Deductible expenses are business costs you can subtract from your income in the same tax year you incur them. These are typically day-to-day operational expenses that help you run your business and generate income.
Think of deductible expenses as the regular costs that keep your business moving forward. When you buy office supplies, pay for internet service or cover travel expenses for a client meeting, you can deduct the full amount from your taxable income for that year.
Common examples of deductible expenses
- Office supplies and materials
- Internet and phone bills
- Professional software subscriptions
- Marketing and advertising costs
- Travel expenses for business purposes
- Professional development courses
- Business insurance premiums
- Rent for office space
The key characteristic of deductible expenses is their immediate impact on your business operations. They provide value right away and don't continue benefiting your business for years to come.
Understanding amortized expenses
Amortized expenses work differently. These are costs for assets that benefit your business over multiple years, so you spread the deduction across the asset's useful life rather than claiming it all at once.
When you purchase equipment, software or other long-term assets, the tax authorities recognize that these items will help generate income for several years. Instead of allowing you to deduct the full cost immediately, you claim a portion each year through depreciation or amortization.
Common examples of amortized expenses
- Computer equipment and hardware
- Office furniture and fixtures
- Professional software licenses (multi-year)
- Vehicles used for business
- Specialized tools and equipment
- Building improvements
- Patents and intellectual property
The amortization process helps match expenses with the income they help generate over time, creating a more accurate picture of your business's financial performance.
How amortization schedules work
Setting up amortization schedules doesn't have to be complicated. You divide the asset's cost by its useful life to determine your annual deduction amount.
For example, if you buy a laptop for €1,200 with a useful life of four years, you would amortize €300 per year (€1,200 ÷ 4 years). Each year, you claim €300 as a business expense until you've fully amortized the asset's cost.
Different asset types have different standard useful lives:
- Computer equipment: 3-4 years
- Office furniture: 10 years
- Vehicles: 5-8 years
- Software: 3-5 years
Managing your amortization process
Modern tools like Facturaz can automate this process, tracking your amortizable assets with schedules and posting periodic amortization entries automatically. This removes the guesswork and ensures you don't miss deductions or make calculation errors.
Tax implications and strategy
The choice between immediate deduction and amortization affects your tax strategy. Deductible expenses reduce your current year's tax burden immediately, while amortized expenses provide consistent deductions over multiple years.
This timing difference matters for cash flow planning. If you expect higher income this year, maximizing deductible expenses might reduce your immediate tax liability. However, if you anticipate steady growth, spreading costs through amortization provides predictable annual deductions.
Planning your expense strategy
Consider your business's growth trajectory when making purchasing decisions. A startup with variable income might prefer immediate deductions to offset high-earning periods. An established business with steady growth might benefit from the consistent deductions that amortization provides.
Remember that you don't always have a choice. Tax regulations determine whether expenses must be deducted immediately or amortized based on the nature and cost of the asset.
Common mistakes to avoid
Many autónomos make simple errors that create problems during tax season. Here are the most frequent mistakes and how to prevent them:
- Mixing up expense types: Treating amortizable assets as immediate deductions can trigger tax authority attention. Always verify the proper treatment before filing.
- Poor record keeping: Without proper documentation, you can't support your deductions during an audit. Keep receipts, invoices and purchase records organized and accessible.
- Ignoring useful life guidelines: Using incorrect amortization periods affects your deductions and can create compliance issues. Research standard useful lives for your asset types.
- Forgetting partial year calculations: When you purchase an asset mid-year, prorate the first year's amortization based on the months of use.
