Can a self-employed person deduct these expenses?

The activity of a self-employed person is unimaginable without expenses that support business development. The advantage of being self-employed is that these expenses can be attributed to economic activities, thereby reducing taxable income. Do you think you are deducting all possible expenses? We have compiled some of the most interesting questions related to various types of expenses and explain whether they can be attributed to economic activities and, if so, how to do it correctly.

Goods or equipment purchased outside of Latvia

You can safely deduct these expenses, but keep in mind:

• If the cost of the item is less than 1,000 euros, deduct it as usual. If the cost of the item exceeds 1,000 euros, it must be registered as a fixed asset, depreciation must be calculated, and gradually deducted as an expense. Read more about this in our blog.
• If you frequently purchase such goods in large quantities, be sure to monitor whether the value of the goods purchased within the European Union exceeds 10,000 euros in a calendar year – otherwise, you will need to register as a VAT payer. Read more about this in our blog.

Gifts

If you prepare gifts for clients or business partners, the value of which does not exceed 20 euros, they are considered representation expenses. Such expenses can be attributed to economic activities only if you have employees and, accordingly, a wage fund. Read more about representation expenses in our blog.

Amounts paid in income tax or social contributions

Unfortunately, when calculating new quarterly social contributions, you cannot include in expenses the amounts paid in income tax or previous quarterly social contributions.

Donations

Donations are also unfortunately not related to economic activities, so you cannot register them in the journal. However, if the donation was made from business funds, you can register them on pats.lv by selecting the "Personal consumption" option in the transaction description. The good news is that these are justified expenses for which an individual, regardless of self-employed status, can recover income tax overpayment. So feel free to include donations in the annual income declaration. It must be filed every year, starting from March 1.

Pension contributions, life or health insurance premiums

Like donations, these expenses are justified and can only be included in the annual income declaration.

Subscriptions to mobile apps or software

If the use of mobile apps or software is related to your economic activity, you can attribute the subscription fee to the economic activity. For example, a mobile app for video editing to create content for your business’s social media or software for creating designs. However, keep in mind that often various apps and software are provided by third-country taxpayers. If so, you need to assess whether you need to become a VAT payer. Only then can you attribute the costs to economic activities. By the way, the pats.lv subscription can also be deducted as an expense, but we have already taken care that it is automatically included in your business activity journal.

Remember:

• Expenses can be attributed to economic activities only by the self-employed who have chosen the personal income tax payment regime.
• The connection of expenses with economic activities must be proven with appropriate transaction documents.

There are many different expenses that can be deducted, and you may not always think of all of them. Where to find advice?

• help.pats.lv – we compile frequently asked questions.
• pats.lv expense analytics in your profile – choose Pro or Premium subscription, and pats.lv will share tips on expense deduction.