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 are typically income taxes. As common sense would suggest, taxes cannot be deducted in taxation.
Income tax, which is often paid as prepayments, is recorded in accounting under the main category “taxes and appropriations” in its own account.

Interest on taxes

If taxes are paid late, the Tax Administration starts 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 fees are non-deductible expenses.
In accounting, interest on taxes should be recorded in the financial expenses category, while other penalty-type fees (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 with 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, 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 a company with employees. For instance recreation days, massages, and other employee benefits are deductible for a company with employees, but a sole proprietor cannot offer these perks solely to themselves on the company’s expense.
In taxation practices, for a clearly small company, occupational health care and voluntary cultural and sports activities up to 400 EUR are accepted as deductible. However, one should be more cautious about the deductibility of other 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
• Payments made for connecting to electricity, telecom, water, sewer, or district heating networks, which are refunded to the entity if it relinquishes the benefit derived from the connection fee.

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.