When a cost is deductible: accruals, certainty, booking in the accounts, relevance and depreciation

In December 2026 Laura, sole shareholder of a small graphic design SRL, pays 12,000 € in advance for software she will use throughout 2027, hoping to cut the year's IRES. The tax rules do not follow her: that cost belongs to 2027. At the 24% rate, the early deduction would have saved her 2,880 euros, but only on paper.

From profit to taxable income: why costs need a second look

Business income starts from the profit shown in the accounts, but the two rarely match. Some costs recorded in the books are refused by the tax rules, some are allowed only in part, others in a different year. The differences are handled in the income tax return through upward or downward adjustments, while the bookkeeping itself stays untouched.

Four questions settle almost every expense. Does it belong to this year? Is it certain and measurable? Is it in the profit and loss account? Does it serve an activity earning taxed revenue? If all four answers are yes, ask the fifth: does the law set a special limit for it, as for cars, phones, meals or entertainment?

• Accruals: the financial year the cost belongs to
• Certainty and measurability: the cost surely exists and its amount can be determined
• Booking: the cost must appear in the profit and loss account
• Relevance: the cost must serve the activity that generates revenue
• Specific limits: percentages and ceilings set for particular families of expenses

Accruals: a cost follows the year it belongs to

Article 109, paragraph 1, provides that revenue and expenses count towards income in the year to which they accrue. The payment date decides nothing: an invoice settled in January for work finished in December is a cost of the previous year, and a deposit paid in December for a service to be delivered next year belongs to next year.

Paragraph 2 sets the dates. Spending on movable goods is treated as incurred on delivery or dispatch; for property and whole businesses, on signing the deed, or on the later date when ownership passes. Retention-of-title clauses are ignored: someone buying in instalments with title retained deducts just as an owner would.

For services, the relevant date is when the service is completed. In contracts with periodic payments, such as leases, loans and insurance, what counts is when each payment accrues: an annual premium paid in the autumn is split between the current year and the next, in proportion to the cover falling in each.

Paragraph 2 adds a useful rule for instalment buyers. A lease with a transfer-of-ownership clause binding on both parties is treated like a sale with retention of title: the asset counts as bought on delivery, and its cost follows the rules for purchases, not those for periodic rent.

On the revenue side the rule is stricter. Paragraph 3 states that revenue, other income and closing stock count towards taxable income even if they were never booked in the profit and loss account. The asymmetry is deliberate: forgotten revenue is taxed all the same, whereas a forgotten cost, as we will see, is usually lost.

Certainty and measurability

Accruals come with a correction. Expenses whose existence is not yet certain in the year they relate to, or whose amount cannot be objectively determined, count in the year in which those conditions are met. A price dispute with a supplier moves the contested portion to the year in which the figure is finally settled.

Paragraph 7 sets out an explicit exception: late-payment interest counts towards income in the year it is received or paid, not when it accrues. A business paying late-payment interest to a supplier deducts it when it pays; one charging it to a customer is taxed on it when it is collected.

Booking the cost in the profit and loss account first

Paragraph 4 imposes a formal condition: expenses are not deductible if, and to the extent that, they were not charged to the profit and loss account of their year. A cost left out of the accounts cannot be recovered in the return. Items taken directly to equity under the accounting standards applied also count as booked.

The rule has two exceptions. Costs booked in an earlier year are deductible when a provision allowed or required their deduction to be postponed, and so are those the law makes deductible even without going through the profit and loss account. Expenses tied to taxed but unbooked revenue can be deducted if they rest on certain and precise evidence.

Relevance: the cost must serve the business

Paragraph 5 contains the relevance principle. Expenses are deductible if, and to the extent that, they relate to activities or assets producing revenue or income that counts towards taxable income, or is excluded from it. A shareholder's holiday paid by the company is not relevant, even with a perfectly valid invoice.

For a sole trader the risk of mixing things up is higher, because personal and business assets belong to the same person. A laptop the children also use, a leisure magazine subscription or the weekly groceries do not become business costs simply because they were paid from the business account.

When an expense serves both activities with taxed income and activities with exempt income, it is deductible only proportionally. The ratio compares revenue and income that count towards taxable income, or are excluded from it, with the total of all revenue and income. Interest expense and tax, social security and public-benefit charges stay outside this calculation.

Multi-year expenses and newly formed businesses

Article 108 provides that expenses relating to several years are deductible up to the portion attributable to each. A cost that yields benefits over a number of years and is capitalised in the accounts is not deducted all at once: it is spread over the years its benefit relates to, at the pace the accounts charge it.

For newly formed businesses, set-up costs included, deduction begins in the year the first revenue is earned. A company opened in September that only invoices the following year does not lose its start-up costs: it starts deducting them in the year of its first sale, rather than wasting them in a year with no income.

Depreciating business assets

Tangible business assets reach the cost line through depreciation, starting from the year the asset comes into service rather than the year it is bought. Article 102 sets a ceiling: the yearly charge may not exceed what results from the rates in the ministerial decree, set for groups of similar assets according to normal wear and tear.

In the first year the rates are halved. If an asset not yet fully depreciated is removed from the productive set-up, the remaining cost is deductible in that year. This course does not quote the rates themselves: read them in the ministerial table for the business's own sector.

Assets whose unit cost does not exceed 516.46 euros can be deducted in full in the year the expense is incurred. A 400 euro printer is deducted straight away; a 900 euro computer is depreciated. The threshold applies per item, not per invoice: three chairs at 300 euros each all stay below it.

Documenting a deductible cost

None of these principles works on its own: in an audit the business must be able to show when the cost accrued, why it serves the activity and where it appears in the accounts. Documentation is not a separate chore; it is the evidence that makes every deduction in the return defensible.

• The supplier's invoice or document, with a precise description of the goods or service
• The contract, for ongoing services and for assets bought in instalments or leased
• The delivery note or completion report, which fixes the accrual date
• Proof of payment, essential for expenses the law requires to be traceable
• The fixed-asset register, with the date each asset came into service and the charges deducted

What a non-deductible euro is worth

For an SRL, the Italian limited company, every refused euro of cost raises IRES taxable income by one euro and the tax by 24 cents at the standard rate. For a sole trader the effect depends on the owner's IRPEF bracket. Under the flat-rate regime, costs are not deducted item by item: income comes from a profitability coefficient.

The legal framework for 2026

Articles 102, 108 and 109 of the TUIR as described here are those in force for the 2026 tax year. The Gazzetta Ufficiale records their repeal by Legislative Decree no. 117 of 2026, which reorganises the subject from 2027: returns for 2026 income are still governed by the earlier text.