As a company owner, understanding which expenses can be deducted as business-related is essential for effective tax optimization and avoiding issues with tax authorities. The primary criteria are that the expenses must be justified and directly connected to business activities.

As highlighted in this article, receiving income in the form of dividends is often more advantageous for company owners. This approach to income changes how expenses are accounted for compared to receiving a salary. Dividends are classified as capital income, not wages, meaning you cannot access employee social benefits. However, there are strategies to partially deduct expenses as business-related.

Benefits of Receiving Dividends

1. Lower Tax Obligations:
   • Dividends are taxed as capital income, typically at a lower rate than the combined taxes on salaries (income tax + social contributions). For example, in France, dividends are taxed at a flat rate of 30%, which includes 12.8% income tax and 17.2% social contributions.
   • This allows owners to retain a higher net income compared to receiving a salary.
2. Flexibility in Income Management:
   • Dividends are paid out after the financial year, giving you the ability to plan taxes and cash flow distribution in advance.
   • You can adjust the dividend amount, retaining a portion of profits for business growth.

What expenses can be deducted when receiving dividends?

Even if you are not receiving a salary, there are categories of expenses that can be deducted as business-related if they are justified and connected to business activities.

1. Business trips and entertainment expenses:
   • Business trips: Expenses for transportation, accommodation, and meals, if related to business management (client meetings, attending conferences, etc.).
   • Meals and dinners with partners: Such expenses can be classified as entertainment costs, but it is important to keep receipts and specify the purpose of the meeting.
   • Cultural events for business purposes: For example, attending corporate or business events (exhibitions, concerts, presentations).
2. Personal transportation:
   • If a car is used for business purposes (meetings, trips to clients), the company can reimburse part of the costs. This includes:
   • Fuel.
   • Car maintenance.
   • Partial depreciation (if the car belongs to the company).
   • Lease payments if the car is leased.
   Important: To deduct expenses, you must track trips to identify the proportion used for business.
3. Office expenses and technical support:
   • Working from home: If you use part of your home as an office, you can deduct:
   • Proportional rent or mortgage payments.
   • Utility costs (electricity, internet).
   • Office furniture and equipment: Purchase of office furniture, computers, phones, and other devices.
   • Office rental: If work is not done from home, the rental of commercial space is also deductible.
   • Software: Purchase or subscription to CRM systems, accounting programs, graphic editors.
   • Communication: Expenses for mobile services, internet, and corporate plans.
   • Technical maintenance: Repairs and maintenance of office equipment (e.g., printers, computers).
   • Hosting and domains: Hosting services and domain registration for company websites.
4. Freelancers and employee salaries:
   • Freelancers: Payment for freelance services hired to perform specific tasks (e.g., development, copywriting, design).
   • Employees: Employee salaries, including taxes and social contributions, if they are officially employed.
5. Legal and accounting services:
   • Payment for the services of lawyers, accountants, and consultants involved in managing company assets, tax optimization, and registering new projects.
   • Financial services: Bank fees, interest on business loans.
6. Marketing and promotion:
   • Expenses for personal branding (creating a website, social media promotion) or business reputation (professional photography, PR services).
   • Costs for developing and maintaining the company's corporate identity (logo, business cards, promotional materials).
   • Advertising: Placement of advertising materials online, on radio, TV, or in print media.
7. Education and professional development:
   • Courses, seminars, and conferences attended to improve business-related skills.
   • Subscriptions to professional literature, industry journals, and educational platforms.
8. Tax expenses:
   • Costs for preparing tax documentation, preparing reports, or defending the company's interests before tax authorities.
9. Corporate gifts and events:
   • Corporate gifts to clients or partners, provided their value does not exceed established limits.
   • Participation in business events where connections are made, and partnerships are discussed.
10. Charity:
    • Donations to registered charitable organizations, provided they meet legal requirements.

Limitations and Risks

1. Documentation Requirements:
   • All expenses must be supported by invoices, receipts, or contracts.
   • You must provide evidence linking the expenses to the company's operations.
2. Personal Expenses:
   • If tax authorities determine that personal expenses (e.g., luxury cars, vacations) are being deducted as business-related, they will disallow these expenses and may impose penalties.
3. Expense Limits:
   • Many countries, including France, impose limits on certain expense categories (e.g., corporate gifts). Exceeding these limits can trigger audits or inquiries.

How to Deduct Expenses and Minimize Risks

1. Justify Business Relevance:
   • Each expense must have a clear connection to managing or promoting the business.
   • For example, attending a cultural event can be justified as a way to attract partners or enhance the company's image.
2. Separate Personal and Business Use:
   • If expenses (e.g., a vehicle or home internet) are used for both personal and business purposes, clearly allocate the business-related portion.
3. Seek Professional Advice:
   • Consult with an accountant or tax lawyer to ensure expenses are categorized correctly and comply with tax regulations.

Key Takeaways for Business Owners

While owners receiving dividends do not qualify for employee social benefits, they benefit from:

• Reduced tax burdens on income.
• The ability to deduct business-related expenses as operational costs.
• Flexibility in managing and leveraging corporate resources to offset personal costs tied to business activities.

This approach allows for efficient income management and tax optimization, ensuring a balance between personal and business interests. For more details on correctly documenting specific expenses, consult with Matthew Fiscalis for expert advice!