What Business Expenses Can You Actually Deduct? A Philippine Freelancer Guide (2026)

“Pwede ko bang ibawas ang internet ko?” It’s the question every freelancer asks once they realize expenses reduce taxable income. The answer is usually yes — but only under specific conditions, and only if you’re on the right tax setup to begin with. Let’s sort it out.

First: do deductions even apply to you?

This trips up more people than any list of expenses:

• On the 8% option? Deductions don’t apply at all. Your tax is 8% of gross above ₱250,000 — expenses change nothing. Tracking them is still smart for business reasons, but not for this tax.
• On graduated rates with OSD? You deduct a flat 40% of gross, no itemizing — see our OSD guide.
• On graduated rates, itemized? This article is for you. Every peso you deduct must be ordinary, necessary, business-related, and substantiated.

The four tests every deduction must pass

Under the Tax Code, a deductible expense is generally one that is: ordinary and necessary to your trade or profession; incurred during the taxable year; substantiated with adequate records — invoices, receipts, proof of payment; and, where required, one on which you withheld and remitted the correct tax (relevant when you pay rent or professional fees to others). Fail the substantiation test and the expense is disallowed on audit, no matter how real it was.

Commonly deductible for freelancers and small businesses

• Internet and mobile — the business-use portion. If one line serves both home and work, deduct a reasonable share rather than the whole bill.
• Equipment — laptops, cameras, tools. Larger purchases are typically capitalized and depreciated over their useful life rather than expensed in one year; smaller ones may be expensed outright.
• Software and subscriptions used for work — design tools, hosting, domains, professional apps.
• Rent — office or coworking space. Home-office claims are possible for the business-use portion but attract scrutiny; keep the basis defensible.
• Transportation — fares and fuel for client meetings, supplier runs, deliveries (not your personal commute).
• Supplies and materials — office supplies, packaging, inventory costs for sellers.
• Professional fees — your accountant, lawyer, or subcontractors you pay (withholding rules apply).
• Salaries and wages for staff, plus the employer’s statutory contributions.
• Utilities for a business location, business permits and fees, and marketing costs like ads and printing.
• Training and seminars that maintain or improve skills for your current line of work.

Commonly NOT deductible

• Purely personal expenses — groceries, family meals, personal clothing, your own SSS/PhilHealth/Pag-IBIG contributions as a self-employed person (those aren’t business expenses).
• The income tax itself, and penalties, surcharges, or fines for violations.
• Capital purchases expensed in full in year one when they should be depreciated.
• Anything without documentation — real or not, an unsubstantiated expense is a disallowed expense.
• Expenses of a different taxpayer — a spouse’s or friend’s costs, or receipts issued to someone else’s name.

The mixed-use rule, in practice

Most freelancer costs are partly personal: the phone, the internet, the car, the apartment where the desk lives. The workable approach is a consistent, reasonable allocation you can explain — for example, a fixed percentage of the internet bill, documented the same way every month, rather than 100% one quarter and nothing the next. Consistency is what makes an allocation defensible; improvisation is what makes it a finding.

Substantiation: the part everyone underestimates

Keep the invoice or receipt in your business’s name, the proof of payment, and the record in your books of accounts. Thermal receipts fade within months — photograph them the day you get them. And remember that after the invoicing changes, the document type matters: see invoice vs official receipt.

When claiming nothing is the smarter move

Here’s the counterintuitive part. If your provable expenses are under 40% of gross, OSD beats itemizing — you deduct more, with zero receipts to defend. And if you qualify for the 8% option, you often pay less than either, with no expense tracking at all for tax purposes. Many freelancers spend hours hoarding receipts for a deduction path that was never their cheapest option. Run the comparison first — our 8% vs graduated guide walks through it.

Track expenses anyway — just not only for the BIR

Even on 8%, knowing your costs is how you learn whether you’re actually profitable, which clients are worth keeping, and where money leaks (see is your business actually making money?). With Halin AI it costs you seconds: chat the expense as it happens — “paid 1,200 for internet” — or snap the receipt, and it’s categorized, dated, and waiting in your Reports and 1701Q worksheet. 100% free during early access — start here.

Disclaimer: General information, simplified. Deductibility depends on your specific facts, registration type, and current regulations — verify at bir.gov.ph and have a CPA review your claims before filing.