Deductible expenses for freelancers - deduction percentages by category
Not every expense connected to your business is deductible in full. The Israel Tax Authority (Rashut HaMisim) set fixed deduction percentages for a number of common categories, meant to reflect the business share of an expense that also has a personal-use component.
Car expenses
Car expenses (fuel, insurance, servicing, rental or leasing) are deductible for most freelancers only in part, on the assumption that the car also serves personal use. The exact rate depends on the type of vehicle and how it’s used, but for a freelancer without a dedicated work vehicle it usually works out to around 45% of the total expense.
Phone and internet
Mobile phone and internet expenses are deductible at a relatively high rate, around 80%, on the assumption that most of the usage on these lines is business-related for a freelancer.
Home office
If you work from home, you can deduct a proportional share of your apartment expenses (rent, municipal tax/arnona, electricity, building committee fees) based on the ratio between the area of the room used as an office and the total apartment area. Claiming a home office deduction requires proper documentation of that proportional area, and it’s worth checking with an accountant on how “a dedicated room” is defined versus a work corner in the living room.
Equipment and software
Computer equipment, office furniture, software subscriptions and cloud services directly tied to your work are generally deductible in full, provided you keep a valid invoice made out to the business.
Input VAT - only for licensed dealers
It’s worth separating two different kinds of “recognition” for an expense. Recognition for income tax purposes reduces your taxable income and applies to every dealer, including an exempt dealer (osek patur). Input VAT deduction, on the other hand, actually refunds the VAT you paid on the expense, and applies only to a licensed dealer (osek murshe) - see the guide on exempt versus licensed dealer status.
What you shouldn’t do
Recording a purely personal expense as a business expense (private purchases with no connection to the business, for example) isn’t a gray area - it’s a false report that exposes you to penalties in an audit. The deduction percentages set by law also aren’t something you can adjust unilaterally based on your own judgment.
How Slate calculates the deduction percentages
When you enter an expense in Slate, the deduction percentage for its category is shown and calculated automatically, and it’s locked in permanently on that expense - so a later update to the category doesn’t retroactively change expenses already recorded. Receipt scanning via AI fills in a draft expense with a suggested category, which stays there for your review before you save it.