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Which expenses are deductible?
Thread poster: eva75

eva75
English
+ ...
May 27, 2007

I would like to write off as business expenditure (I'm a self-employed translator) but I'm not quite sure if I can write them all off 100% (does it depend on the amount of each expense?)

I think that all of the following can be justified as being relevant or crucial in order to survive/keep up to date in my situation:
- Mortgage on an apartment/office in a foreign country
- Academic resources, such as books, audiovisual material
- Language courses
- Cultural visits (cinema, theatre)
- Flights/transport to foreign countries to visit clients
- Flights/transport to foreign countries for language stays
- Further and ongoing education

What do you other translators write off as business expenditure to keep your income tax levels low?


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Ralf Lemster  Identity Verified
Germany
Local time: 17:44
English to German
+ ...
Depends on the country, and on your tax status May 27, 2007

Hi Eva,
Your question is impossible to answer without knowing which tax legislation applies. On a general note, I would suggest to contact your tax advisor.

Best regards,
Ralf


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Astrid Elke Witte  Identity Verified
Germany
Local time: 17:44
Member (2002)
German to English
+ ...
Do you have a local enterprise trust? May 27, 2007

Hi Eva,

Do you live in the UK? If so, do you have a local enterprise trust in your area? If you have one near you, you will usually be able to enrol for a one-week full-time course which provides you with the basics of book-keeping. The course I attended at the time was very useful.

Astrid


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Vito Smolej
Germany
Local time: 17:44
Member (2004)
English to Slovenian
+ ...
Any half-honest government... May 27, 2007

... will allow all the costs incurred to produce income. The problem is in the detail and that's where you have the possibility of climbing your own learning curve or pay somebody else to get the specifics for you - Ralphs tax advisor -.

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Clare Barnes  Identity Verified
Sweden
Local time: 17:44
Swedish to English
+ ...
I second the others' advice, plus... May 27, 2007

...I think that there are things in your list that would be hard to justify as a business-related expense - specifically the mortgage and the cinema/theatre.

Having said that, I live in Sweden which is quite restrictive in terms of deductions for sole traders, as many things can also come under the heading of "for private use". I had a discussion with the legal department at the tax office about whether broadband was tax deductible - a general rule is that for people working from home, it isn't. I managed to get around that as it is "impossible" (!) for me to run my business as I do without it, though I don't write off the full amount. Nor, for reasons I can't fathom, are membership fees for branch organisations tax deductible (how I wish ProZ would call their membership fee a "service charge", as that's one way of getting around it).

It's also important to consider just why you want to keep your income tax levels low. In some countries this can be a self-defeating strategy in the end, as reducing your income tax also reduces your pension contributions - over a long working life this can add up to be quite significant.


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eva75
English
+ ...
TOPIC STARTER
Business-related expenses May 28, 2007

I've just asked in the country my business is regsitered and apparently any business-related expenses are deductible.

I've been trying to think up of all the things that can be deducted. I'm the accountant, as I've already studied accountancy at university but am a little rusty hence my questions.

By the way, someone said that keeping income tax down could affect my pension in a negative way. I don't think that's true for my case, as I am actually paying into a private pension, which is tax dedutible. So basically the smaller my profits, the less taxes I will have to pay. This favours property investment (if I can prove it's an office for work-related purposes).

Also, if I were to take out a mortgage for an apartment, I would justify this by saying it's my office. I already deduct all of my rent as my home is my office, so if I bought a small appartment which I called my 'office' and not my home, the same would be true, wouldn't it?

Meals with clients would be another one to deduct, I guess.



[Edited at 2007-05-28 10:43]

[Edited at 2007-05-28 11:20]


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Charlie Bavington  Identity Verified
Local time: 16:44
French to English
General rule for the UK May 28, 2007

Note: this was written before your posting at 9.33 appeared here

eva75 wrote:
(does it depend on the amount of each expense?)

Not for the UK. The basic rule is that the expense is to be "wholly and exclusively" incurred for the purposes of the 'trade'
(google "wholly and exclusively" - all the hits are UK tax related )
Unless you can swear blind that you find the theatre/cinema trips absolute torture and you'd rather be at home watching the grass grow, I'd be surprised if they count (unless, perhaps, you are translating the work being performed...?)


What do you other translators write off as business expenditure to keep your income tax levels low?

See above
Altho' to be fair, you are allowed, in the UK, to deduct certain notional expenses if you work from home, e.g. a proportion of utilities bills.
As has been pointed out, making your taxable income as low as possible may not always be beneficial. Having recently applied for a mortgage, for example, I was pretty keen to make it look big, not small

But of course, there is no substitute for professional advice.

[Edited at 2007-05-28 15:21]

[Edited at 2007-05-28 15:50]


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Charlie Bavington  Identity Verified
Local time: 16:44
French to English
Why it might affect your pension May 28, 2007

eva75 wrote:
By the way, someone said that keeping income tax down could affect my pension in a negative way. I don't think that's true for my case, as I am actually paying into a private pension, which is tax dedutible. So basically the smaller my profits, the less taxes I will have to pay.

I think you're missing the point. The possible impact is that, in some countries, you are only allowed to make pension contributions up to x% of your income. The samller your income (=profit if you're self employed), the lower the amount you are legally allowed to contribute to your pension plan, and the poorer you will be when you retire!
Obviously, this will depend on "your country"

Also, if I were to take out a mortgage for an apartment, I would justify this by saying it's my office. I already deduct all of my rent as my home is my office, so if I bought a small appartment which I called my 'office' and not my home, the same would be true, wouldn't it?


The only 2 tax regimes with which I am familiar apply some kind of proportion rule, i.e. you can only claim rent as an allowable expense proportional to the amount of space in the "home" which is used as an office.
I haven't checked the rules for mortgages yet, but I seem to recall hearing that, in the UK, only the interest part of the mortgage is allowable. Again, that may be utterly irrelevant but since you won't tell us where you are (which I don't find entirely surprising, to be frank), who knows how helpful that is.


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Patricia Lane  Identity Verified
France
Local time: 17:44
French to English
+ ...
US, France, UK May 28, 2007

Let's just hope Eva is not in one of those countries... In case of an audit, it will hurt!

Movie/theater as a business expense?
Writing off the entire cost of your home if an office is there?
and so on...

Goodness....


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Melina Kajander
Finland
English to Finnish
Tax return May 28, 2007

Yes, it has never occurred to me, either, to deduct rent as business expense, even though I do work from home...! Has anyone successfully done that here in the UK? Or visits to my native country, the language of which happens to be my target language... Should I?

I'm only done the UK tax return once so far, but just deducted things like internet connection, any hardware needed for work, postal etc. miscellaneous costs, and bank & Paypal charges... Although, as I don't need to make a detailed list of the costs in the tax return as I earn below a certain treshold, I might probably put in what I more or less wanted, they don't even ask for any kind of proof...! But I feel honesty is the best policy, when dealing with authorities (who knows, they might just make an exception and ask me for the proof...)

[Edited at 2007-05-28 16:09]


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Clare Barnes  Identity Verified
Sweden
Local time: 17:44
Swedish to English
+ ...
Re pensions May 28, 2007

I completely agree with Charlie's point: "The possible impact is that, in some countries, you are only allowed to make pension contributions up to x% of your income. The smaller your income (=profit if you're self employed), the lower the amount you are legally allowed to contribute to your pension plan, and the poorer you will be when you retire!"

Additionally, a part of whatever income tax you pay will usually go towards some kind of state pension (depends on where you're registered for tax of course). The smaller your contribution, the smaller your pension...

I do find it hard to follow the logic of deducting all of your rent, it cannot possibly be a wholly "business-related expense". After all, you have to live somewhere when you're not working. If you have a slightly larger flat than you would if you worked somewhere else, then I imagine the difference in your rent and the theoretical lower rent for a smaller flat could be written off.

Otherwise, as Patricia points out, you can just hope you don't get audited... "All business-related expenses" does sound like a free ticket to start writing things off, but remember that most goverments not only want thriving small businesses but also to be able to collect taxes from them. I personally know of at least one sole trader who got a not insignificant prison sentence for tax evasion when he was finally audited after many years of faulty tax returns. (I don't mean to scaremonger, but it does happen).


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Angela Dickson  Identity Verified
United Kingdom
Local time: 16:44
French to English
+ ...
UK rules May 28, 2007

I was asking around about this recently - I'm in the UK. You can't claim expenses relating to your whole home if you're working from home; only the proportion used, as Charlie says, 'wholly and exclusively' for work. And you can claim that proportion of the electricity bill, water, gas etc. but not of the whole mortgage payment - only the interest payment is deductible.

Of course, if you're not in the UK then this advice is useless.


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Patricia Lane  Identity Verified
France
Local time: 17:44
French to English
+ ...
how come? May 28, 2007

Eva75, you emailed me to provide your rebuttal to the risks I pointed out I think you are taking rather than posting that information here?

I might have responded directly had you not sent the email anonymously....


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eva75
English
+ ...
TOPIC STARTER
not my home May 28, 2007

Angela Dickson wrote:


I was asking around about this recently - I'm in the UK. You can't claim expenses relating to your whole home if you're working from home; only the proportion used, as Charlie says, 'wholly and exclusively' for work. And you can claim that proportion of the electricity bill, water, gas etc. but not of the whole mortgage payment - only the interest payment is deductible.

Of course, if you're not in the UK then this advice is useless.


Well, in fact, where I work is not really my home. It's more of an office.
"My" (or rather my parents') home is in the country where my business is registered and where I spend half of the year for tax purposes.

Obviously, I would only be deducting rent in the foreign country (where my source language is spoken) where I rent for 6 months of the year. This is perfectly legal, as far as I know.

Of course, I could indeed deduct my rent for the whole year and the tax men wouldn't be any wiser ... until a possible audit, that is. And in that case, once you actually admit to any incoherencies in your tax returns, you are given the chance to pay the tax you owe. You only actually get fined, if you don't admit upfront.

So, in short, there's no need for any stress! I'm free to write things off now if I feel it makes better business sense (which for me is the case). When the day of an audit comes around (I'll probably have more money in bank by then so there's no problem), I'm willing to pay the consequences (the tax I owe without any penalties, as I've freely offered any information). This is a perfectly legal way of delaying payment.

[Edited at 2007-05-28 19:04]


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Charlie Bavington  Identity Verified
Local time: 16:44
French to English
Claiming rent as allowable expense May 28, 2007

Melina Kajander wrote:
Yes, it has never occurred to me, either, to deduct rent as business expense, even though I do work from home...! Has anyone successfully done that here in the UK?


I do

I base it on the guidance available here:
http://www.hmrc.gov.uk/manuals/bimmanual/BIM47800.htm


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