An allowable expense reduces taxable income. Input-VAT deduction is a separate test. Paying a private cost with a business card does not make it a business expense.
Three checks before recording a cost
- Was the cost incurred to produce business income, and is there a private element?
- Is it an operating expense or a capital asset depreciated over time?
- Is the documentation adequate, and do deduction limits or withholding obligations apply?
This guide concerns actual expenses under ordinary reporting. A micro-business owner using the 30% deemed deduction does not add the same actual business expenses on top. Recordkeeping and VAT obligations remain separate.
32 expense categories — a practical review table
A broad preparation list, not a closed list or automatic approval. Only actual business costs meeting the law qualify. Input VAT is separate: exempt dealers cannot deduct it, and registered dealers need valid documentation and allocation numbers where required. Swipe the table horizontally on a phone.
| Expense category | Income tax: what to check | VAT and records |
|---|---|---|
| Business premises rent | Review operating rent for business premises and rental withholding. A refundable deposit is not automatically an expense. | Keep the lease, payments and withholding certificate. VAT needs eligible documentation; a private landlord may require self-invoicing. |
| Municipal property tax (arnona) | Review charges for business premises; home use needs a supported business allocation. | Keep municipal bills and payment evidence. Arnona has no input VAT to deduct. |
| Electricity, water and gas | Business consumption only; household consumption needs separation. | Keep bills and allocation evidence. Deduct only eligible VAT actually shown on valid invoices. |
| Building management charges | Operating charges for business premises; improvement funds need separate classification. | Keep invoices or proper payment demands. Building charges do not always contain VAT. |
| Working from home | A supported share of eligible costs; 10% floor area does not automatically allow 10% of every bill. | Document area and use; claiming rent requires lease and landlord-tax review. Test VAT separately. |
| Cleaning and supplies | Business cleaning and supplies consumed at the premises; exclude private household use. | Keep service or purchase invoices. An employed cleaner is payroll, not input VAT. |
| Repairs and maintenance | Separate operating repairs from capital improvements, extensions or setup. | Keep itemised invoices and supporting records; VAT depends on eligible use. |
| Fees and licences | Review business and professional renewals; acquiring a new right may be capital. A fine is not a licence fee. | Keep fee notices and payment evidence. Government fees do not necessarily contain VAT. |
| Business and professional insurance | Review business property, public liability and professional cover for the relevant period; separate personal policies. | Keep policies and charges. Ordinary insurance premiums have no input VAT. |
| Bookkeeping and tax advice | Review accounting and return-preparation costs; setup or asset-acquisition advice may need different classification. | Keep invoices and agreements; input VAT and allocation numbers depend on the rules. |
| Legal and professional advice | Advice for operations differs from personal litigation or capital-asset costs. | Document scope and engagement; check withholding and VAT. |
| Advertising and marketing | Review business campaigns, design and content; long-lived rights or assets may be capital. | Keep invoices and campaign evidence. Foreign services may trigger import VAT rather than deductible Israeli VAT on the bill. |
| Website, software and cloud | Recurring subscriptions differ from website setup, development and software acquisition. | Keep invoices, subscription periods and licence terms; check foreign supplies and private use. |
| Bank and payment-processing fees | Separate business fees from private charges; reconcile gross revenue and fees. | Keep statements and processing reports. Bank charges may have no VAT; processing invoices need separate review. |
| Interest and finance costs | Trace business use of borrowing; principal is not an expense. Asset financing may require capitalisation. | Keep agreements, repayment schedules and use-of-funds evidence; ordinary bank interest is not an input-VAT invoice. |
| Telephone and internet | Business lines, home lines and mobiles have different rules and limits; no universal percentage applies. | Keep bills and usage allocation. Income-tax percentages do not determine input-VAT entitlement. |
| Office consumables and printing | Business paper, ink, printing and consumed supplies; exclude private purchases. | Keep itemised invoices; input VAT depends on entitlement. |
| Computers, furniture and equipment | Long-lived assets generally need depreciation classification rather than immediate full expensing. | Keep invoices, asset records, in-service dates and private-use allocation; VAT and depreciation are separate. |
| Stock, merchandise and materials | Review cost of sales with opening and closing stock; not all purchases are final expenses. | Keep invoices, stock counts, import and disposal records; import VAT needs valid import documentation. |
| Employees and employer costs | Allowable payroll costs need payslips, returns and contributions; a sole trader’s drawings are not wages to themselves. | Keep payroll records; employee wages contain no input VAT. |
| Subcontractors and freelancers | Document business services, withholding and the relationship; an invoice alone does not settle employment status. | Keep contracts, deliverables and supplier records; VAT depends on supplier status and entitlement. |
| Postage, courier and freight | Business deliveries; freight for assets or stock may form part of acquisition cost. | Keep invoices and delivery purpose; test VAT from the actual documentation. |
| Public transport and taxis | Document travel for meetings or projects; private and ordinary home-to-work journeys require separate review. | Keep proper tickets or invoices, dates, destination and purpose; do not automatically extract VAT from every fare. |
| Vehicles, fuel and charging | For ordinary vehicles covered by the rules: the higher of 45% of defined costs or costs less prescribed use value; classifications have exceptions. | Private-car acquisition generally excludes input VAT, subject to exceptions; running costs and mixed use need separate review. |
| Parking and toll roads | Business parking away from the permanent workplace and its vicinity, and road tolls, may be vehicle costs. Workplace parking needs separate review; avoid double counting. | Keep location and date. Private parking, municipal parking and app fees may differ for VAT. A parking fine is not a parking charge. |
| Vehicle hire and leasing | Review the agreement and vehicle rules; payments are not automatically fully deductible operating rent. | Private-car rental VAT may be restricted; maintenance components require contract and statutory analysis. |
| Professional training and literature | Maintaining existing skills differs from acquiring a new profession or education. | Keep the syllabus, business connection and invoice; VAT depends on eligibility. |
| Business travel abroad and accommodation | Review business necessity, workdays, private days and annual limits; a holiday is not automatically a business trip. | Keep itineraries, meeting records and receipts; foreign tax is not Israeli input VAT. Domestic lodging has separate rules. |
| Light refreshments, meals and hospitality | Light refreshments at the business premises have defined limits. Restaurant meetings are not automatically deductible; overseas-guest hospitality needs separate review. | Record purpose and details; income-tax allowance does not itself permit input VAT, especially employee benefits. |
| Workwear and protective equipment | Qualifying workwear and protective items depend on statutory criteria; ordinary clothes do not qualify merely because worn at work. | Keep invoices and purpose records; assess private use and VAT separately. |
| Self-employed pension and study fund | Personal tax benefits have eligibility rules and ceilings; they are not unlimited ordinary operating costs. | Keep annual certificates, not VAT invoices; apply the relevant tax-year and personal rules. |
| Fines, private costs and tax payments | Punitive fines, private living costs, loan principal and personal income tax are not ordinary deductible business costs. Assess other payments on their substance. | A business payment or invoice does not establish eligibility. Donations may qualify for a separate statutory credit. |
Choose your business — prepare your expense records
Select one of 36 business types to see profession-specific items worth reviewing with the office. These are office-selected examples based on general tax rules, not a Tax Authority list approved by profession. Eligibility depends on actual business use, evidence and statutory limits.
Common items to review where relevant
Keep invoices and payment evidence, and describe business purpose and any private use. Long-lived assets and unsold stock require separate treatment.
The selection and list generation take place in this browser. This tool does not send your choice or list to the office or to Analytics and does not require an email address.
Office-prepared suggestions subject to individual review. Input VAT, income-tax deduction, stock and depreciation are separate; micro-business and exempt-dealer rules may change the treatment. Content reviewed: 21 October 2026.
Explanations and notes
The business selector above adds 10 profession-specific examples and 14 common review points. Items may overlap: record each payment once. Capital assets, stock and private use require classification, not a second deduction.
Vehicles: do not apply 45% blindly
Defined running costs may include fuel, repairs, licensing, insurance and depreciation. Operational vehicles, taxis, driving-school vehicles and motorcycles can have different rules. The purchase price is not an immediate operating expense. Record odometer readings at year boundaries or entry and disposal dates.
VAT distinguishes vehicle acquisition or rental from running costs. Mixed-use input VAT requires the applicable allocation analysis; neither two-thirds nor one-quarter is a universal allowance. Insurance and licensing may contain no VAT to deduct.
Home: a business room does not make the whole home deductible
A supported business share of electricity, maintenance and eligible costs may be considered using actual area and use. A 10 m² office in a 100 m² home is a fact to assess, not automatic permission to deduct 10% of every household bill.
Before claiming rent, property depreciation, interest or renovations, review the lease, actual use and tax implications, including rental withholding and the landlord’s position. Mortgage principal is not a current expense. Family and living costs remain private.
Telephone: avoid a blanket “half deductible” rule
A separate business line, a home line and a mixed-use mobile have different considerations. Income-tax regulations include restrictions and annually adjusted amounts; the office should apply those relevant to your actual costs. The handset may also require equipment classification separately from the subscription.
Numerical example: a NIS 1,180 expense
Assume a fully eligible Israeli operating service for a VAT dealer: NIS 1,000 plus NIS 180 VAT, with an illustrative 30% marginal income-tax rate.
| Item | Amount and meaning |
|---|---|
| Supplier payment | NIS 1,180 |
| Eligible input VAT | NIS 180 deducted through the VAT return |
| Income-tax expense | NIS 1,000 after separating recoverable VAT |
| Illustrative income-tax reduction | NIS 300: 1,000 × 30% |
| Illustrative cost after these two tax effects | NIS 700, before National Insurance, additional tax and other circumstances |
This is not a guaranteed cash refund. Income-tax relief depends on taxable income and personal circumstances. An exempt dealer cannot deduct the NIS 180 as input VAT; the gross cost may instead form part of the allowable expense or asset cost. Do not deduct VAT twice.
A practical documentation routine
- Keep invoices and payment evidence, not just card statements. Check allocation numbers where required for input VAT: for invoices from 1 June 2026 the threshold is above NIS 5,000 before VAT, subject to statutory exceptions.
- Record the business purpose and any private use.
- Flag equipment and unusual purchases for classification and depreciation review.
- Send records regularly and check withholding obligations where applicable.
Spend because the business needs the purchase, not simply to “save tax”. An invoice alone does not make private costs, penalties or restricted items deductible.
Official sources
- Income Tax Regulations: deduction of certain expenses — refreshments, travel, clothing and telephone
- Vehicle Expense Regulations — vehicle costs, parking and tolls
- Income Tax Ordinance — sections 17, 21 and 32
- Tax Authority — 2025 income-tax guide: vehicles and telephone
- VAT Law — sections 38 and 41
- Tax Authority — new-dealer guide: input VAT and vehicle restrictions
- Tax Authority — micro-business reform
- Tax Authority — Israel Invoices: allocation numbers
Keeping this article current
The figures and rules relate to the review date above. Amounts, deadlines and rules may change. The next scheduled editorial review target is January 2027, and earlier if legislation or official guidance changes. This is an editorial target, not an active automated update.