Tax Deduction
/tæks dɪˈdʌkʃən/
A tax deduction reduces a company's taxable profits by subtracting allowable business expenses from gross income, lowering corporation tax liability for Irish companies under Revenue rules.
A tax deduction reduces a company's taxable profits by subtracting allowable business expenses from gross income, lowering corporation tax liability for Irish companies under Revenue rules.
A Tax Deduction is a reduction in your company's taxable profits achieved by subtracting allowable business expenses from gross income. In Ireland, Revenue permits deductions for costs wholly and exclusively incurred for trade purposes, directly lowering your 12.5% corporation tax liability. This mechanism recognises that genuine business outlays should not bear full taxation, preserving capital for reinvestment.
When calculating taxable profits for your CT1 Return, you deduct qualifying expenses from revenue to arrive at the figure Revenue taxes. Common deductions include salaries, rent, marketing costs, and capital allowances on equipment. Unlike personal tax reliefs, corporate deductions focus on trade expenditure, ensuring compliance whilst optimising your tax position.
For startups, mastering tax deductions enhances cash flow during growth phases. Proper claiming requires meticulous record-keeping, as Revenue scrutinises expenses during audits to confirm business necessity. Your accountant integrates these into the tax computation attached to your financial year end accounts.
Tax deductions reduce taxable income before applying the 12.5% rate, whilst tax credits subtract directly from the tax liability calculated. A €10,000 deduction on €100,000 profits saves €1,250 tax, whereas a €10,000 credit eliminates that amount from your bill regardless of profits. Credits like R&D relief offer greater value for loss-making firms.
Deductions apply broadly to expenses, but credits target specific incentives such as tax relief for innovation or employment. Combining both maximises savings, though overclaiming deductions risks disallowance and tax interest.
Qualifying expenses must be wholly exclusively for trade, including staff wages, office rent, travel, and professional fees. Revenue disallows personal elements or capital items treated via capital allowances. Marketing, training, and software subscriptions typically qualify if business-linked.
Mixed-use items like home offices require apportionment based on usage. Keep invoices and logs proving necessity, as cash payments over €1,500 lack proof and face rejection.
Your accountant lists deductions in the tax computation supporting your CT1 Return, filed nine months post-financial year end. Attach schedules detailing categories like trading expenses and adjustments. Revenue accepts claims with adequate records during interventions.
Pre-emptive planning identifies maximisable deductions annually, smoothing compliance. Software automates categorisation whilst flagging disallowable items.
Yes, deductions exceeding income generate trading losses carried forward against future profits indefinitely. Losses offset only trading income, preserving other reliefs. This mechanism supports startups building scale before profitability.
Groups surrender losses intra-group, enhancing flexibility. Notify Revenue via CT1 schedules to track utilisation accurately.
Certain expenses face caps, like entertaining limited to 50% deductibility or motor expenses via approved mileage rates. Thin capitalisation rules restrict interest deductions exceeding debt-equity ratios. Revenue challenges artificial arrangements lacking commercial substance.
Anti-avoidance provisions block deductions from tax-motivated schemes. Professional guidance ensures compliance whilst maximising legitimate reliefs.
