Business expenses reduce profits and thus the tax burden. However, not everything that appears to be business-related is actually deductible. Our guide clarifies the most important questions.
What Are Business Expenses?
Business expenses are, pursuant to § 4 Abs. 4 EStG, expenditures that are caused by business operations. The general rule is: Any expense that has an economic connection to the business is deductible -- unless a statutory prohibition on deduction applies.
Fully Deductible Business Expenses
Personnel Costs
Salaries, wages, social security contributions, and company pension schemes are fully deductible. For team events, the tax-free threshold of 110 euros per participant under § 19 Abs. 1 Nr. 1a EStG must be observed.
Rent and Ancillary Costs
Rental expenses for commercially used premises are fully deductible. In the case of mixed use, an allocation based on the business usage share is required.
Material and Merchandise Costs
Purchase prices for goods, raw materials, and consumables are classic business expenses.
Business Expenses with Limited Deductibility
Entertainment Expenses
Business entertainment expenses are only 70 percent deductible (§ 4 Abs. 5 Nr. 2 EStG). Documentation requires a machine-generated receipt stating the location, date, participants, and occasion.
Gifts to Business Partners
Gifts are only deductible if the acquisition costs do not exceed 50 euros per recipient per financial year (§ 4 Abs. 5 Nr. 1 EStG).
Home Office
If the home office constitutes the centre of professional activity, the actual costs are deductible without limit. Alternatively, a flat rate of 1,260 euros per year may be claimed.
Non-Deductible Business Expenses
Statutory Prohibitions on Deduction
Non-deductible items include fines and penalties (§ 4 Abs. 5 Nr. 8 EStG), trade tax, personal living expenses (§ 12 Nr. 1 EStG), and bribes (§ 4 Abs. 5 Nr. 10 EStG).
Constructive Dividends
In the case of corporations, excessive remuneration paid to shareholders may be classified as constructive dividends. These are not deductible at the company level.
Documentation Requirements
Receipt Requirements and Retention Periods
A receipt must be available for every business expense. Accounting records must be retained for ten years pursuant to § 147 AO. For electronic records, additional requirements under the GoBD apply.
Conclusion
The correct recording and documentation of business expenses is the foundation for an optimal tax burden. At compleneo, we ensure that you claim all permissible business expenses while meeting all tax requirements.
