A company in an apartment - when are the expenses the entrepreneur's costs?


Taxpayers starting a business run it in their own apartment. This situation usually applies to sole proprietorships. A company in an apartment increases expenses, for example for electricity. Thus, taxpayers want to include them as tax deductible costs.

Tax deductible costs

Pursuant to Art. 22 section 1 of the Act of July 26, 1991 on personal income tax (hereinafter the PIT Act), tax deductible costs are expenses incurred in order to generate income or to maintain or secure the source of income, with the exception of the costs listed in art. 23.

Therefore, in the case of running a business, the tax deductible cost will be the cost that meets all of the following conditions:

  • it has been incurred by the taxpayer, i.e. ultimately has to be covered by its assets;

  • it is final (actual), i.e. the value of the expenditure incurred has not been returned to the taxpayer in any way;

  • is related to the business activity conducted by the taxpayer;

  • it was incurred in order to obtain income, preserve or secure the source of income;

  • has been properly documented;

  • it is not in the group of expenses which, pursuant to Art. 23 sec. 1 of the quoted act is not considered to be tax deductible costs.

However, it should be remembered that the causal relationship between the incurring of an expense and the achievement of income, or the preservation or securing of its source, should be assessed individually for each expense. The assessment of this relationship should show that it can contribute to the achievement of income or serve to preserve or secure the source of income. Therefore, tax deductible costs will be both expenses directly related to the revenues generated and expenses indirectly related, if it is shown that they were rationally incurred for this purpose, even if the revenue is not achieved for objective reasons. Therefore, it should be assumed that the costs related to the preservation of the source of revenues are those that have been incurred so that the revenues from a given source are still obtained, and that such a source could continue to exist at all. On the other hand, the costs of securing the source of income should be those that were incurred to protect the existing source of income in a manner that guarantees its safe functioning. The essence of this type of costs is their obligatory incurring in order to prevent the loss of the source of income in the future.

At the same time, it should be noted that the necessity to incur a given expense cannot result from negligence or illegal actions of the taxpayer.

The aforementioned catalog of non-tax deductible expenses, contained in Art. 23 sec. 1 of the PIT Act, does not create a presumption that any other costs that are not listed in the above-mentioned provision will be ex lege recognized as tax deductible costs.

What expenses related to the apartment are tax deductible?

It should be noted that there is a group of expenses that cannot be included in the tax deductible costs of business activity, as they are incurred by natural persons, regardless of whether they conduct business activity or not. These are typical personal and consumption expenses, such as ensuring adequate housing. Expenses of a personal nature, in particular, may relate to the operation, operation and maintenance of your own private apartment. The private nature of this type of expenditure is also not changed by the fact that the taxpayer may use the room (or the things therein) intended to meet his own housing needs, while conducting business activity in that room. Expenses of a personal nature are incurred primarily to satisfy one's own housing needs, and not only to earn income, or to maintain or secure a source of income. They are not closely related to the conducted economic activity. Therefore, there is no strict and unquestionable connection between the costs incurred by the taxpayer and the purpose of generating revenues or maintaining or securing the source of revenues.

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Company in an apartment - change of the position of the tax authorities in the rules of calculating the tax

Until now, the tax authorities believed that the taxpayer should separate a room in which he conducts business. It was believed that only in this case a causal relationship between the expenses related to the maintenance of the apartment and the conducted activity could be found, and they could constitute a tax deductible cost (but only to the extent to which the real estate was used for business purposes).

Currently, the above position has changed. Taxpayers will no longer have to separate parts of the apartment (e.g. room) in which the activity is carried out. The amended individual interpretation of April 3, 2015 (no.IBPBI / 1 / 415-1512 / 14 / ŚS), issued on behalf of the Minister of Finance by the Director of the Tax Chamber in Katowice:
At the same time, it should be emphasized that the provisions of the PIT Act do not condition the possibility of including this type of expenses as tax deductible costs on the separation - in the literal (physical) sense - of the room in which the business is conducted. The taxpayer should determine what part of the real estate is actually used by his business, and then he may, in an appropriate proportion, include the expenses incurred as tax costs.

In summary, the changed interpretation is beneficial when a business is run in an apartment. The above position corresponds to the current economic reality, as new types of activity, especially service activities, no longer require a separate room. The new regulations also make it easier to run a business in a studio apartment, from which it is difficult to separate a separate part.