What is a deductible expense ?
This is the expense that a self-employed person can subtract from sales and income to calculate the profit obtained , which will be the figure that must be taxed.
Requirements for it to be a deductible expense
To be considered tax deductible, expenses must meet certain requirements, which you can find in the Personal Income Tax Manual for the current income tax campaign (here we link you to the 2023 Income Tax Manual ):
That it is linked to the activity. That is, that they are specific to the activity. In the case of a seasonal activity (restaurant), the amount of the rent for the premises paid during the period of time in which the activity is closed, given its seasonal nature, must be considered to be correlated with the development of the restaurant activity, since they are made with the intention of restarting the activity in the following season.
That it is justified with the corresponding invoice or receipt . However, and without prejudice to the above, the invoice does not constitute a privileged means of proof regarding the existence of the operations, so once the Administration has reasonably questioned its effectiveness, it is up to the taxpayer to provide evidence regarding the reality of the operations.
That it is accounted for. That they are recorded in the accounting or in the record books that taxpayers who carry out economic activities must keep on a mandatory basis.
List of deductible expenses for the self-employed
The list of expenses that are considered deductible has been and continues to be very long. The important thing is that it is clearly linked to the activity and cannot be considered as part of the private life of the self-employed person or of an activity other than his/her own.
Below we list some of the expenses that are considered tax deductible for the self-employed.
1. Operating consumption
These are raw materials, office supplies, fuel, auxiliary materials, etc. If we subtract the stock purchased during the financial year from the stock at the end of the year, we have deductible operating expenses. However, the purpose of the purchases must be to obtain income; the goods must form part of the assets and additional expenses must be included.
2. Salaries and wages
Salaries, extra payments, remuneration in kind (including the corresponding payment on account for these, provided that they have not been passed on to the recipients), as well as prizes are deductible for the self-employed worker.
3. Social Security contributions
Social Security contributions made by company personnel are deductible expenses.
4. Compensation
These are amounts given to staff to compensate for damage or loss, although these may be exempt from tax for the recipient (for example, severance pay ).
5. Diets and travel allowances of employed personnel
This includes travel expenses, food, accommodation for work trips or travel expenses for trips to municipalities other than the usual place of work (even if they are exempt from personal income tax for the recipient).
6. Contributions to social security systems in favor of working people
That is, contributions to pension plans or social security plans
7. Other personnel expenses
Staff training expenses, both regular and sporadic, premiums for life, accident, illness insurance contracts, etc., except for Social Security contributions and any other expenses related to the staff in the service of the activity that cannot be considered as pure generosity.
8. Leases and fees
Rent, land, technical assistance expenses that are linked to the company's activity.
9. Expenses for repair and maintenance
We are talking about maintenance or adaptation costs of material assets. But be careful because the changes made with the aim of expanding or improving facilities are not included in these deductible expenses for the personal income tax of the self-employed, since for the Treasury they are investments in the development of the activity that will be deducted by the amortization mechanism in successive years.
11. Supplies
This concept must include the amount of expenses corresponding to electricity and any other supplies (water, gas, telephone, internet, etc.) that cannot be stored.
12. Independent professional services
This concept includes the amount paid to professionals for services provided to economic activity. It includes the fees of economists, lawyers, auditors, notaries, etc., as well as the commissions of independent mediating agents.
13. Insurance premiums
This concept includes the amount paid to professionals for services provided to economic activity. It includes the fees of economists, lawyers, auditors, notaries, etc., as well as the commissions of independent mediating agents.
14. Other expenses for external services
This would include research and development, transportation, banking services, advertising and public relations expenses.
15. Tax-deductible taxes
The Real Estate Tax (IBI) or the Tax on Economic Activities (IAE), for example, are considered deductible expenses from personal income tax for self-employed workers. Also other local taxes such as the Tax on Mechanical Traction Vehicles (IVMT).
However , surcharges and penalties resulting from late filing of returns to the Tax Agency are not considered tax-deductible expenses .
16. Financial expenses
This includes all expenses arising from the use of external financial resources to finance the company's activities or its assets:
Expenses for discounting effects and financing of the company's operating credits.
Surcharges for deferral of payment of debts corresponding to the activity.
Interest corresponding to deferrals and fractioning of tax debts, provided that they are directly related to the activity and correspond to the fiscal year.
Tax late payment interest arising from settlements made in verification procedures and those accrued due to the suspension of the execution of the contested administrative act (suspension interest).
17. Expenses of the activity holder
The following concepts are included in this category, which are differentiated in the personal income tax return :
a. Social security or contributions to alternative mutual funds of the activity holder
b. Maintenance expenses of the taxpayer himself incurred in the development of the economic activity
Non-deductible expenses in personal income tax
According to the regulations, the following are not considered tax-deductible expenses, among others:
Those that represent a return on equity
Fines and criminal and administrative sanctions .
Gambling losses .
Donations and generosity.
Expenses for actions contrary to the legal system.
Service expenses corresponding to operations carried out , directly or indirectly, with persons or entities resident in countries or territories classified by regulation as tax havens.
Contributions to social security mutual funds made by the entrepreneur or professional himself that give the right to reduce the tax base.