Not all expenses can be deducted in a company’s taxes, even if they are somehow related to business operations. Some non-deductible expenses can still be paid from the company’s bank account and with the company’s funds, and they must be recorded in the accounting. Nevertheless, they are not considered deductible in taxation.

Direct taxes

Direct taxes are those that become payable immediately and are based on the taxpayer’s income. For companies, these typically include income taxes. As common sense would suggest, taxes themselves are not deductible in taxation.
Income tax, which is often paid as prepayments, is recorded in the accounting under the main category “Taxes and appropriations”, in its own account.

Interest on taxes

If taxes are paid late, the Tax Administration will begin charging interest on the overdue amount. Additionally, if a filing is submitted late, a late filing fee will be imposed. Both interest on taxes and late filing fees are non-deductible expenses.
In accounting, interest on taxes should be recorded under financial expenses, while other penalty-type charges (such as negligence fees, late fees, and tax increases) are recorded under other operating expenses in the income statement.

Fines

Sometimes, one may accidentally park a car carelessly or press the gas pedal too hard, resulting in a hefty fine. If the fine was incurred while using the company’s car or otherwise related to work duties on the road, it can be paid from the company’s bank account. In accounting, such fines are recorded in other operating expenses under a designated account for fines.

Non-deductible employee benefits for sole proprietors

A sole proprietor should also note that not all expenses are deductible in the same way as they are for companies with employees. For instance recreation days, massages, and other employee benefits are deductible for companies with staff, but a sole proprietor cannot claim these perks for themselves at the company’s expense.
In taxation practices, for a clearly small-scale business, occupational health care and voluntary cultural and sports activities up to 400 EUR are accepted as deductible. However, one should be more cautious when claiming deductions for other types of benefits.

Other non-deductible expenses

For a limited liability company, other non-deductible expenses can also include:

• Merger losses
• Impairment of fixed assets
• Mandatory provisions (typically non-deductible)
• Bribes and similar benefits given
• Payments for its own shares, unless they are shares transferred based on employment
• Costs incurred in acquiring or retaining tax-exempt income
• Connection fees for electricity, telecom networks, water, sewer, or district heating networks, if the fee is refunded to the business when the connection is relinquished

It goes without saying that non-deductible expenses also include all costs unrelated to the business as well as personal expenses of the entrepreneur or employees. If one attempts to pass personal expenses as company expenses, it is considered either wages or even hidden dividend distribution.