What counts as a deductible expense, and what can you actually write off?

[Versión en Epañol]

You've probably heard the classic line:

"Now that you're self-employed, you can write off VAT and loads of expenses."

True, with caveats. There's one basic rule underneath all of it: only expenses that are 100% related to your business activity are deductible.

However, as a freelancer, chances are you have expenses or services that serve both your business and your everyday life (a car, a phone, a laptop...).

On top of that: income tax and VAT don't always align. Something deductible for one isn't necessarily deductible for the other, and vice versa.

Hacienda doesn't play by the same rules for both

Even though the tax office (Hacienda) collects both VAT and income tax, it applies different rules and laws to each. Sometimes an expense is 100% deductible for income tax, but you can only deduct 50% of the VAT. Other times, you can deduct a percentage of the VAT but nothing at all on your income tax.

So it's not as simple as getting an invoice in your name, logging it, deducting the VAT, and subtracting the amount from your income to lower your taxable profit. You need to understand the logic behind each tax. As a general rule:

Income tax (IRPF): how much do you actually use this for work?VAT (IVA): can you prove it's only for work?

For income tax, it's usually enough to state how much of something you use for work. For VAT, you need to be able to prove exclusive business use. In practice, that makes income tax a bit more forgiving about partial percentages, while VAT tends to be all-or-nothing.

Exceptions, and exceptions to the exceptions

Tax rules evolve. What was a simple rule 20 years ago can turn into something far more layered over time, growing with every update Hacienda publishes. As the professional landscape changes, so does the type of cost professionals incur, and so does the overlap between professional tools and personal life.

Let's be honest: even if you use your AI assistant for work, I doubt you use it only for work. And working from home was barely a consideration before the pandemic.

Which is exactly why it matters that your advisor stays up-to-date. Because in our audits, we've seen plenty of gestorías still working off rules from the '80s.

Here are the most common ones:

Myths and legends (and cars)

One of the most common myths I hear when someone becomes self-employed: 

“Sell your car (if you have one) and lease one instead. That way you write off the VAT, the income tax, and boom, you’ve just saved lots of money.” Sorry to break it to you, but except for a few specific professional activities, it's not that simple.

In fact, when it comes to cars, the rules and case law are actually very clear. For VAT, Hacienda assumes upfront that you are going to use it for personal use (unless it’s a truck, for example). That means at most you can deduct 50% of the VAT, no matter how convincingly you can show you use it for work five days a week and only personally on weekends.

For income tax, though, especially with mixed-use or passenger vehicles, it's all-or-nothing. Either you prove exclusively professional use, or you can't deduct anything at all on your income tax return.

So if you lease your car and want to play by the rules, you can deduct 50% of the VAT and exactly €0 on your income tax. And trust me, in a tax audit, vehicle costs (leasing, fuel, and the like) are always the first thing they check. All vehicle-related expenses follow the same rule.

Notice something interesting here: cars are actually the exception to the exception. Normally, income tax is more forgiving than VAT. But not in this case.

Here's a table with a few more classic examples:

Quick reference table

Note: this list was put together in June 2026, based on current regulations, DGT rulings, and TEAC resolutions.

And remember: for an expense to be deductible, it needs a paper trail. Always pay electronically (card, transfer, etc.) and always insist on an invoice made out to you. A receipt is not enough.

One more thing: to deduct part of your home and its utilities, you need to have registered with Hacienda what percentage of your home is used for your business. That part physically separated from your living space (an office with its own door). "I work at the kitchen table" doesn't count.

In summary (print this and stick it on the fridge)

• A lower income tax bill doesn't mean the VAT is deductible too — and vice versa. They're two separate questions, and you need to ask both.
• Keep documentation that backs up your expenses (contracts, calendars, etc.), especially for anything harder to justify, like client meals.
• Pay electronically and always get an invoice with your name and tax number on it.
• When in doubt about a mixed-use expense, ask us before you deduct too much. It's a lot cheaper to ask than to correct three years later.

For any questions, get in touch with us, and we'll help you untangle your own situation: