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December 8, 2022

The Freelancer’s Guide to Expense Management

Expense Managment

Being a freelancer has its perks and drawbacks. One of the biggest drawbacks is managing your own finances—yikes! But don’t fret, we’re here to help. 

This blog will provide you with tips on creating a budget, what types of tools to use for tracking expenses, and what you can deduct from your taxes. Let’s get started! 

How do you create a budget as a freelancer?

As a freelancer, it can be hard to manage your finances without a strict budget in place. A budget allows you to track your income and expenses and helps you plan for the future. 

Before creating your budget, take some time to think about how much money you need each month to cover all of your expenses (bills, rent/mortgage payments, etc.) Be realistic, and be generous. 

After that, set aside some money for miscellaneous expenses like eating out or going out with friends. Finally, allocate some money towards savings or investments—it’s important to plan for retirement and unforeseen costs. 

Now you’ve got your personal expenses covered, it’s time to look at professional ones. What software do you use? What courses would you like to invest in? Are you renting an office space? How much social security will you pay and how much tax do you owe?

For many freelancers, their personal bank account is also their professional one. That doesn’t have to be a problem, as long as you have a budget in place. A simple excel sheet can help you get an initial overview. We’d recommend you to revisit it every quarter to see what has changed. 

How can you easily track your expenses?

Now that you have a budget in place, it's time to start tracking your expenses. There are many different apps out there that allow freelancers to easily track their expenses. 

Corgee makes that super simple. apps will help you keep track of how much money is coming in and going out each month so that you always stay within your pre-determined budget limits.  

With Corgee, you can scan receipts and tickets to track your expenses in one single place. Share them in a few clicks with your accountant.   

What expenses can you deduct as a freelancer in Spain?

As a freelancer, there are certain expenses that can be deducted from your taxes at the end of the year—score! Common tax deductions include; business meals; travel costs related to work; computer equipment; advertising costs; professional fees like accounting services; insurance premiums; home office deductions (if applicable); and any other costs associated with running a business such as website hosting fees or trade publications subscriptions. 

The list is pretty extensive: you might not think about that Grammarly subscription, or the fees for hosting your website. That’s why it’s importnatnt to go back and track! 

How do you deduct anything, anyway? 🤔

Every year a % of your profits are paid in the Annual Tax Return. Depending on how much you make, you could pay from 19% to 47% of your earnings as Personal Income Tax.

So, how can you save? You can pay LESS Personal Income Tax (IRPF) in your Annual Tax Return if you deduct work expenses correctly. 

According to Law 27/2014, deductible work expenses are those necessary to develop your business activity. Expenses can be tax-deductible, if they meet the following requirements: 

First, let’s state the obvious. They have to be work-related expenses. 

Backed up with invoices with your tax information (your name & account number). 

Filed in every quarter through Tax Form 130 or Tax Form 131.

Often-overlooked deductibles 🔍

  • Autónomo fee: every little bit counts, so make sure to deduct this straight away.
  • Trainings, conferences, and educational courses linked to the activity: think that one-day course people have been recommending is expensive? Don’t forget you could deduct the costs! 
  • Interest rates on loans and credits that are work-related: it’s a well-kept secret, but you can often actually deduct these rates, as long as you can prove they relate to your business.
  • Bank fees: chances are you’re not running your business with a free bank account, so make sure you deduct your bank fees.
  • Health Insurance (up to EUR 500): if you’re not just using the public health care system but also private, you’re probably able to deduct the costs. Win!

Be careful with these ⚠️

  • Phone bill: unfortunately, you can't just deduct your entire phone bill. You will have to prove that the plan is being used for work and for work only!
  • Work-related book expenses, magazines and software: this one can be a slippery slope. While you might think that Elizabeth Gilbert’s book on creativity is relevant to your freelance design business, Hacienda might see it differently.
  • Hardware (eg. laptop, phone): tempted to buy a new phone and simply deduct it? Make sure you can prove it is being used professionally. This goes for all hardware. So, best put that flat screen down.

Frequently asked expense questions

Can you deduct (part of) your rent? 🏠

Rent is often mentioned as a deductible if you work from home, but unfortunately, it's not as easy as it seems.

You can deduct the part of your rent that relates to your business activity. So, if your home office takes up 20% of the total surface area of the property, then the proportion of your rent which is deductible is 20%.

There are two problems with that:

  • The Tax Office could ask to see a separate rental contract in the name of your business for the part of the property that is to be used by your business. Most landlords won't give you that, because...
  • Standard rental contracts in Spain usually state that the property is not to be used for business purposes and therefore IVA is not charged. To change this, you need to come to a new agreement with your landlord.

Okay, can I at least deduct my electricity bills then? 💡

Technically, you can deduct 30% of your utility bills that relate to your business activity at home. Again, this requires your business on the contract, and you will have to prove that it was used related to your business activities. So again, this one rarely works for standard homes.

What about the rent for a shared office space? 🏢

This question came up in our most recent Q&A:

''I’m about to enter into a contract to share some office space which is actually in a shop. I’ve always worked from home previously. The landlady has suggested we put ‘collaboration’ rather than ‘rental’ on the invoices because it will be beneficial for us both? Are there penalties or restrictions on rental expenses?''

This is what our team of accountants had to say about that:

''Yes, when you rent a space or a shop to do your freelance activity there are some tax and rates that you should pay to the tax agency. Maybe for that reason, your landlady proposed that to you. Legally, when you rent a space, you should pay a 21% VAT.''

So again, you will need a contract that includes VAT and is tied to your business, but it is possible!

A meeting in Madrid: what can I deduct? 👨‍💼

Let's say that for business purposes, you need to go from Barcelona to Madrid. You're seeing a client there and will have meetings, lunch and dinner with them. Here's what you can deduct:

  • Travel: the expense of public transport is deductible as long as it is carried out in a different home-work shift, and that is justified with an invoice with your business name on it. You can request these types of receipts upon booking. Travel expenses that are completely related to business trips are fully covered.
  • Meals: for stays within Spain without an overnight stay, you get an allowance of EUR 26.67 per day. A meeting with a client at lunchtime falls within your expenses. Make sure you get a complete receipt/invoice for it with your business name on it. Dinners with clients that occur outside business days and hours can be subject to inspection, so be careful with those.

Of course, there’s more! We are keeping a list of deductible expenses in Spain and their risk levels, so check this out too.

Become an expert at expense management

As a freelancer, one of the most important things is learning how to manage finances effectively. Having proper expense management skills will not only help ensure that bills are paid on time but also allow more money for investing or saving for retirement down the road. 

Want to chat to other freelancers about their expense management tactics? Join our Slack channel!

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