Are Taxes Considered Business Expenses?

Common misunderstandings: Business expenses
vs. private expenses

One of the biggest hurdles in accounting for freelancers is the clear separation between business and private expenses. In my practice as an accountant, I often experience confusion about which costs are business expenses and which are private living expenses. This leads to misunderstandings that can lead to errors in bookkeeping and later to unpleasant surprises when it comes to tax assessment.

A typical misunderstanding: Anything that somehow reduces the tax burden is sometimes regarded as a “business expense”. But this is not true. Many expenses may be tax-deductible, but still belong in the private sector. A classic example is health insurance premiums. Everyone in Switzerland has to pay health insurance, and these premiums can often be deducted from income as an insurance deduction in the tax return. However, these are personal living expenses, not business-related costs. Consequently, health insurance premiums may not be booked as an expense via business accounting - they are only taken into account in the private section of the tax return. In other words, while the premiums are tax deductible (up to a certain flat rate), they are not a business expense.

Another common misconception: Tax bills themselves as a business expense. Many sole traders are initially surprised that income and property taxes they pay are not simply allowed to reduce profits, like office supplies or rent. The taxes paid are not considered a business-related expense in a sole proprietorship. They can therefore not be deducted from taxable profit, neither for direct federal tax nor for cantonal taxes. This principle ultimately prevents you from “counting down” the tax burden against yourself. If you were allowed to deduct your own income tax as an expense, you would end up in an endless loop - fortunately, this is not possible under tax law.

Why this separation? Everything that is privately induced - i.e. serves to cover personal living expenses - should not burden the business balance sheet. The state does grant deductions for certain personal expenses (e.g. pensions, insurance, medical expenses, etc.) in income tax, but these deductions are made within the private tax return. Such items have no place in the business accounting of a sole proprietorship. Misunderstandings often arise because self-employed people see that certain payments can reduce tax and then assume that it is best to book them as expenses straight away. But the process is different: First you determine the business profit by deducting all business-related costs. This profit then flows into your private tax return, where you can additionally claim personal deductions (such as the aforementioned insurance premium deduction for health insurance). Key point: Business remains business, private remains private - even if both ultimately have an influence on the tax calculation.

Practical example: Lina is a freelance graphic designer (sole proprietorship) and pays her monthly health insurance premium of CHF 300 from her business account. She thought this was clever, as the premiums are “tax-deductible”. In reality, Lina should have booked this payment as a private contribution, as the premium is a private expense. This amount should not appear as an expense in her income statement. The correct approach would be: Lina makes a profit of CHF 50,000, for example, before taking the health insurance into account. In her private tax return, she can then - depending on the canton - claim a flat-rate deduction for insurance premiums (including health insurance), which reduces her taxable income somewhat. However, the CHF 300/month itself remains Lina's private expense and does not reduce the reported business profit. If Lina had incorrectly booked the premiums as business expenses, the tax office would later offset the amount again. The result: no tax advantage, but confusing bookkeeping and possible mistrust on the part of the tax office.

To summarize: Not everything that is tax-deductible belongs in the business accounts. It is worth asking for every expense item: Is this expenditure causally related to my business activity? Only if the answer is clearly yes is it a **business-related expense. Otherwise, book it as a private withdrawal or leave it out of business accounting altogether. If in doubt, consult an accountant - it is much easier to book correctly from the outset than to discuss corrections with the tax office later.

Social security contributions vs. taxes: different purposes and treatment

At first glance, taxes and social security contributions seem similar: both are money that goes to government agencies. However, it is crucial for freelancers to understand the difference. Taxes (e.g. income tax, profit tax, wealth tax) are used for the general financing of government tasks. Their level depends on your income/profit and your canton of residence and they are often progressive, i.e. you pay more as a percentage if you have a higher income. Social insurance contributions, on the other hand - in particular AHV (old-age and survivors' insurance), IV (disability insurance), EO (income compensation scheme) and ALV (unemployment insurance) - serve specific social security purposes. As a rule, they are calculated in proportion to income or salary (except for certain upper limits) and are less progressive or not progressive at all.

AHV/IV/EO contributions: As a self-employed person, you are obliged to pay contributions to the AHV, IV and EO, which together form the 1st pillar of the pension scheme. Depending on your income, these contributions currently amount to between 5.37% and 10% of your annual earned income (as at 2025). There is therefore a degressive rate: lower incomes pay a higher percentage up to a maximum of 10%, higher incomes a lower percentage (at least 5.37%), which creates a social balance. Important: These contributions are mandatory and are levied by the relevant compensation fund on the basis of your declared income. They are used directly for your retirement provision and other social benefits (such as IV pension, maternity compensation, etc.), not for general state financing. This is why AHV & Co. are not referred to as taxes, but as contributions.

In accounting, AHV/IV/EO contributions for self-employed persons may in many cases be recorded as business expenses. In fact, these contributions are often regarded as business-related expenses, as they are directly linked to the generation of income - similar to non-wage labor costs for employees. The Swiss chart of accounts for sole proprietorships, for example, recommends that payments to AHV/IV/EO be recognized in full as an expense. Provisions for the company owner's personally owed AHV contributions are also generally recognized for tax purposes, provided they are reasonable in amount. Caution: This means that you may, for example, create an “AHV contributions” item as an expense in your financial statements in order to provide for the contributions to be paid - and this will be accepted by the tax office. It therefore reduces your reported profit. Why is this allowed when income taxes are not deductible? The idea behind it: AHV contributions are a mandatory cost of employment and work in a similar way to a wage deduction for your own retirement provision. In the tax return you normally list these contributions separately as a general deduction (for employees they are already included in the net salary). This ensures that your income is not taxed twice - first with AHV and then with tax on the money you pay for AHV. Put simply: AHV contributions reduce your taxable income, while income tax is the result after all deductions and therefore cannot be deducted again.

Difference between AHV and taxes from a practical perspective: The AHV contributions of a self-employed person are calculated directly on the basis of the declared profit and are a fixed percentage (plus any administrative and family allowance contributions). Whether your company makes a profit of CHF 50,000 or CHF 100,000 - the AHV contribution rate remains the same within the scale, there is no progressive scale as with tax. Income tax, on the other hand, increases disproportionately with higher income, as higher incomes fall into higher tax brackets. In addition, the tax has deductions for various living expenses (as mentioned), while the AHV calculation has very few deductions (e.g. a small allowance on equity capital, see contribution rate calculation). Conclusion: AHV/IV/EO contributions are business-related pension costs and as such are usually counted as business expenses or at least deducted from income, while taxes skim off the remaining capacity and may not be considered business expenses.

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Difference between AHV and tax from a practical point of view: The AHV contributions of a self-employed person are calculated directly on the basis of the declared profit and are a fixed percentage (plus any administrative and family allowance contributions). Whether your company makes a profit of CHF 50,000 or CHF 100,000 - the AHV contribution rate remains the same within the scale, there is no progressive scale as with tax. Income tax, on the other hand, increases disproportionately with higher income, as higher incomes fall into higher tax brackets. In addition, the tax has deductions for various living expenses (as mentioned), while the AHV calculation has very few deductions (e.g. a small allowance on equity capital, see contribution rate calculation). Conclusion: AHV/IV/EO contributions are business-related pension costs and as such are usually counted as business expenses or at least deducted from income, while taxes skim off the remaining capacity and may not be considered business expenses.

Unemployment insurance contributions: Unemployment insurance is a special case. Self-employed persons do not pay unemployment insurance contributions, as they are not entitled to unemployment benefits. ALV therefore only applies to you if you employ staff or if you formally receive a salary as the owner of a corporation (more on this later). ALV contributions are mandatory for employees (including in your own GmbH/AG) and are deducted from half of the salary or paid by the employer. In a company's accounts, employer contributions to ALV (and also AHV/IV/EO) are clearly part of business expenses - they are non-wage labor costs. The employee contributions, on the other hand, are not an expense for the company, as they are deducted from the gross salary (the gross salary itself is a business expense, but the employee contributions are already included). For self-employed persons without their own employee salary, ALV is simply not an expense, so they do not need to book anything for it.

To summarize: Social security contributions are for your own protection and are partly recorded as an expense in the accounts or at least taken into account as a personal deduction in the tax calculation. Taxes serve the general public and may not reduce the reported business profit in the case of self-employed persons. This clear distinction helps to avoid misunderstandings. As a rule of thumb for freelancers: Everything that has to do with retirement, disability, accident or illness (AHV, IV, EO, daily sickness benefits, accident insurance, etc.) is either a business-related insurance expense or a private pension expense - but in any case not a “profit” and is deducted from income before tax. Taxes, on the other hand, come into play after the profit has been determined: first the profit is calculated, then the tax on it.

Taxes according to legal form: sole proprietorship vs. GmbH/AG

A very important factor in the question “Do taxes count as business expenses?” is the legal form of your company. Freelancers in Switzerland usually operate either as sole proprietorships (sole proprietorship) or they set up a corporation such as a GmbH or AG for their work. The tax treatment of profits and taxes differs significantly between these forms.

Sole proprietorship (self-employed person)

The sole proprietorship is not a separate legal entity. This means: For tax purposes, the company merges with the owner's private person. There is no separate company taxation for the company itself. Instead, the owner declares the business profit of his sole proprietorship together with all his other income (e.g. from sideline business, interest, rent, etc.) in the private tax return. The business assets of the sole proprietorship are also added to the owner's private assets and taxed by the owner.

What does this mean in concrete terms for taxes as an expense? In a sole proprietorship, there is no separate tax expense in the income statement. *The owner's income and wealth taxes are paid privately after the profit has been determined. Therefore, individual company owners cannot deduct the taxes paid from taxable profits - neither for direct federal tax nor for cantonal taxes. This point cannot be emphasized enough, as it is one of the main distinguishing features compared to corporations. In practical terms, it means No “tax expense” account appears in your sole proprietorship accounting, which reduces the annual profit. The profit before tax is also the profit that is taxed. As a private individual, you pay the tax liability from this profit (or from the funds that you withdraw from the business).

Example sole proprietorship: Markus is a self-employed web developer and made a business profit of CHF 80,000 in 2024. He shows exactly this profit in his accounts. Markus now has to pay income tax on this. Let's assume that, based on his total income and canton of residence, the tax owed is ~CHF 15,000. Markus cannot book this CHF 15,000 anywhere in the income statement as an expense to reduce the profit. He has to pay the tax privately (usually he already receives prepayment invoices from the canton, which he pays from his business or private account - in accounting terms this would then be a private withdrawal, not a business expense). The profit of CHF 80,000 remains in his income statement, and he declares exactly this amount as income in his tax return. Important: However, Markus was allowed to deduct all business-related expenses before this profit calculation - e.g. office costs, software licenses, further training courses, business car depreciation, etc. These reduce the profit and thus indirectly reduce the income. These reduce the profit and therefore indirectly also the tax. What he was not allowed to deduct were private expenses. If, for example, he had declared a portion of his private rent as business premises that was not justified, this would be offset again. His health insurance premium was also not included in the accounts (but is taken into account separately as an insurance deduction in the tax return). Losses: If Markus suffers a loss, he can offset it against other income on his tax return or carry it forward to future years - but that's a separate issue. Key point here: Taxes are paid by Markus from the profit, and this remains in full in the business accounts.

GmbH and AG (corporations)

The situation is different if you incorporate your activity in a GmbH (limited liability company) or AG (public limited company). These companies are legal entities - they are legally treated as independent tax subjects. The company itself pays taxes on its profits (and, where applicable, capital taxes on its equity). And this is where there is a significant difference: the taxes on profits paid by the GmbH/AG appear as an expense in the income statement of this company. This is referred to as tax expense in the annual financial statements, which reduces the net profit. In contrast to sole proprietorships, corporations can therefore deduct tax expenses from their profits - at least in their income statement and for the presentation of the annual result. However, it should be noted that the tax is of course calculated on the profit before tax. It is therefore not possible to reduce the tax burden simply by increasing the tax expense - it is rather an accounting item that subsequently reduces the profit as soon as the tax has been calculated. Nevertheless, from a purely formal and tax law perspective, the following applies: In the case of a corporation, the paid profit tax is a recognized expense item.

Important: If the company itself pays tax, this does not mean that you as the owner no longer pay tax. The principle of double taxation and special relief rules apply here. Specifically: First, the GmbH/AG pays tax on its profit with the profit tax (cantonal and federal tax). If it then distributes a share of the profit as a dividend to you as a private individual, you must pay tax on this dividend again as income (albeit at a reduced rate at cantonal level and for direct federal tax, e.g. only 50% of the dividend to mitigate double taxation - known as partial taxation). As a private individual, you also pay tax on any wages that you receive from your company as normal income.

Tax expenses in the GmbH/AG accounting: At the end of the year, the GmbH or AG usually creates a tax provision in the accounting for the expected tax on the profit. This provision is an expense and reduces the reported annual profit. In the following year, when the final tax invoice arrives and is paid, it is booked against the provision. From the company's point of view, these taxes are simply an item such as rental expenses - a charge against the business result. From the owner's point of view, however, it is not so directly noticeable: you only see that the annual financial statements show, for example, a pre-tax profit of CHF 50,000, of which CHF 7,500 is profit tax, leaving a net annual profit after tax of CHF 42,500. This after-tax profit can then either be retained by the company or distributed as a dividend.

Example GmbH vs. sole proprietorship: Let's take Anna, who works as a consultant. Variant A: Anna is a sole proprietor and makes a profit of CHF 100,000 in 2024. She must pay tax on this amount as income (progressive, depending on residence, perhaps around CHF 20,000 tax). The profit remains CHF 100,000 in the income statement of her sole proprietorship; she pays the tax privately. Option B: Anna founds a limited liability company** “Anna Consulting GmbH”. The GmbH also generates a pre-tax profit of CHF 100,000. At the end of the year, the limited liability company books perhaps ~CHF 15,000 as tax expense (depending on the tax rate of her canton for legal entities). CHF 85,000 profit after tax remains in the GmbH. Anna can withdraw part of this as a dividend. Let's assume that she pays herself a dividend of CHF 50,000. Anna must now pay private tax on this CHF 50,000, but only 50% of it is taxable (partial taxation), which may amount to ~CHF 5,000 in taxes. In addition, she may have received a salary from the GmbH that has already been taxed. In total, she therefore also pays taxes indirectly, but split between company and private. The difference lies in the accounting: The CHF 15,000 tax expense of the GmbH is an expense item in its books (allowed as a business expense because it is a corporation) - something that Anna was not allowed to do as a sole proprietorship.

As you can see: For the freelancer as such, the total tax burden is important in both variants (and it can vary depending on the canton/legal form). But in purely accounting terms, a corporation enjoys the privilege of booking its tax burden as an expense. Individual companies or partnerships do not have this privilege; for them, the tax burden remains private and outside the accounts.

What counts as a business expense - and what doesn't?

Now that we have clarified the differences, let's look specifically at which duties and costs a freelancer is allowed to book as business expenses and which not. The following list provides an overview and helps to clarify common cases of doubt:

Expenses considered business expenses (deductible):

Operating expenses: Anything that is necessary to earn your income counts as a business-related expense. Examples: Office or studio rent, depreciation on work equipment (computers, machines), specialist literature, business trips, advertising/marketing costs, hospitality for business partners (appropriately documented), further training seminars for the profession, etc. Such costs can be fully deducted from business income. They directly reduce the company's taxable profit. (This basic rule applies regardless of the legal form.)
Social security contributions of the employer: If you have employees or pay yourself a salary in an AG/GmbH, the employer's contributions to AHV/IV/EO/ALV, BVG (pension fund) and accident insurance are business expenses in full. These are ancillary wage costs borne by the company. Example: Your limited company has an employee with an annual salary of CHF 60,000. The company pays ~CHF 5,000 AHV/IV/EO/ALV (employer's contribution), ~CHF 3,000 pension fund (employer's contribution) etc. - these amounts are operating expenses.
AHV/IV/EO contributions of self-employed persons: As explained above, self-employed persons may include their own contributions to AHV, IV and EO in their accounts as an expense or at least recognize them as a provision. This reduces the reported profit. These contributions are then allowed as a general deduction in the tax return. Although they do not count as business expenses in the sense of a legal entity's income statement, they do in fact reduce the income from self-employment, which is taxed. (Note: This rule avoids paying tax again on the money paid for AHV.)
Premiums for business insurance: Business insurance policies that cover the risks of doing business are an expense. This includes, for example, public liability insurance, occupational accident insurance for owners/employees, property insurance for the office, legal protection for the business, etc. You can deduct these in full from your accounts, as they are clearly related to your gainful employment.
Daily sickness benefit and daily accident benefit insurance (for the self-employed): There is a special feature here. These insurances replace your income if you are unable to work due to illness or an accident (i.e. they also serve to ensure the continued existence of the business). For self-employed persons, tax practice allows you to deduct reasonable premiums for daily sickness benefit or daily accident benefit insurance as business expenses as long as they are reasonable in amount and purpose to cover your earned income. Pay attention to the cantonal regulations here: What is “reasonable” may be limited - for example, up to the income that would be replaced. Excessive or not really necessary insurance could be classified as private living expenses.
Contributions to the 2nd pillar (BVG) - employer's share: If you are self-employed and join the voluntary occupational pension scheme (BVG/pension fund) or are compulsorily insured as a GmbH/AG owner, the following applies: Employer contributions are business expenses, employee contributions are not. For self-employed persons without staff, it is recommended that half of the contributions for voluntary BVG insurance be recognized as business expenses, analogous to the division into employer/employee contributions. Example: If you pay CHF 5,000 into the BVG (voluntarily as a self-employed person), then typically CHF 2,500 can be counted as business expenses; the other CHF 2,500 are private pension expenses (personal deduction in the tax return).
VAT (value added tax): VAT, an indirect tax, is often considered separately. In principle, VAT is not a business expense as you collect it on behalf of the state. You can deduct pre-tax on business expenses, sales tax on your invoices you owe to the tax office - this is balanced. Only if you are not entitled to deduct input tax (e.g. because you are exempt from VAT or not registered and still pay VAT on purchases) will such VAT amounts become part of your expenses. Even if you have VAT on expenses that cannot be reclaimed (e.g. mixed use), these VAT amounts count as expenses. Otherwise, the VAT is not an expense but a transitory item. *(For small businesses with a turnover of less than CHF 100,000, which are exempt from VAT, the question hardly arises, but it should be mentioned for the sake of completeness).

Official fees in connection with the business: These include, for example, business licenses, commercial register fees, trademark protection registrations, possibly certain taxes/fees such as stamp duties, Billag/Serafe for business premises, etc. These expenses are business expenses and deductible unless they are clearly of a personal nature.

Not deductible as business expenses (to be allocated to the private sphere):

Income and wealth taxes of the entrepreneur: As explained in detail, these are not business expenses for sole traders or partners. They may neither appear in the income statement nor be deducted from profits. The same applies to personal direct federal tax, cantonal and municipal taxes on your income and wealth tax on your private and business assets. As a private individual, you pay these taxes from your profit. (Exception: for legal entities, profit and capital taxes are company expenses, see above)
Private living expenses: Everything that is part of private living expenses must remain private. This includes health insurance premiums, health care insurance (basic insurance) and supplementary insurance, doctor and medication costs, rent for private apartment, food, clothing (normal wardrobe), vacation, leisure costs, etc. None of this may be charged to the company invoice. Although health insurance premiums and certain medical expenses can be taken into account for tax purposes as a social deduction or extraordinary deduction**, they are still private expenses and not a business-related expense.
Personal share of mixed expenses: Many self-employed people use things partly for business and partly for private purposes - e.g. the car, the cell phone, the Internet, the study in the home. Here it is important to exclude an appropriate private share. The business part is an expense, the private part is not. Example: Your car is used ~30% privately - then 70% of the car costs (depreciation, gasoline, service, insurance) are business expenses and 30% are not. It is usual to book the private share as income in the accounts (a fictitious income for private use, so to speak) in order to correct the expense. Important: This private share then increases the taxable profit again. It is essential to make such allocations correctly, because if the tax office finds that you use a car almost exclusively for private purposes, for example, but have booked everything as an expense, it will subsequently offset the corresponding share.
Insurance premiums with no business connection: Many **insurance policies of the owner are private. We have mentioned a classic example: Health insurance (basic insurance) is private. Life insurance** (unless taken out explicitly to secure business loans) is also private provision and may appear in the insurance deduction for tax purposes, but not in the income statement. **Personal liability insurance, household contents insurance, etc. also do not belong in the company accounts. Rule of thumb: Only insurance policies that directly affect the business or the ability to work in the business belong in the accounts. All others only belong in the private sphere.
Employee's share of social insurance (for owners in AG/GmbH or working family members): If you pay yourself a salary (as an employee of your own GmbH/AG) or employ your spouse, then the employee contributions to AHV/IV/EO/ALV and pension fund are not deductible by the company. Although these are transferred by the company, they are deducted from the salary and are considered to have been paid by the employee (you privately) for tax purposes. In practice, gross salaries are posted as an expense, but the employee contributions are added back to the salary account so that only the employer's share remains as net personnel costs. For you privately, however, these employee contributions are also tax deductible - they do not appear separately in the tax return because your net salary is already shown after deduction of these contributions (in the salary statement). The same applies to self-employed persons without a salary: If the AHV contributions were notionally divided into employer/employee contributions, the total amount levied by the compensation office would correspond to both parts. But since you have no “salary”, the total amount is taken into account as an expense/deduction. Note: The state does not allow anyone to deduct their own social contributions twice - once is enough (either in the accounts or in the tax return as a general deduction).

Do taxes count as business expenses?