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What can you show as business expense?
Thread poster: Nizamettin Yigit

Nizamettin Yigit  Identity Verified
Netherlands
Local time: 19:28
Dutch to Turkish
+ ...
Mar 21, 2006

Dear all,

I wanted to know what expenditures are considered as business expenditure?

With this example it will be better understood:

Situation A
Person X own a business. He rents an office. All the rent, insurance etc are X's expenses. All his/her lunch and dinners (that he dines out) are also expense.
He earnes 100 but spends 90. he pays income tax over 10. Since it is low he does not pay tax at all.

Situation B
Person Y is a free lancer. He works from home. He does not have much to spend (as business expenses). he makes 100 but spends barely 20. He has 80 unit to for taxation. Since it is higher he pays more than 30% tax.

Now these are the questions:
Are these situations correct in the country where you live?
What are the possible expences for Y in your country so he can be down to level of X?

Thanking you in advance for your time and answers,

regards,

Nizam


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Maria Karra  Identity Verified
United States
Local time: 13:28
Member (2000)
Greek to English
+ ...
possible expenses Mar 21, 2006

Nizamettin Yigit wrote:
Now these are the questions:
Are these situations correct in the country where you live?
What are the possible expences for Y in your country so he can be down to level of X?


- Software, if you bought it last year (e.g. the quite expensive TRADOS)
- Professional-association membership fees (ATA, Mathematical Assoc. of America, or any other association you're a member of, even if it's not translation related. I think you can even include ProZ.com membership.)
- Dictionaries
- Fees for using online termbases (e.g. Termium)

Maria


[Editado a las 2006-03-21 16:11]


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Nikki Scott-Despaigne  Identity Verified
Local time: 19:28
French to English
A vast question but perhaps basic principles can be extracted and applied... Mar 21, 2006

Anything you can justify as being necessary to your business activity.

Also after having worked from home for more than 7 years before making the break to renting an office, don't forget that X paying his office is also having to pay for that. He might pay less tax in your example, but he's also making a much smaller profit!



[Edited at 2006-03-21 16:14]


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Burrell  Identity Verified
United Kingdom
Local time: 18:28
Member (2004)
English to Latvian
+ ...
Expenses in the UK Mar 21, 2006

I am not quite sure how to increase expenses without actually making my income less. But I do try to put as much as possible on my tax return, i.e.:
all hardware (adapters, batteries, wires, printer ink, CDs, CD cases included, not to mention any computers, faxes, printers)
stationeries (all pens, regarldless how much my kids are to blame for their loss, paper, paperwork storage boxes etc.)
furniture - desk, storage shelves, computer chair, lamps, light bulbs etc.
subscription to various services
phone - internet, international phone calls, phone calls to premuim numbers if they were made regarding any aspect concerning my business, my mobile phone (I would not have it if I did not need it for my business), 3G Datacard, Blackberry fees
postage costs (stamps, envelopes, even parcels that act as thank you presents to people I cannot offend by paying for things they have done not as work)
fuel and parking necessary to buy all the abovementioned or even research the market before I commit myself to one product)
books - dictionaries, professional books (everything on wiring, for example)
and ultimately - I proved that I have the right to claim half of the travel expenses for my mother to come and visit mne in the UK, as I cannot go to Latvia to keep up my Latvian (mother tongue) and the only way for me to keep up with the developments and have some practice is actually to get her to com a see me and speak as much Latvian as phisically possible.

Basically I put evbery penny on my expense list. State would not hesitate to charge me, so I am not hesitating either.


Forgot to mention all software and upgrades.

[Edited at 2006-03-21 16:18]


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Nizamettin Yigit  Identity Verified
Netherlands
Local time: 19:28
Dutch to Turkish
+ ...
TOPIC STARTER
What about grocery? Mar 21, 2006

Nikki Scott-Despaigne wrote:

Anything you can justify as being necessary to your business activity.

Also after having worked from home for more than 7 years before making the break to renting an office, don't forget that X paying his office is also having to pay for that. He might pay less tax in your example, but he's also making a much smaller profit!



[Edited at 2006-03-21 16:14]


Thanks,

You have a good point. Can you say grocery expenses of your house (like lunch of X) are also expense?

regards,

Nizam


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Burrell  Identity Verified
United Kingdom
Local time: 18:28
Member (2004)
English to Latvian
+ ...
Groceries Mar 21, 2006

Nizamettin Yigit wrote:


You have a good point. Can you say grocery expenses of your house (like lunch of X) are also expense?

regards,

Nizam


Yes, if you can prove that it has anything to do with a certain job. I sometimes have to work so much, I just grab a ready made lunch in the nearest supermarket which I would not do if I did not have to work. So I put this on tax return. Or if I go on a business trip and need to take some food for while I am travellingm then all of that gones on the list.


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Maria Karra  Identity Verified
United States
Local time: 13:28
Member (2000)
Greek to English
+ ...
one more item Mar 21, 2006

You may be able to include your internet connection fees, if you work primarily through the internet, and if you use that connection primarily for work. It's no small amount (60 USD/month in my case).
But I'm not 100% sure, 2005 was my first year as a full-time freelance translator, so I'm still learning. I didn't include it in my tax return but perhaps I can do so next year, if someone more experienced confirms it.
Maria


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Rosa Maria Duenas Rios  Identity Verified
Local time: 13:28
In the US... Mar 21, 2006

Besides what Maria has already pointed out, if you work from home, and you have a particular place assigned as an office (like the garage or one bedroom), you can deduct a percentage corresponding to that space for expenses such as mortgage, insurance, heating/air conditioning, electricity, etc. However, my accountant points out taht the IRS is stricter with things as phones and Internet (you cannot deduct the expense unless it is ONLY used for business purposes, and can prove it!).

Visitis to clients (fuel, hotel room if they are outside town) are also deductible, as well as participation in congresses, conferences related to the profession (travel, lodging and registration exspenses; meals are deductible at 50% only).
Education and courses related to the profession are deductible, as are tax preparation services RELATED to the business, and health insurance.


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Charlie Bavington  Identity Verified
Local time: 18:28
French to English
Business expenses in the UK Mar 21, 2006

Nizamettin Yigit wrote:

Nikki Scott-Despaigne wrote:

Anything you can justify as being necessary to your business activity.



Thanks,

You have a good point. Can you say grocery expenses of your house (like lunch of X) are also expense?



In your example above, X could only claim his lunch expenses if they are business-related (e.g. meeting a client). If not, they should come out of his own pocket (after tax). So there is a flaw in your original premise anyway.

The same applies to Y. Y has to eat every day, whether or not he or she is working. The basic rule is that if you would buy it/pay for it anyway, then you can't claim it as an expense. It has to be business-related, and something that you would not have incurred other than in the course of business. You would eat most days anyway, right? So why should food you eat in the home be a business expense?

Note, indeed, that this rule goes yet further in the UK. Many people, notably men (including me), assert that they would not buy collared shirts and ties and suits etc. if they did not have to wear them for the purposes of their work.
The UK tax authorities long ago ruled that nonetheless these are NOT an allowable business expense for tax purposes, because you COULD use them for non-business activities.

On the plus side, for people working from home, a proportion of your rent, property taxes and utilities bills ARE allowed as a business expense, if you work in a room set aside primarily for work purposes.

Personally, I have better things to do with my time than keeping track of every 42 pence stamp I buy to send hard-copy invoices to France in order to save 10 pence (EUR 0.15) in tax, but yes, such things are also allowable.


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Rafa Lombardino
United States
Local time: 10:28
Member (2005)
English to Portuguese
+ ...
My personal case Mar 21, 2006

Besides everything mentioned above (% of internet, electricity, rent related to office space; books and dictionaries related to the language pairs one works with; software and associations; professional magazines...), I'm also deducting education, since I'm currently going to UCSD for the Translation and Interpretation Certificate (Eng & Spa).

According to some ATA articles I read about the subject, you can only deduct education when related to the language pair you currently work with. If you're taking classes for another language, it's not considered job-related because you're developing new skills instead of improving your currently professional knowledge.

I'm also deducting Skype and Trustfax, respectively the "virtual" phone and fax services I use exclusively for business, besides a % of my cell phone bill (since my husband's has nothing to do with it.) Postage and stamps, which I rarely use, also fall into the deductible category.

I've also deducted gas expenses related to this one client that has me occasionally working on on-site assignments. I don't go into groceries and meals because I only eat at home (since I have a home office) and it would be kind of hard to calculate (and prove) what is a family meal and what's not (left-overs... snacks...).

But I do deduct those professional brunches and dinners whenever I'm meeting with a client or a potential collaborator. I haven't been so bold, but I've also read that you can even deduct any meal whenever you and your associate go out to talk about the business... My husband (who's my partner) and I do this all the time, but I hardly include those receipts in the "business expenses" envelope...

Right now, that's all I can remember... Good luck and have fun doing your taxes!


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Anil Gidwani  Identity Verified
India
Local time: 23:58
German to English
+ ...
Cable TV Mar 21, 2006

I remember a discussion some time ago on one of the forum threads at ProZ about the possibility of deducting cable TV expenses. My cable system carries stations from several parts of the world, including Germany, France, Spain, Portugal, Italy, Russia, Dubai and the Middle East, and Japan, and of course the US. Wouldn't cable charges qualify for a deduction, since viewing broadcasts in one's working languages could be considered as a translation-related educational expense? Opinions solicited and much appreciated!

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PAS  Identity Verified
Local time: 19:28
English to Polish
+ ...
Justify the expense Mar 21, 2006

1. Get a good, friendly accountant to handle your paperwork for you. Bring him/ her all invoices you think are justifed, and let the accountant make the final decision (after consulting with you).

2. Depends who gets audited by the tax man. If it's you, you better be a good talker or have a good stories, because they're mostly out to nail you on some technicality. If it's your accountant who gets audited, you're off the hook a little, but it's going to be harder to convince the accountant to enter a particular invoice into your books.

They tell me the best method is to have an invoice you make out to your client which justifies a particular expense. You should remember about chronolgy, i.e. it may raise eyebrows if you translate a DVD movie and the invoice for your job is dated 15 May, while the expense invoice for the shiny new $ 1000 DVD player is 23 July.

3. I didn't notice anyone mention a car. I lease my "company" car and the lease instalments, gas, car wash, insurance etc. all get deducted. That's a pretty big chunk of your revenue.

4. Of course - by increasing costs you decrease your profit. In a one-man business it's difficult to do otherwise, because you are the business...

Pawel Skalinski

p.s. sorry, it's late - some of you talk about gas/ petrol.

[Edited at 2006-03-21 20:29]


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Maria Karra  Identity Verified
United States
Local time: 13:28
Member (2000)
Greek to English
+ ...
cable TV - I wouldn't include it Mar 21, 2006

I don't know whether you can deduct cable TV expenses or not, but I personally consider that entertainment, not education. Education is one of the 'consequences' (although not always), but not the main reason I watch TV (with the exception of the science channel, although usually that goes under entertainment too, depending on the subject). It's my personal opinion, but I think including cable TV on your tax return would be pushing it a little too far. By the same token I should deduct the ticket price for Chayanne's concert because he sings in Spanish and I can claim I went there because Spanish is one of my source languages; and while I'm at it, deduct the metro tickets for the way to the concert and back. I'm afraid I'd upset the IRS so much that they'd come knocking on my door.
Maria


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Nizamettin Yigit  Identity Verified
Netherlands
Local time: 19:28
Dutch to Turkish
+ ...
TOPIC STARTER
Tax time. Mar 21, 2006

I thank you all for your answers, time and ideas.

I had already done tax thing. A few weeks ago we have called revenue services and after an hour of discussion and with help of them we found out that many things that we did not think as deductable were actually deductable.

I wanted to open this thread just to get more info and learn the situation in other places. I think there are plenty of good information here!!

My examples were imperfect. There are many examples. I use my cell phone primarily for business purposes. But I also use rarely for personal purposes. Business may not be productive for long time, but one phone call that I answer on time may worth the whole year.

I wish all of you to get that kind of phone calls!

Thank you again.

Nizam


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