Guide for Entrepreneurs: Expenses Recognized in the Income Statement

The income statement is the heart of every business report, showing how profitable your business is or how much it struggles with expenses. What we often forget is that some costs, which at first glance seem like a burden, can actually improve your tax situation significantly. The expenses recognized in the income statement are not just numbers on paper, but key items that can help you optimize your business and achieve significant tax benefits. Below, we reveal which expenses you can recognize and how to properly manage them for the best results.

1. Wages and Compensation Expenses: Paid and Recognized
   Let’s start with the basics – do you pay salaries, royalties, or service agreement. The good news is that these expenses are recognized as an expense for tax purposes, but only at the moment they are paid. So there is no delay - pay them on time and rest easy.
2. Depreciation: Diminishing Value That Increases Worth
   We all love new machines, equipment and software, but it's important to know that the value of fixed funds decreases over time, which actually presents an opportunity for you. Depreciation costs are recognized as expense, but watch the rates! Fixed assets are divided into five groups with rates ranging from 2.5% to 30%, so be careful to classify each item correctly. It's important to note that funds valued up to 300€ can be recognized as an expense immediately, which means less complication and quicker tax relief.
3. Donations and Social Responsibility: Give a Little, Save a Lot
   Expenses for socially beneficial purposes, such as donations for health, education, sports, and even the development of volunteering, are recognized up to 3.5% of total income. An exception is made for expenses related to national sports federations, which can reach up to 5%, but this provision comes into effect on January 1, 2025. These expenses are recognized as expenses only if paid to legal entities engaged in the donation activity (non-governmental organizations, sports clubs, educational, scientific, religious, cultural, and other organizations).
   What does this mean for you? Be socially responsible, invest in the community, and enjoy tax benefits!
4. Representation and Membership Fees: Investing in Relationships
   Business lunches and representation often raise skepticism, but under certain conditions, these expenses can be recognized up to 1% of your income. It's crucial that they are documented and justified – because we all know not every lunch is business-related, but the one that is can be counted! Additionally, membership fees for chambers, federations, and associations are recognized up to 0.1% of total income, except for fees set by law, which are recognized in full.
5. Write-offs of Doubtful Receivables: Bad Debts, Good Expenses
   Doubtful receivables often cause headaches, but they are legally recognized as expenses under certain conditions. They are written off only after they have been included in income, classified as uncollectible, and after all collection steps have been taken. Sounds complicated? Maybe, but with proper bookkeeping, this can mean significant savings.
6. Provisions and Impairment of Assets: When Trouble Becomes Opportunity
   Sometimes, due to unforeseen circumstances, assets may lose value. Expenses related to damage, disposal, or write-offs are recognized in the period when the asset is disposed of, damaged, or written off, with supporting evidence. Therefore, it is essential to monitor the condition of assets properly and react promptly.

Conclusion: Effective Expense Management for a Better Business Image
Managing expenses is not just an obligation but an opportunity. All these costs recognized in the income statement significantly impact your tax base and, consequently, your business. Don’t look at them as mere spending but as a strategic tool that helps optimize your business and stay compliant with the law.

If all this sounds too complicated – you are not alone. We are here to help!

Our agency Perfectum, specializes in providing timely and accurate support in accounting and legal matters, allowing you to focus on what you do best – running your business!