Tax-Deductible Expenses for Businesses: How to Optimize Taxes

Including the right expenses in your tax declaration is crucial for minimizing your company’s tax liabilities. By properly accounting for allowable expenses, businesses can optimize their tax burden and improve the efficiency of their financial management. In this article, we will explore what expenses can be included in the tax declaration and which expenses are allowable. We will also explain how you can benefit from them to reduce your tax obligations.

Allowable Expenses for Your Company

Bulgarian legislation allows businesses to include various expenses related to their main activity that reduce their taxable income. We typically divide these expenses into two main categories: current expenses and capital expenses. The NRA (National Revenue Agency) recognizes only the expenses that meet certain criteria.

Examples of Allowable Expenses:

• Material and goods expenses – All costs associated with purchasing goods, raw materials, and supplies necessary for the business’s operations.
• Employee salaries and social security contributions – Employee wages, as well as social and health insurance contributions that the company must pay.
• Rent and leasing costs – Expenses for renting office or other commercial premises, as well as leasing costs for equipment and machinery.
• Transport costs – If the company uses vehicles to carry out its activities, expenses for fuel, repairs, and maintenance can be included.
• Advertising and marketing – Costs for advertising campaigns, participation in exhibitions and events related to promoting the business.

Irregular Expenses and Capital Project Expenses

Companies can also include expenses considered investments or capital expenses. These typically relate to purchases or costs that are not immediately reflected in profit, but are depreciated over time.

Examples of Capital Expenses:

• Purchase of fixed assets – Such as real estate, equipment, computer systems, or vehicles.
• Repairs and improvements to fixed assets – If necessary to maintain the value of the assets.

The company depreciates these expenses over time and includes them in its tax declaration gradually, based on the applicable depreciation period.

How to Optimize Your Tax Liabilities by Properly Including Expenses

One of the most effective ways to optimize your tax liabilities is by accurately reporting all allowable expenses. To achieve this, it is important to:

• Keep all invoices and documents for the expenses incurred, to ensure complete transparency and proof in case of an audit by the NRA.
• Classify expenses correctly, ensuring they meet the legal requirements for allowable expenses.
• Take advantage of tax reliefs such as depreciation of fixed assets and deductions for employee training expenses, which can reduce taxable profit.
• Consult with an expert or accountant who can help you understand which expenses can be optimized and included correctly in your declaration.

Examples of Irregular Expenses

We cannot include some expenses in the tax declaration, such as the owner’s personal expenses or costs unrelated to the core business activity. It is important to distinguish between personal and business expenses to avoid penalties.

In conclusion, utilizing all allowable expenses that can be included in the company’s tax declaration is a key factor in reducing tax liabilities. Properly reporting these expenses and avoiding errors in their inclusion will help the business stay compliant with the law. At the same time, it allows for the optimization of its tax obligations.

Optimizing tax expenses requires attention to detail, accuracy, and knowledge of tax laws. That’s why it is important to work with a qualified accountant who can guide you and ensure that you are making the most of your optimization opportunities.

Understanding tax-deductible expenses is essential, but keeping up with the latest regulations is just as important. Read about the Latest Tax Legislation Changes: What Businesses Need to Know.