02Expenses related to the activity, that is, those necessary to obtain the income from the activity, will be deductible under personal income tax. This tax is sometimes difficult to determine, as some assets are used simultaneously for economic and personal activities.

In this sense, the Tax Agency establishes that:

1. Assets considered to be assigned: these are the portions used exclusively for the purpose of carrying out the activity. Assets that cannot be divided and the portion used for this purpose cannot be clearly distinguished are not allowed.
2. Other types of expenses used simultaneously for economic activities and for private needs in general cannot be deducted. They will only be accepted if they have been acquired and used for the economic activity and the self-employed person uses them for personal use on days or at times when the activity is not being carried out.
3. All affected items must appear in the taxpayer’s accounting records, duly supported by invoices, as a general rule.

Let’s specify some expenses that are usually used together for professional and personal life:

Using part of the home for your business : It’s possible to deduct the proportional portion affected; you must notify 036 of the percentage used. If the home is rented, you’ll need two invoices: one for the personal portion and one for the business portion, as the latter must include VAT.

Health insurance premiums : The self-employed person’s own coverage, that of his or her spouse and children under 25 years of age, can be deducted as long as they live with him or her, with a maximum deduction of 500 euros for each of the persons indicated or 1,500 euros for each of them with a disability.

Telephone : The telephone must have been purchased and used for the business activity, and it can be demonstrated that it is used incidentally and is clearly irrelevant to private life. Therefore, it is advisable to have multiple lines, in which case there will be no problem deducting 100%.

Gasoline, insurance, or car maintenance: No percentage is deductible. You can only do so if you are registered with the Treasury under a section that includes one of the following services:

• Transportation of goods
• Passenger transport
• Driver training
• Representatives or commercial agents
• Vehicle rental

Business meals: They must always be within the scope of work. Therefore, unless it is part of a business trip, daily meals are not deductible for the self-employed person. Therefore, it is advisable to note who the meal was with on the back of the invoice.

The Tax Agency also admits that some expenses may be difficult to justify in the case of simplified direct assessments and therefore allows a 5% deduction on net income, excluding this item, up to a maximum of 2,000 euros per year.

This article aims to clarify the deductibility of those expenses that tend to create the most confusion, but of course, the rest of the expenses totally related to the activity , if they are recorded in the accounts and duly justified with their invoice, there will be no problem in deducting them, such as:

• Consumption of merchandise and raw materials
• External services: Rentals, repairs, supplies, insurance, subcontracting, professional fees, etc.
• Salaries and Wages, Social Security: Payments to contracted workers and their corresponding social security contributions.
• Taxes: such as IAE (Tax on Property), IBI (Property Tax), and garbage taxes. Fines and penalties are never deductible.
• Financial Expenses: Interest, commissions…
• Amortization: Deterioration of capital assets.
• Bad debts: They may only be deducted if they are in the normal direct estimate.
• VAT: It will only be deductible when, due to the nature of the activity carried out, VAT returns are not filed. For example, when the activity is exempt from VAT or falls under certain special regimes.

References:

Royal Decree 439/2007, of March 30, approving the Personal Income Tax Regulations

Law 35/2006, of November 28, Consolidated Text, Last modified: January 21, 2017