Ongoing Business Management: A Guide to Income and Expenses

1. Managing Business Income

As a freelancer in Israel, you are required to report every payment you receive and to document every expense you deduct. This is not just a legal requirement -- it is the foundation of running a healthy, profitable business. Without organized income tracking, you cannot truly understand your financial position.

For every payment you receive, you must issue a document proving the income. The type of document depends on your status (Osek Patur or Osek Murshe) and the stage of the transaction. Failure to issue a document on time can be treated as failing to record income received -- an offense that carries severe sanctions including book disqualification.

On the other hand, every business expense you deduct must be documented in your bookkeeping. Organized recording of recognized expenses reduces your taxable income and lowers the tax you pay at year-end.

The duty to report covers all income, including small or one-off payments and side work. Leaving income out of the annual report without a reasonable justification is an offense under the Income Tax Ordinance, even without intent to evade tax. Issuing the income document on the day the payment arrives, rather than at month-end, keeps your records complete and correctly dated.

2. Types of Income Documents

Every income event (sale or service) has a relevant document that must be linked to it. Here are the main types:

Transaction Invoice (Hashbonit Iska)

The basic document the VAT Law requires for recording a transaction. In practice it is usually sent before payment is received, as a step before a tax invoice or receipt. It serves as a payment request for work performed. A transaction invoice does not set the tax liability date; the transaction does. For most small service providers, and for sellers of goods with annual turnover up to NIS 2 million, liability arises only when payment is received, so an unpaid transaction invoice does not create a VAT liability yet. For sellers of goods above that turnover, liability arises on delivery, and for a service provider with turnover above NIS 15 million that keeps double-entry books, when the service is provided. A transaction invoice is useful for cash flow management and tracking client debts.

Tax Invoice (Hashbonit Mas)

Relevant only for Osek Murshe. Issued within 14 days of the tax liability date (for small service providers, usually the payment date), it allows business clients to deduct VAT (on an invoice above 5,000 NIS before VAT, only if it carries an allocation number from the Tax Authority, as of October 2026). A tax invoice shows the VAT, and if you issue one before payment arrives, that VAT goes into the report for the period in which you issued it.

Tax Invoice-Receipt (Hashbonit Mas Kabbalah)

The most common combined document for Osek Murshe transactions. It combines a tax invoice and a receipt, documenting both the charge and payment receipt simultaneously. Especially useful when payment is immediate.

Credit Tax Invoice (Hashbonit Mas Zikui)

Issued when a transaction is cancelled, the client changes their mind, or there is an error in the original invoice. A credit invoice reduces reported income, and reduces VAT liability once you can show the client received it.

Receipt (Kabbalah)

A document confirming actual receipt of money. For Osek Patur, this is the primary document to issue for income recognition upon payment receipt. The law requires issuing a receipt immediately upon receiving money.

Consolidated Invoice

Suitable for fixed retainers -- when there is an ongoing work agreement with a client. Instead of issuing a separate invoice for each transaction, you can issue one invoice covering several transactions with the same client. It must be issued within 14 days of the tax liability date of each transaction it covers (for small service providers, usually the payment date), so it cannot always wait until month-end. A payment document (a receipt or a tax invoice-receipt) is still needed for every payment, and a consolidated tax invoice above 5,000 NIS before VAT needs an allocation number for the client to deduct the VAT (as of October 2026).

Whatever the document type, a document you have already issued is never deleted or edited. A wrong tax invoice is corrected with a credit tax invoice and a new, correct document, and every document, including cancelled ones, stays in your books in an unbroken numbering sequence.

3. Expense Management

Every expense considered a recognized expense that you want to deduct must be recorded and included in your annual income tax report. Organized expense management is one of the most important things you will do as a freelancer, as it directly affects how much tax you pay.

For each expense you deduct, make an expense entry in your bookkeeping (for an Osek Patur, the minimum is keeping the expense document in an external-documents file). The entry includes the expense amount, date, supplier, and nature of the expense. It is critical to keep the original document (invoice or receipt from the supplier) as evidence. A scanned copy can replace the original only if it meets the scanning conditions in the Bookkeeping Instructions; a photo that does not meet them does not replace the original.

If your annual turnover is up to 122,833 NIS (as of 2026), you may, subject to conditions, be on the micro-business (baal esek zair) track in income tax: a new Osek Patur who opens the file online is placed on it by default and can opt out, and an Osek Murshe can join if they meet the conditions. On this track you deduct 30% of turnover instead of your actual expenses. If your real expenses are higher than 30% of turnover, deducting them lowers your taxable income more, so it is worth checking with a bookkeeper or accountant which option pays off.

4. Deductible Expenses -- What Can You Deduct?

A recognized expense is one that can be deducted from business income for tax calculation purposes, according to income tax laws. For an expense to qualify, it must be directly related to producing income in your business.

Types of Recognition

• Fully deductible expenses -- Expenses used exclusively for business: office supplies, professional software, raw materials, marketing and advertising. Equipment used for several years, such as a computer or furniture, is deducted through depreciation: part of the cost each year (33% a year for a personal computer).
• Partially deductible expenses -- "Mixed" expenses serving both personal and business purposes, such as vehicle costs, mobile phone, home internet, and electricity (if working from home).

Common Deductible Expenses

• Office rent, or for a home-based business, a proportional share of rent or mortgage interest (not principal), arnona, and electricity
• Computer equipment and software
• Mobile phone (business portion)
• Business travel, and fuel for a private car (partly, under the regulations)
• Professional insurance
• Professional courses and training in your existing field
• Accounting and bookkeeping services
• Website maintenance and digital advertising

For mixed expenses, the deductible share of a car and a mobile phone is set by regulations, not by your own estimate. As of 2026, for a private car you generally deduct the higher of 45% of car expenses (fuel included) and the expenses minus the usage value. For a mobile phone, at least half the cost is deductible. For a home business, the proportional share is usually set by the part of the home's floor area used for the business.

Why Does This Matter?

The more recognized expenses you report, the lower your taxable income (profit) and tax bill will be. Freelancers who do not document all their business expenses can end up paying more tax than they need to. Both Osek Patur and Osek Murshe are entitled to deduct recognized expenses.

5. Basic Bookkeeping Requirements

Every freelancer in Israel is required to maintain bookkeeping records according to the Income Tax Bookkeeping Instructions, even if the business is small. What you must keep depends on your type of business: an Osek Patur may keep a minimum system, while an Osek Murshe keeps the books set for their type of business.

For an Osek Patur, the minimum is copies of the receipts you issue (or a daily takings book) plus an external-documents file with the expense documents you receive. For other businesses, the basic records usually include:

• Receipts and payments book -- Recording all received income and paid expenses in chronological order.
• Invoice book -- Copies of all invoices you have issued.
• Expense file -- Keeping all receipts and invoices received from suppliers.

Failure to maintain proper records can lead to book disqualification by the tax authority, after which the assessing officer can set your income by best judgment, based on their own estimate rather than your records, which may lead to a higher tax bill.

Besides book disqualification, books not kept as required can also bring a fine under the VAT Law: 1% of that year's turnover, with a minimum of 370 NIS per month (the amount in force since July 2025). Moving from Osek Patur to Osek Murshe also means moving to a fuller bookkeeping system, so it is worth checking in advance what your type of business requires.

6. Cash Flow Management

One of the biggest challenges for freelancers is managing cash flow. Unlike employees who receive a fixed salary, freelancers may experience income that varies significantly from month to month.

Tips for smart cash flow management:

• Set aside money for taxes -- Put part of every payment in a separate account for income tax and Bituach Leumi. There is no fixed rate: at modest profits the share you need is well below 30%, and 30-40% fits only high profits. An Osek Murshe also sets aside the VAT they collected, less the input VAT they can deduct.
• Track client debts -- Send payment reminders and do not hesitate to follow up.
• Build a safety cushion -- Aim to save at least 3 months of expenses as a reserve.
• Set clear payment terms -- Define upfront when and how clients pay.

Income tax advances are payments on account of your annual tax, not an extra tax. The assessing officer usually sets them as a percentage of turnover excluding VAT, and that percentage is a useful starting point for the income-tax part of the separate account, with Bituach Leumi on top. Most micro-business owners are exempt from advances and pay their tax once a year, so for them the separate account is what keeps money available for the annual payment.

7. Digital Tools for Management

In 2026, a growing share of reporting to the tax authorities is done online, and the Israel Tax Authority encourages a move to digital invoices. Manual books are still allowed by law, but a self-employed person with business income generally files the annual report online, and a tax invoice above 5,000 NIS before VAT needs an allocation number, requested online, for the client to deduct the VAT (as of October 2026).

Using a business management app enables:

• Compliant invoice and receipt generation
• Income, expenses, and profit tracked in one place
• An organized view of your business finances
• Digitally signed documents instead of paper books
• Less manual copying of figures

When choosing invoicing software, check that it is listed in the Tax Authority's software register and that documents are issued as computerized documents with an electronic signature. You do not need to print such documents, but the retention duty applies to them too, so you should be able to retrieve them from the software years later.

8. How Keep Helps with Ongoing Management

With the Keep app, you can manage all your income in a convenient and simple way, and on the recommended plan you can upload your expenses too.

The Keep dashboard shows your business income, expenses and profit in one place, without analyzing reports or cross-referencing information from multiple systems. Here is what you get:

• All document types -- Transaction invoices, tax invoices (for Osek Murshe), receipts, credit invoices, with no limit on the number of documents.
• Upload expenses from your camera -- On the recommended plan, you photograph an expense document or upload it from your gallery in one click. The photo does not replace keeping the original unless the scan meets the conditions in the Bookkeeping Instructions.
• Transparent status for every document -- See where each document and payment stands, and which clients still owe you money.
• Reporting to the authorities -- On the recommended plan: reports and payments to the tax authorities, and VAT reports. The annual report is offered at a special price and is not included in the monthly price.

Income documents, payment requests and the dashboard with income, expenses and profit are on every plan, starting at 39 NIS a month plus VAT for an Osek Patur. Expense upload, reports and payments to the tax authorities, and a personal accountant for professional guidance and representation before the tax authorities are on the recommended plan, 105 NIS a month plus VAT for an Osek Patur. There is no commitment, and you can switch plans at any time at no cost.

Frequently Asked Questions about Ongoing Business Management

Keep Team

The Keep team creates guides and resources to help freelancers and small business owners in Israel manage their accounting, taxes, and finances with confidence.