Recognized Business Expenses

List of deductible expenses: car, phone, clothing, home office, equipment — what's allowed and at what rate.

Recognized expenses (Hotzaot Mukarot) are business costs that the Israel Tax Authority allows you to deduct from your taxable income. For self-employed workers, properly tracking and claiming these deductions can reduce your tax bill by thousands of shekels each year.

What Qualifies as a Recognized Expense?

The general rule is that any expense incurred wholly and exclusively for the purpose of producing income can be deducted. Common recognized expenses include: office rent, internet and phone bills (the business-use portion), professional equipment and supplies, accounting and legal fees, business insurance, professional development and courses, and vehicle expenses (partially deductible based on usage).

Home Office Deductions

Many Israeli freelancers work from home. You can deduct a proportional share of your rent or mortgage interest, electricity, water, and internet based on the percentage of your home used for work. If one room out of four is your dedicated office, you can typically deduct 25% of those household costs.

Vehicle Expenses

Using your car for business is partially deductible in Israel, but the rules are specific. The Tax Authority allows deductions based on a formula that considers the percentage of business use. Fuel, insurance, maintenance, and depreciation can all be partially claimed. Keep a log of business trips to support your deduction.

Record-Keeping Is Everything

The Tax Authority can audit your expense claims going back six years. Keep every receipt, invoice, and bank statement organized. Digital copies are acceptable. Expenses without proper documentation will be disallowed in an audit, potentially resulting in back taxes plus penalties. Most accountants recommend scanning receipts monthly and using dedicated accounting software.

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The information on this page is for educational purposes. Please consult a professional before making financial decisions.

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Frequently asked

+−Can I deduct home office expenses in Israel?

Yes, you can deduct a proportional share of rent, electricity, water, and internet based on the percentage of your home used as a dedicated workspace. If one room out of four is your office, you can deduct about 25%.

+−Are vehicle expenses deductible for freelancers?

Partially. The Tax Authority allows deductions based on a formula considering the percentage of business use. Fuel, insurance, maintenance, and depreciation can all be partially claimed. Keep a log of business trips.

+−How long should I keep expense receipts?

Keep every receipt for at least six years — the Tax Authority can audit your expense claims going back that far. Digital copies are acceptable. Expenses without proper documentation will be disallowed in an audit.

+−Can I deduct meals and entertainment as business expenses?

Meals with clients or business partners are partially deductible — typically 80% of the cost. Keep the receipt and note the business purpose and attendees. Pure entertainment expenses have stricter limits.

+−Are professional development costs deductible?

Yes, courses, conferences, professional books, and certifications directly related to your business are deductible. The expense must be connected to your current income-generating activity to be recognized.

+−What is the difference between a deductible expense and a depreciable asset?

Regular expenses are deducted fully in the year incurred. Assets above a certain value (like computers or furniture) must be depreciated over their useful life, spreading the deduction across multiple years.

+−Can I deduct health insurance premiums as a freelancer?

The mandatory health tax paid to Bituach Leumi is not a deductible expense. However, some private health insurance costs related to occupational risks may qualify. Consult your accountant for your specific situation.