Expenses to open a business will not always be a cost
Setting up a business involves a lot of expenses. It is not enough to meet all formal requirements, you also have to equip the office, rent rooms, buy machines. However, not all expenses for opening a business can be accounted for as tax costs.
Conditions that an expense must meet in order to be considered a tax deductible cost
Pursuant to the Personal Income Tax Act, expenses incurred in order to generate profit or to secure its source may be recognized as tax deductible costs. Expenses for the employee pension program may also be tax deductible costs. In order to be able to settle such a purchase, it must be properly documented (invoice, confirmation of transfer).
Most of the expenses incurred in connection with setting up your own business meet the above-mentioned conditions. These include organizational and promotional costs, such as notary fees, expenses for recruiting employees, registering for VAT, producing stamps, business cards, and advertising materials. The Act on the Personal Income Tax Act does not exclude from tax costs this type of expenses incurred before starting a business. The above-mentioned expenses should be included in the tax book of revenues and expenses in column 13. “other expenses” on the day of starting the business activity. In column 2 (date of economic event), the taxpayer should enter the date of incurring a given expenditure.
Expenses for setting up a business, incurred before the commencement of operations for the purchase of goods and materials, are not recognized directly in tax costs. They should be included in the physical inventory prepared on the day of commencing business activity. The inventory should be entered in the revenue and expense ledger as the first item in column 10. “Purchase of trade goods and basic materials”.
It should be remembered that the census should not be added to the other entries in col. 10, as it will be included in the costs only when calculating the income at the end of the tax year.
An expense for opening a business may also be the purchase of fixed assets made before the start of business. Such an expense is settled through depreciation write-offs. As a rule, depreciation write-offs are included in column 13 each month, until they are fully depreciated.
Tax deductible costs also include expenses related to office equipment, such as chairs, desks, wardrobes, lamps, telephones, etc., the purchase value of which usually does not exceed PLN 3,500. These expenses should be booked in the tax book in column 13.
Expenses for opening a business that cannot be deductible for tax purposes
The list of expenses that do not constitute tax deductible costs is provided in art. 23 of the Personal Income Tax Act. They include, among others expenses for representation or personal needs of the taxpayer.
The director of the Tax Chamber in Łódź and in the individual tax ruling of 17.07.2013 (reference number IPTPB1 / 415-313 / 13-3 / KO) emphasized that a taxpayer who incurred expenses related to obtaining the right to the profession of a legal advisor before starting business activity (including the fee for participation in the competition examination for legal adviser apprenticeship, annual fees for subsequent years of legal adviser apprenticeship, fee for the legal adviser examination or the fee for entry on the list of legal advisers) will not be able to include them in the company's costs after its establishment. This is due to the fact that the purpose of incurring this type of expenditure is to acquire knowledge and skills as well as proper preparation for the profession of a legal advisor, and not to obtain income from a specific source, which is business activity. Moreover, the profession of a legal advisor can be performed not only as part of business activity, but also, for example, under an employment relationship, on the basis of a civil law contract. The costs of legal adviser training incurred by the taxpayer should be classified as personal expenses related to increasing the general level of legal knowledge.
Company costs also do not include fines, fines and penalties imposed in criminal, fiscal and administrative penal proceedings.
Including expenses as tax deductible costs, the taxpayer should pay special attention to their proper documentation and recognition in the tax book of revenues and expenses. It is also important to determine whether the incurred expenditure actually meets the conditions set out in the PIT Act, and in particular whether it is related to obtaining income or securing the source of income.