New year, what tax to choose and how to pay it?
The beginning of the calendar year is an opportunity to choose or change the form of income taxation. It is the taxpayer's obligation to notify the competent head of the tax office in writing by January 20 of a given tax year. In the absence of a notification, the taxpayer is bound by the same rules as before, i.e. in the previous year. On the other hand, when a person who starts a business does not submit an appropriate notification on the choice of taxation method, he is assigned a form of income tax taxation on general principles, i.e. 18% or 32% depending on the amount of income obtained. So it is worth considering in advance what tax to choose?
Which tax to choose - forms of taxation?
An example of calculating the tax, assuming the same amount of revenues, costs and income without taking into account social security contributions:
Economic activity is conducted in the field of construction services. Annual operating income is PLN 45,000, costs PLN 25,000 - income is PLN 20,000.
General rules - tax scale (18% or 32%)
Flat tax - 19%
Lump sum - 3.5%, 5.5%, 8.5%, 17%, 20%
20 000 * 18% - 556,02 =
PLN 3 044
20 000 * 19% =
3 800 PLN
45 000 * 5,5% =
PLN 2 475
The presented calculation shows that in the above case, the best solution would be to choose the method of paying the tax in the form of a lump sum (5.5% rate selected due to the type of services). However, it would be enough to change the scope of services provided, e.g. to locksmith services, and the rate would then change to 8.5% and the tax would amount to PLN 3,825, so this form would fall to the 3rd place in the profitability ranking. The most advantageous way would be to choose the tax on general principles.
It should be mentioned that when making a choice regarding the method of taxation with income tax, other factors are also important, e.g. costs of accounting, purchase of commercial goods, rent or utilities. The higher these costs, the less profitable the lump sum becomes.
Ways of paying advances on income tax
Once the entrepreneur chooses the appropriate form of taxation, there is still a question of choosing the method of taxation. This is important as it can significantly affect the financial liquidity of the taxpayer.
And so, there are the following ways to pay income tax:
- quarterly (sometimes allows you to postpone the tax payment deadline),
- in a simplified form (allows to defer the tax payment deadline).
Monthly advances on the actually earned income are the basic method of paying income tax by taxpayers running a business (Article 44 (1) (1), (3), 3f and 6 updof). Their obligation is to calculate and pay to the account of the competent tax office a monthly advance on income tax by the 20th day of each month for the previous month. The basis for calculating the advance payment is income less the deduction indicated in art. 26 updof.
Taxpayers paying tax in the form of a lump sum tax on recorded revenues are required to pay it to the account of the tax office by the 20th day of the following month, while for December the tax payment deadline is exceptionally due on January 31 of the following year (Article 21 (1) of the Act on flat-rate income tax on certain revenues. achieved by natural persons) - this is the final date for submitting the tax return.
- is the most popular form of paying advances on income tax,
- liabilities are paid regularly, which means that less cash is paid once than in the case of quarterly settlement,
- you can choose it from the beginning of your business.
- tax liabilities arise every month,
- the entrepreneur is not sure in advance how much the advance will be, because its amount is variable.
Quarterly advances on business income may be selected by taxpayers who:
1. have the status of the so-called a small taxpayer, so their income for the previous year did not exceed EUR 1,200,000 or
2. started their business in the current tax year; a person starting a business activity is not considered a person who in the year of commencement of business activity and in the period of two years from the end of the year preceding the year of commencement:
- independently conducted business activity or as a partner of a company without legal personality,
- the activity was conducted by the taxpayer's spouse, provided that there was joint property between them (Article 44 (3g and 3h of the updof)).
The competent head of the tax office should be notified about the selection of the quarterly advance payment for income tax. In the case of a small taxpayer, this obligation should be fulfilled by February 20 of the tax year. On the other hand, a person who starts business during the tax year is required to submit a notification on the choice of the method of settling income tax advances by the day preceding the day of starting business activity, but not later than on the day of obtaining the first income (Article 44 (3) and updof).
Taxpayers who have chosen a lump sum on the revenues recorded in the first year of business activity cannot choose the form of quarterly tax payment.
A taxpayer starting a business, instead of sending special notifications, may submit a choice of quarterly settlement already when submitting an application for entry to CEIDG-1 by filling in the appropriate fields.
Quarterly advances are paid to the account of the tax office by the 20th day of the month following the quarter for which the advance is paid. So an advance payment for:
- Q1 - it pays off until April 20,
- 2nd quarter - until July 20,
- 3rd quarter - until October 20,
- 4th quarter - until January 20 (except for the lump sum - the 4th quarter is settled in the annual tax return until the end of January of the following year).
If the advance payment deadline falls on a Saturday or a public holiday, it is postponed to the first working day following the holiday.
- you can choose it from the beginning of your business (with one exception, which is a lump sum),
- advance payment may be deferred by two months as compared to monthly advances.
- the amount of the tax liability is variable.
Simplified advance payment
Pursuant to Art. 44 sec. 6b-6e updof, an advance on income tax in a simplified form can be paid by people who pay tax on their income according to the tax scale or a flat tax - 19%, except for taxpayers who started business for the first time in the tax year or in the preceding year tax year and those who did not show taxable income from non-agricultural business activity in their annual settlements for the previous two years.
A taxpayer who uses the simplified form of making advance payments for income tax for the first time is obliged to notify the head of the tax office in writing of the choice of this form by February 20. If he would like to resign from this method of paying tax advances in the following years (he can do so as soon as possible after one year), he should also notify the competent head of the tax office in writing of a change in his decision by February 20 of the next tax year.
- the amount of the advance payment is fixed,
- a favorable way for entrepreneurs achieving better financial results than in previous years, they then obtain a real profit in the form of deferred payment of the tax liability, thus increasing their current financial liquidity.
- this method is not intended for people who started their business for the first time in the tax year or in the year preceding the tax year,
- in a situation where the company is not financially stable or incurs losses, this method may cause a loss of financial liquidity in the long term.
So, in order to correctly determine which form is most beneficial for a given enterprise, first of all, it would be necessary to analyze the amount of revenues and costs. Of course, apart from purely economic factors, the influence of the external environment of the enterprise is also important. When making a choice, each time it is necessary to check the currently applicable regulations (the nature of some activities may exclude a given choice) and the values of the currently applicable rates - these, due to amendments to the regulations, may be subject to changes.