Doing business in an apartment - what should you know about it?
More and more people decide to start their own business. When setting up a company, they often decide to allocate their own apartment or house for its seat. Of course, this is due to the fact that the costs associated with renting an office decrease. As a rule, if the taxpayer for the taxpayer is the best option to do business in an apartment and he wants to include part of the costs related to rent and energy as tax deductible costs, he should separate some part of the apartment or house intended for business. The deduction is made proportionally - most often this is how private costs are divided from company costs.
Economic activity in the apartment - establishing the coefficient
An entrepreneur, setting up a business and choosing his own flat or house as the seat of the company, must report this place on the CEIDG-1 form. It is known that in the case of business activity in an apartment / house, the entire fees cannot be counted as tax deductible costs. The regulations do not specify exactly how such costs should be accounted for. The entrepreneur should separate some part of the apartment / house, e.g. one room, which will be the company office. Its size should also be separated.
It is assumed that the coefficient is applied, which is calculated on the basis of the share of the area intended for business activity in the entire premises. The factor is set as a percentage.
Mr. Jan has a private apartment with an area of 100 m2. In the application, CEIDG-1 submitted a notification that he would conduct business activity in a private apartment. For the purposes of his business, Mr. Jan allocated a room with an area of 30 m2, while the monthly rent for the apartment is PLN 1,000. In this case, the coefficient for the share of a room in the entire apartment is as follows:
(30 m2 / 100 m2) x 100% = 30%
Thus, Mr. Jan may include the cost of rent in the amount of PLN 300 in tax deductible costs, because PLN 1000 x 30% = PLN 300.
Settlement of fees and running a business in an apartment
When operating in an apartment, an entrepreneur, after determining the factor to what extent it is used for business, may include part of the expenses related to its maintenance as tax deductible costs. These expenses include fees for:
- utilities (water, sewage, waste disposal),
- telephone and internet.
Determining the rent costs by means of the index is beyond any doubt and is considered correct. This settlement of utility or electricity bills may raise more doubts. This is due to a lower level of utility use or energy consumption in business than in private.For example, does a computer, printer, or other business equipment use the same amount of energy as household appliances? This can be solved by installing additional counters to distinguish between private and business expenses. If you do not want to install meters, you can make additional notes, which show what part of these fees are due to the activity, so that in the event of an inspection by the tax office, the expenses that have been recognized as tax deductible costs are not questioned.
When it comes to accounting for expenses related to the use of a private telephone and the Internet in business activities, they can be recognized as costs based on billing. In the case of a telephone, the subscription will not be a cost, only business calls. Of course, you can set up separate contracts for the Internet and telecommunications services, then all bills will be tax deductible.
Economic activity in an apartment - mortgage interest
It often happens that the entrepreneur took out a loan to buy an apartment in which the business is also conducted. If the taxpayer would like to include interest on this loan in tax deductible costs, the flat should be entered in the register of fixed assets, but only the part intended for activity. Interest on such a loan can be classified as operating costs in the part in which it is attributable to the area used for business activities (e.g. determined by the coefficient). As it results from the Income Tax Act, and more precisely from Art. 22a, are subject to depreciation owned or jointly owned by the taxpayer, acquired or manufactured on its own, complete and fit for use on the date of acceptance for use, buildings, structures and premises owned separately, with an expected period of use longer than one year, used for the purposes of the economic activity or put into use on the basis of a rental or lease agreement.
The initial value of fixed assets and intangible assets is considered to be:
- in the case of purchase by purchase - the purchase price,
- in the case of partially paid for purchase - the purchase price increased by the value of income
- if manufactured on its own - manufacturing cost,
- in the case of acquisition by inheritance, donation or otherwise free of charge - the market value on the day of acquisition, unless the donation agreement or the free transfer agreement specifies this value at a lower amount.
The entrepreneur must separate a part of the apartment that is intended for the needs of the business, then it may constitute a fixed asset of the company, and thus be subject to depreciation. As a rule, a dwelling should be depreciated at a rate of 1.5%, but the accelerated method of depreciation of a dwelling can also be used. Interest accrued until the day the flat is entered into the fixed assets register increases its initial value and constitutes tax deductible costs only through depreciation write-offs. However, when the apartment is already depreciated as operating costs, the entrepreneur has the right to include only interest on loans that have been paid.
Economic activity in an apartment - renovation costs
If the entrepreneur intends to make changes in the room in which the business is conducted, you should carefully consider whether it will be a renovation or modernization. How to recognize the costs related to these expenses depends on the correct definition of the changes made.
Renovation should be understood as all expenditure related to maintaining or restoring the utility value, e.g. by repairing or replacing worn-out elements, as long as it does not change the nature and function, or painting the walls. Such expenses can be included directly in costs on the basis of received invoices, if only the premises in which the business is carried out are renovated. Otherwise, it is necessary to indicate on the invoices for the renovation service and the purchase of renovation materials which expenses proportionally fall to the room where the economic activity is carried out and only include them in the costs.
On the other hand, modernization of an apartment should be considered its improvement consisting in modernization, improvement of its condition and changes in its features or adaptation of a given fixed asset in order to change its purpose and function. The effect of the improvement is to increase the value in use of the asset. If the sum of expenses incurred for reconstruction, expansion, reconstruction, adaptation or modernization exceeds PLN 10,000 in a given tax year, then when the apartment is a fixed asset, these changes should be treated as an improvement of the apartment, and they will be included in the costs on the basis of depreciation write-offs. So, if the entrepreneur plans to modernize the part of the flat assigned to the activity, it should be included in the company's fixed assets and depreciated. Such expenses cannot be classified directly as tax deductible costs.
Entrepreneurs' obligations and running a business in an apartment
In addition to the benefits of running a business in your own apartment, the entrepreneur must take into account the obligations that must be met, including:
- notification of the premises (to the appropriate commune office), which may involve the necessity to pay more real estate tax, as there are higher rates of this tax for the premises in which the business is conducted;
- in the case of a cooperative-ownership flat, notification to a housing cooperative (the rent will be increased for the part intended for the company);
- if an activity of a more absorbing nature than office work or requiring adaptation of the premises to new needs begins in the premises owned, you should apply to the starost for permission to change the way the property is used;
- when the entrepreneur employs at least one employee in his own apartment or house, this fact should be reported to the starosty.
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Business activity in an apartment - cost records in KPiR
A taxpayer who keeps an income and expense ledger should record the costs related to the use of an apartment for business in column 13 - Other expenses. Pursuant to the provisions of the Regulation on maintaining the KPiR, to document the expenses related to rent, electricity, telephone, water, gas and central heating in the part attributable to business activity, internal proof may be used, accompanied by a document regarding the total charges with the calculation the amount for running a business in an apartment. This applies to situations where the entrepreneur is not entitled to deduct VAT from these expenses. Otherwise, the postings are made on the basis of a VAT invoice.
Costs of running a business in an apartment - booking in the wFirma.pl system
Expenses related to running a business in a private apartment can be entered in the wFirma.pl system in a very simple way as internal evidence. In order to post the costs incurred, use the tab EXPENDITURE »ACCOUNTING» ADD »INTERNAL EVIDENCE, where in the displayed window as the ACCOUNTING SCHEME, indicate the COSTS OF THE BUSINESS ACTIVITY, and then in the field NAME OF THE GOODS, CHARGES OR THE TITLE OF THE COST eg "rent for the month 11/2020 year". Then, in the TOTAL field, enter the amount resulting from the calculations.
After saving, the expense will be included automatically in col. 13 - other expenses of the KPiR.