Sole entrepreneurs in VSZJA tax scheme often ask which expenses can be deducted. This guide on expense deduction for sole entrepreneurs explains the rules, examples, and common questions according to Annex 11 of the Personal Income Tax Act. Let’s go through the most important rules, examples, and common questions.
Let’s go through the most important rules, examples, and common questions.
What Counts as an Expense?
According to the general rule of the Personal Income Tax Act, an expense is one that:
- is directly related to business activity,
- arises exclusively for the purpose of generating income or continuing the activity,
- is actually paid during the calendar year,
- and is properly documented (with an invoice or receipt).
Utility and Premises Costs
If your business operates in its own office, workshop, or commercial premises, utilities and rent are clearly deductible, provided that the invoice is issued in the business’s name, address, and tax number.
- With separate meters there is no issue, since business and private use can be clearly distinguished.
- Without separate meters (for example, if you work from home), you must calculate proportionally: based on square meters, days, or even cubic meters.
One exception: Internet costs. Here, 30% of the fee, up to HUF 60,000 per year, can automatically be deducted as an expense, even if you cannot precisely demonstrate the split between business and private use.
Telephone Costs
A frequent question: Can I deduct the full phone bill automatically?
The answer is: No. Phone expenses can be partially deducted. Only the portion used for business counts as deductible business expenses for sole entrepreneurs.
However, if you deduct the full amount, the portion related to private use may be treated as owner’s withdrawal and may generate additional tax liability.
Travel Costs and Car Use
This is one of the most sensitive topics.
- Trucks, agricultural machinery: straightforward, since they clearly serve the business.
- Private cars: if you deduct any expenses (e.g., fuel, repairs), company car tax liability may arise.
However, Annex 11, Section III/11 of the Personal Income Tax Act allows a flat-rate deduction of 500 km per month for a car owned by the entrepreneur or a close relative.
- No travel log is required.
- The deduction is based on the monthly fuel price published by NAV and the vehicle’s consumption rate.
- If you want to deduct more than this, then a detailed travel log and itemized accounting are mandatory.
Other travel: If you travel on business by plane, bus, or train, the costs can be deducted with invoices issued in the business’s name. For international trips, it is always advisable to document the business purpose well (e.g., partner’s name, subject of the meeting), as this may be requested during an audit.
Accommodation: deductible as an expense.
Meals and drinks: considered representation expenses, deductible only with separate tax implications.
Expense deduction for sole entrepreneurs – What to Keep in Mind?
- Always have invoices in the business’s name (except where the law allows otherwise, e.g., utility bills in a spouse’s name).
- Always separate business and personal use clearly, and only deduct the business-related portion. Otherwise, the tax authority may raise issues during an audit
One key rule for sole proprietors is to always refer to Annex 11 of the Personal Income Tax Act when it comes to deductible expenses.
Utilities, phone, internet, travel, or car use can all be deducted—but only if done correctly, proportionally, or in line with flat-rate provisions.
One thing is certain: the “I’ll just deduct everything I can think of” approach no longer works. But by following the rules, you can still reduce your taxable base with many legitimate business expenses.
