Israeli Expense Categorizer

Israeli Expense Categorizer

Instructions

Step 1: Gather expense data

Collect the expense information to categorize. Accept input in any of these formats:

• CSV or Excel file with columns: date, vendor, amount, description
• Bank/credit card statement export
• Free-text list of expenses
• Individual expense for quick classification

If a file path is provided, read the file. If expenses are described in text, parse them into structured records.

Step 2: Determine business entity type

Ask the user for their business registration type if not already known:

• Osek Patur (exempt dealer): Annual turnover under the threshold (NIS 122,833 for 2026, re-indexed from NIS 120,000 that applied in 2024-2025). Cannot charge or deduct VAT. Income tax deductions still apply.
• Osek Murshe (licensed dealer): Can charge and deduct VAT. Full income tax deductions apply.
• Company (Chevra Ba'am): Corporate tax rules apply. Full VAT deduction on eligible business expenses, but subject to the same תקנה 14 / תקנה 18 limits as an osek murshe (no input VAT on a private-car purchase, the 2/3 vs 1/4 split on running-cost VAT) and the same אירוח / meals VAT disallowance. A company is NOT exempt from these limits.

This distinction is critical because it affects VAT deduction eligibility.

עסק זעיר (small-business) election: Under the 2026 small-business reform (חוק ההתייעלות הכלכלית, פרק "בעל עסק זעיר"), an osek (patur or murshe) whose turnover is under the osek-patur ceiling (the same NIS 122,833 for 2026) can ELECT a flat automatic income-tax deduction of 30% of turnover instead of itemizing actual expenses. An osek patur classified as עסק זעיר receives this 30% deduction automatically. Before categorizing every receipt, compare the 30%-of-turnover flat election against the itemized total this skill produces, the user should claim whichever is higher and confirm eligibility with their accountant.

Step 3: Apply Israeli tax deduction rules

Categorize each expense using the following deduction rules from the Israeli Tax Ordinance (Pkudat Mas Hachnasa):

Fully deductible expenses (100%):

• Office rent and utilities (electricity, water, arnona for dedicated office)
• Professional services (accountant, lawyer, consultant fees)
• Software subscriptions and SaaS tools used exclusively for business
• Raw materials and inventory
• Business insurance premiums
• Marketing and advertising costs
• Professional development courses directly related to the business
• Office supplies and low-value equipment (immediate expense rather than depreciation; ~1,200 ILS is a common working threshold for flagging low-value items, confirm the current figure with your accountant)
• Website hosting and domain costs
• Employee salaries and related social costs

Partially deductible expenses:

• Vehicle expenses (higher-of rule): Fuel, licensing, compulsory + comprehensive insurance, leasing, repairs, parking, tolls, and depreciation. Per תקנות מס הכנסה (ניכוי הוצאות רכב) התשנ"ה-1995, the deductible amount is the HIGHER of [running expenses minus שווי שימוש (use-value)] OR [45% of running expenses]. The common "just take 45%" shortcut is wrong whenever the running-minus-use-value figure is larger. Note: שווי שימוש is NOT a computed or receipt-based number, it is a FIXED monthly amount the Tax Authority sets per vehicle from the official price-group (קבוצת מחיר) table, or for vehicles from 2010 onward as a percentage of the list price (currently 2.48%); look it up via the ITA שווי שימוש calculator so the higher-of branch is actually computable. Hard statutory condition: the user must record odometer (ק"מ) readings at the start and end of the tax year, or the deduction can be disqualified. Applies to a single vehicle used for business; a second vehicle is 0% unless proven business-essential.
• Mobile phone (טלפון נייד): Not a flat 80%. Per תקנות מס הכנסה (ניכוי הוצאות מסוימות) תשל"ב-1972, only the portion ABOVE the lower of 1,380 NIS per year (~115 NIS/month) or 50% of the expense is deductible, which acts as an effective ~50% disallowance floor.
• Landline from home (טלפון קווי מהבית): Deductible is the LOWER of 80% of the expense OR the amount exceeding 2,700 NIS (2025), within an annual ceiling of 26,600 NIS.
• Internet: No fixed percentage. Split by actual business-use proportion (for a home connection, use the same business-use share as the home office).
• Home office (proportional): Deduct the percentage of home used exclusively for business. Calculate: (office area / total home area) x 100. Apply this percentage to rent, arnona, electricity, internet, and maintenance.
• Meals and entertainment (correct rule, often misapplied):
• Hospitality / business meals with Israeli clients (אירוח בארץ): 0% deductible. Per תקנות ניכוי הוצאות מסויימות 1972 reg. 2(1), hosting Israeli clients/partners is disallowed regardless of receipts. Coffee with a client at Aroma is not an 80% expense.
• Hospitality with foreign guests visiting Israel (אירוח אורחי חוץ): deductible up to a "reasonable" amount with proper documentation of the foreign guest.
• Light refreshments at the workplace (כיבוד קל): up to 80% deductible per ITA practice (coffee/tea/snacks for staff and visitors at the office).
• Foreign-business-trip meals (אש"ל לחו"ל): 50% of documented meal cost. Per-diem caps (2025): roughly $97/day when lodging is claimed separately, or roughly $162/day when lodging is not claimed separately.
• Meals during a regular workday for the self-employed person alone: not deductible.
• Gifts to clients: Up to 240 NIS per recipient per year (2025) for gifts given in Israel, and up to $15 USD per foreign recipient per year, per תקנות ניכוי הוצאות מסויימות 1972.

Non-deductible expenses (0%):

• Personal clothing (unless uniforms or protective gear)
• Commuting costs (home to regular workplace)
• Fines and penalties (traffic tickets, late payment penalties to tax authority)
• Personal entertainment
• Life insurance premiums (unless keyman insurance for business)
• Political donations

Special rules:

• Higher-value equipment: Recognized through depreciation over its useful life rather than immediately (computers: 33% per year, office furniture: 6% per year). Low-value items are taken as an immediate expense; ~1,200 ILS is a common working threshold for flagging which items to treat as low-value, confirm the current figure with your accountant.
• Depreciation of vehicles: 15% per year applied to the vehicle cost; the deductible portion of that depreciation is itself folded into the 45% higher-of running-cost rule above.
• Travel abroad: Fully deductible if business purpose is documented. Per diem rules apply: accommodation receipts required, meal allowance up to the daily caps noted above (~$97/$162 per day, meals 50%).
• Work clothing: Deductible only if branded, protective, or required uniform. Regular business attire is not deductible.

VAT (Osek Murshe only):

• Private vehicle (רכב פרטי) purchase: Input VAT on the purchase or import of a private vehicle is NOT deductible at all (תקנה 14).
• Vehicle running costs (fuel, repairs): Input VAT is 2/3 deductible when business is the primary use of the vehicle, and 1/4 deductible otherwise (תקנה 18).
• Keep תקנה 14 and תקנה 18 separate: תקנה 14 blocks input VAT on the PURCHASE of a private vehicle entirely, while תקנה 18 governs the RUNNING-cost VAT (the 2/3 vs 1/4 split). They are different rules and should not be conflated.

Step 4: Map to Israeli chart of accounts

Map each categorized expense to the appropriate account code using a common Israeli chart-of-accounts convention (the 60-70 ranges below are a widely used convention, not a legal standard; confirm against your accountant's actual scheme):

| Account Range | Category | Examples | |---|---|---| | 60-61 | Raw materials and purchases | Inventory, supplies for production | | 62 | Subcontractors | Outsourced work, freelancer payments | | 63 | Rent and building maintenance | Office rent, arnona, building repairs | | 64 | Vehicle expenses | Fuel, car insurance, maintenance | | 65 | Office and general expenses | Supplies, software, phone, internet | | 66 | Marketing and sales | Advertising, business meals, events | | 67 | Professional services | Accountant, lawyer, consulting | | 68 | Salaries and related | Payroll, social benefits, pension | | 69 | Financial expenses | Bank fees, interest, exchange differences | | 70 | Depreciation | Equipment depreciation entries |

Step 5: Flag items requiring attention

For each expense, flag issues that need human review:

• Receipt required: Mark expenses that require a tax invoice (heshbonit mas) vs regular receipt (kabala)
• Dual-use warning: Flag items that could be personal or business (phone, internet, car)
• Missing documentation: Identify expenses that lack required proof (business meals without attendee info)
• Threshold alerts: Note when gift limits or per diem limits are exceeded
• VAT note: For Osek Murshe, note which expenses have reclaimable VAT

Step 6: Generate categorized report

Produce a structured output with:

1. Summary table: Total expenses by category, total deductible amount, total non-deductible amount
2. Detailed line items: Each expense with category, deduction percentage, deductible amount, account code, and any flags
3. VAT summary (Osek Murshe only): Total input VAT reclaimable
4. Action items: List of items needing receipts, documentation, or accountant review
5. Common mistakes detected: Any personal expenses mixed in, over-claimed dual-use items, or missing documentation

Output as a formatted table or CSV file, depending on user preference.

Examples

Example 1: Monthly expense categorization for a freelance developer

User says: "I'm an Osek Murshe freelance developer. Categorize these January expenses:

• Akamai Cloud (formerly Linode): 150 ILS
• Coffee meeting with client at Aroma: 85 ILS
• Cellcom phone bill: 180 ILS
• Fuel for car: 450 ILS
• New keyboard from KSP: 350 ILS
• Accountant monthly fee: 800 ILS
• WeWork hot desk: 1,200 ILS
• Udemy course on React: 120 ILS"

Actions:

1. Identify entity type: Osek Murshe (VAT deductible)
2. Categorize each expense:

• Akamai Cloud (formerly Linode): 100% deductible, Account 65 (Office/General), 150 ILS
• Client coffee at Aroma (Israeli client, hospitality in Israel / אירוח בארץ): 0% deductible per reg. 2(1) of תקנות ניכוי הוצאות מסויימות 1972. The 85 NIS is fully disallowed. The "client meals are 80%" misconception is one of the most common Israeli categorization mistakes.
• Cellcom mobile phone: NOT a flat 80%. Apply the floor: the non-deductible portion is the lower of 1,380 ILS/year (115 ILS/month) or 50% of the bill. For a 180 ILS monthly bill, 50% (90 ILS) is lower than 115 ILS, so 90 ILS is disallowed and 90 ILS is deductible. Account 65 (Office/General), 90 ILS deductible
• Fuel: part of vehicle running costs. The simplified 45% gives 202.50 ILS, but the correct figure is the HIGHER of 45% or [running costs minus use-value], computed once across the whole vehicle bundle at year-end. Account 64 (Vehicle), ~202.50 ILS deductible (recompute under the higher-of rule with full-year data)
• Keyboard: 100% deductible (low-value item, expensed immediately rather than depreciated), Account 65 (Office/General), 350 ILS
• Accountant fee: 100% deductible, Account 67 (Professional Services), 800 ILS
• WeWork: 100% deductible, Account 63 (Rent), 1,200 ILS
• Udemy course: 100% deductible, Account 65 (Office/General), 120 ILS

1. Generate summary: Total expenses 3,335 ILS, Total deductible 2,912.50 ILS, Non-deductible 422.50 ILS (client coffee 85 + disallowed phone portion 90 + disallowed fuel portion 247.50)
2. VAT note: Input VAT reclaimable on most items; the client meal carries no VAT deduction, and vehicle running-cost VAT is limited to 2/3

Result: Categorized expense report with deduction amounts, account codes, and a flag to document the client meeting details.

Example 2: Home-based business with mixed expenses

User says: "I run a graphic design business from home as Osek Patur. My apartment is 80 sqm and my office room is 12 sqm. Here are my expenses:

• Apartment rent: 5,000 ILS/month
• Electricity bill: 400 ILS
• Arnona: 800 ILS/quarter
• New iMac: 8,500 ILS
• Adobe Creative Cloud: 220 ILS/month
• Parking ticket: 250 ILS
• New jeans: 300 ILS
• Client dinner: 350 ILS
• Printer ink: 95 ILS"

Actions:

1. Identify entity type: Osek Patur (no VAT deduction)
2. Calculate home office ratio: 12/80 = 15%
3. Categorize:

• Rent: 15% deductible (home office), Account 63, 750 ILS deductible
• Electricity: 15% deductible, Account 63, 60 ILS deductible
• Arnona: 15% deductible, Account 63, 120 ILS deductible (quarterly, so 40/month)
• iMac: 100% deductible but must depreciate over 3 years (33%/year), Account 70, ~2,833 ILS/year depreciation
• Adobe CC: 100% deductible, Account 65, 220 ILS
• Parking ticket: 0% deductible (fine/penalty), flag as non-deductible
• Jeans: 0% deductible (personal clothing), flag as non-deductible
• Client dinner (אירוח בארץ, hosting an Israeli client): 0% deductible per תקנות ניכוי הוצאות מסויימות 1972. The full 350 ILS is disallowed. Flag as non-deductible (the "client meals are 80%" assumption is wrong)
• Printer ink: 100% deductible, Account 65, 95 ILS

1. Generate summary with depreciation schedule for the iMac
2. Flag: No VAT deduction available (Osek Patur). Recommend evaluating whether switching to Osek Murshe would be beneficial given equipment purchases.

Result: Categorized report with home office calculations, depreciation schedule, and recommendation to consult accountant about entity type.

Example 3: Bulk CSV categorization

User says: "Categorize this CSV file of expenses from my bank export" and provides a file path.

Actions:

1. Read the CSV file and parse columns (date, description, amount, vendor)
2. Ask for entity type if not specified
3. Auto-categorize based on vendor names and descriptions using pattern matching:

• Gas station names (Paz, Sonol, Delek) -> Vehicle running costs; tag for the year-end higher-of rule (45% or running-minus-use-value), do not hard-code 45% per line
• Cellcom/Partner mobile lines -> Mobile phone; apply the 1,380 ILS-or-50% floor, not a flat 80%
• Bezeq landline / HOT / internet -> Landline-or-internet; landline is the lower of 80% or the amount over 2,700 ILS, internet is split by business-use proportion
• Supermarket chains -> Flag as likely personal, 0%
• Software vendors -> Office/General, 100%

1. Flag ambiguous items for manual review
2. Output categorized CSV with added columns: category, deductionpct, deductibleamount, account_code, flags

Result: Enriched CSV file ready for accountant import, with flagged items requiring manual classification.

Gotchas

• Israeli expense deduction rates are specific and easy to get wrong: vehicle expenses follow the higher-of rule (running-minus-use-value or 45%), the mobile phone has a 1,380 ILS-or-50% disallowance floor (not a flat 80%), hosting Israeli clients and business meals are 0% (only כיבוד קל at the workplace is 80%), and internet is a proportional business-use split. Agents may wrongly apply a flat 80% to phones and meals or a flat 45% to cars, or apply 100% deduction to all business expenses.
• Home office expenses in Israel are deductible based on the proportional area used for business, not a flat deduction. Agents may apply US-style simplified home office deduction rules.
• Israeli receipt numbers (mispar kabala) are legally required for expense documentation. A bank statement alone is not sufficient proof for tax deduction. Agents may accept bank records as complete documentation.
• Expense categories must match the Israeli Tax Ordinance (pkudat mas hachnasa)

…

Source & license

This open-source skill is cataloged on AgentStack and links to its original source — we do not rehost the code.

• Author: skills-il
• Source: skills-il/accounting
• License: MIT

Install and usage instructions live in the source repository linked above.