage and deduct only that portion.
• Limited deductible expenses: Deduct only the percentage allowed by the Inland Revenue, even if it is entirely business.

With a good accounting program or a chat with your accountant make it easy on yourself and get the most out of deducting business expenses.

Conclusion

Limited deductible and mixed expenses can affect your tax return. Keep paying attention and keep your records in order. That way, you can avoid surprises from the tax authorities. Are you unsure which costs you may deduct as an entrepreneur? Ask your accountant or check the latest rules on the website of the Tax authorities.