What Should I Expense? Personal vs Business Expenses

“Is it possible for me to deduct personal expenses through my business expenses?”

Many small business owners have asked me this question and my answer to them is YES. However, there are certain things that they need to keep in mind. Business expense is something that is reasonable, ordinary and necessary expense incurred when carrying out your trade or professional activity.

Net taxable profit

The net taxable profit in Cameroon is established after the deduction of all expenses that are directly incurred when carrying out the activity. Any excessive or unnecessary expenditure will not be deducted, so you have to be very careful.

People have shown me receipts of their personal purchases in supermarkets, bills paid in night clubs and other leisure places, haircut in a classy salon, etc. Not all of such expenses can be deducted or qualified as business expenses.

Checkout this tax guide for limited liability companies in Cameroon

Tax-deductible business expenses

When we talk of tax deductible expenses, three things should come into your mind – they should be necessary, reasonable and ordinary.

Examples of tax deductible expenses include

• Overhead or general administrative expenses like equipment, expenses on staff, labour, rent, furniture, insurance premiums, supplies, utility costs, legal & accounting services, telephone, gifts, acts of liberality, subsidies, professional dues, etc.
• Automobile expenses – only when it involves moving between places of work. Your travel costs from your house to work and back is your responsibility. It’s a non-deductible expense, take note.
• Business-related travel – your food, lodging and travel expenses is considered a business expense if you go for a business-related travel. Travel expense for your spouse or children are not business expense if you decide to take them along for a business trip.
• Entertainment – deducted if they’re directly related to or associated with the business. This means, business was discussed or took place before, during or after the entertainment.

For it to be qualified a business expense, it must have successfully passed the assessments in Section 7 of the General Tax Code of Cameroon. You can check download the 2019 version in English or 2020 version in French. You will need to have 2020 Finance Law of Cameroon which you can also download to use alongside the English version.

However, it should be noted that not all of certain expenses are deducted. Some have a ceiling level that is taken into consideration before deduction.

Food for thought!

You may have a hard time convincing tax officers to proof that some of the personal expenses should be deducted. You will also have to answer to shareholders or partners why you have to use their investment to run personal expenses in the case of a limited company or partnership that has opted for corporate tax..

When you mix personal and business expenses, you can easily get confused. This may trigger an audit or control the tax office. To avoid such, make sure you:

• Should be able to make a difference between a business and pleasure trip;
• Make sure you distinguish between your business and personal credit cards for those who have;
• There are some personal purchases that are not for business, and many entrepreneurs are tempted to write-off – example a printer, computer, etc. You should put it as a business expense if you’re using them to make profit for your business. In an ideal world you need to have a separate computer, car or phone for work and home.

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It’s very tempting to write-off every expense as business expense. Make sure you don’t fall in that trap because the consequences are grave. I will advise you to separate your business expenses from your personal expenses – even if you are a sole proprietor.

If you’re not sure, get in touch with us to find out the expenses that are tax deductible. We will not only answer your question, but will help you come up with a system that will track your expenses.

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