Flat tax as the optimal form of taxation

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At the beginning of each new tax year, it is worth analyzing the selected form of income taxation, because those who continue to conduct business may change it by the 20th day of the month following the month in which they obtained their first income in a given tax year or until the end of the tax year if the first income was obtained in December of a given year. One of the forms of company taxation is a flat tax. Read and check what it is characterized by!

Similarities of flat tax to general rules

As in the case of the progressive scale, also in the flat-rate tax, the tax base is income, i.e. the surplus of revenues over the costs of obtaining them. Income, both in the case of flat tax and calculated according to the scale, is reduced by the paid social contributions for the entrepreneur's own insurance and by cooperating persons (not to be confused with employees).

On the other hand, the already calculated tax is reduced by a part of the health insurance premiums paid (for the entrepreneur himself or a cooperating person). Only 7.75% of the contribution assessment base is entitled to tax deduction in both cases, and not as it might seem - the entire value of the premium paid in the amount of 9%.

What is the difference between flat tax and tax scale?

The main difference between the general rules and the flat tax is the tax rate. In the case of the tax scale, there are two rates: 17% and 32%, and which one is used depends on the amount of income obtained. On the other hand, in the case of flat tax, the entrepreneur is assured that regardless of the amount of income earned, they will be taxed at the rate of 19%.

Detailed information on changing the form of taxation is provided in the article: Changing the form of taxation in the new tax year

What is the difference in taxation in practice?

Example 1.

In 2020, the entrepreneur will receive PLN 80,000 of income constituting the taxable amount on the basis of the conducted activity.For the sake of clarity of the example, ZUS contributions will be omitted.

If the entrepreneur chose to settle according to:

  • tax scale - the tax to be paid for 2020 would be approximately PLN 13,075;

  • flat tax - the tax to be paid for 2020 would be approximately PLN 15,200.

Example 2.

In 2020, the entrepreneur will obtain PLN 120,000 of taxable income on account of the conducted activity. For the sake of clarity of the example, ZUS contributions will be omitted.

If the entrepreneur chose to settle according to:

  • tax scale - the tax to be paid for 2020 would be approximately PLN 25,046;

  • flat tax - the tax to be paid for 2020 would be approximately PLN 22,800.

When does flat tax pay off?

The above examples allow us to observe a certain dependence, namely the choice of a flat tax becomes the more paid the higher the income earned by the entrepreneur over the course of the year - exceeding the amount of PLN 85,528 (1st tax threshold).

However, it is not always the case that only the amount of income is taken into account when assessing profitability. It should be remembered that the choice of a flat tax excludes tax advantages such as, for example:

  • joint settlement with the spouse,

  • taking advantage of most tax breaks,

  • preferential settlement for single parents,

- which may also affect the choice of the optimal form of taxation.

Therefore, there are situations in which, even though the 1st tax threshold is exceeded, the principles of settling the tax scale remain more favorable than the flat tax. This is the case, inter alia, when the entrepreneur meets the conditions for joint settlement with the spouse, and the spouse obtains relatively low income. Then, despite the fact that the amount of income of one of the spouses would indicate the 2nd tax threshold, joint settlement may cause that in reality the income will be taxed only at the rate of 17%.

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How to choose flat taxation?

If the entrepreneur decides to tax with a flat rate tax, he is obliged to report this fact to the head of the tax office by submitting a written statement. The deadline for submitting such notification expires by the 20th day of the month following the month in which the first income was obtained in a given tax year or by the end of the tax year if the first income was obtained in December of a given year. The choice of a flat tax made through a declaration will also apply in the following years, until the entrepreneur decides to make another change. Changes are also made on the basis of the submitted CEIDG-1 application.

Who cannot choose flat rate billing?

First of all, the flat tax is not related to the tax scale. This means that if the entrepreneur obtains income from sole proprietorship, as well as from being a partner, e.g. in a civil partnership, the choice of a flat tax means that this type of taxation will apply to all forms of business to which the provisions of the Income Tax Act apply. from natural persons.

In addition, it should be borne in mind that the right to tax with a flat tax is lost by an entrepreneur who obtains income from the business activity conducted independently or from being a shareholder in a company without legal personality, corresponding to the activities that the taxpayer or at least one of the partners performed or performs in the tax year as part of an employment relationship or a cooperative employment relationship. Therefore, it will not be possible to settle with a flat tax if the person establishing the activity envisages performing activities that he previously performed as a full-time employee for the former or current employer.

Flat tax - how to settle?

During the tax year, an entrepreneur who has chosen a flat tax as a form of taxation is obliged to pay advances on income tax according to the form selected and declared in the tax office (monthly, quarterly or in a simplified form). At the end of the year, however, by the last day of April of the following year, the entrepreneur is obliged to submit an annual tax return informing about the amount of income obtained.

Entrepreneurs who use flat tax in their activities can easily settle their income in the wfirma.pl accounting system.

An entrepreneur running a sole proprietorship, who has chosen flat tax settlement, submits an annual declaration in the form of the PIT-36L form. The declaration shows only the individual income - as already mentioned, the flat tax excludes joint settlement with the spouse