Tax deductible costs - special deduction points
Every entrepreneur who settles accounts with the tax authorities on their own should remember that some tax-deductible costs are settled in a special way. Importantly, it is not about expenses that are directly or indirectly related to the taxpayer's activity. The catalog of specific, in terms of records, tax costs has been indicated in the provisions of the Personal Income Tax Act. Below, we present four basic types of tax deductible costs that are recognized in the records at specific times.
ZUS contributions of entrepreneurs and tax deductible costs
Entrepreneurs' social insurance contributions can be settled in two ways:
deducting them when calculating the advance for income tax,
including them directly in tax costs.
It is up to the taxpayer to decide which of the above-mentioned methods will be used.
An entrepreneur who decides to include social security contributions directly in tax deductible costs must remember that this opportunity arises only when ZUS contributions are paid. In the case of keeping KPiR, the appropriate column for their recognition will be col. 13 - other expenses.
Pursuant to Art. 23 sec. 1 point 55a of the PIT Act, the contributions not paid to the Social Insurance Institution are not considered to be tax deductible costs, subject to point 37 and art. 22 sec. 6bb, specified in the Act of 13 October 1998 on the social insurance system, in part financed by the contribution payer.
If the taxpayer uses the first of the above-mentioned possibilities, should take into account the content of Art. 26 sec. 1 point 2 lit. and the PIT Act. According to the content of this article, contributions for retirement, disability, sickness and accident insurance paid in a given tax year for an entrepreneur (and persons cooperating with him) are deducted from income.
Who is the collaborator?
In accordance with applicable regulations, a cooperating person is considered to be:
- own children or children of the other spouse and adopted children;
- stepmother and stepfather
- remaining in a common household and cooperating in running a business. Importantly, an entrepreneur may deduct insurance contributions from income, provided that they have not been previously recognized as tax deductible costs or have not been deducted from income under the Lump-sum Income Tax Act, or have not been refunded to the taxpayer in any form. Paid health insurance contributions are tax deductible in the part constituting 7.75% of the calculation basis.
Employee ZUS contributions and tax deductible costs
The rules for recording employee ZUS contributions are set out in Art. 22 (6bb) of the PIT Act. According to its content, social security contributions in the part financed by the payer of contributions, contributions to the Labor Fund and the Guaranteed Employee Benefits Fund constitute tax deductible costs in the month for which these receivables are due, provided that the contributions are paid:
due to payments paid or made available in the month for which they are due - within the time limit resulting from separate regulations;
due to receivables paid or made available in the next month, within the time limit resulting from the provisions of labor law, contract or other legal relationship between the parties - no later than by the 15th day of that month.
In a situation where the above-mentioned the deadlines will be missed, these contributions are included in the costs only on the date of payment (Article 23 (1) (55a) and (3d) of the PIT Act).
XYZ Company pays the salaries of its salaried employees (employed under an employment contract) for the given month, by the last day of the month. The wages for January were paid on January 31st. Contributions for social insurance, FP and FGŚP were paid by February 15. When can an entrepreneur include them in tax deductible costs?
Employee contributions for January paid until February 15 will be the tax deductible expense of January.
Salaries and tax deductible costs
As for remuneration under employment contracts, Art. 22 sec. 6ba of the PIT Act, according to which they are tax deductible costs in the month for which they are due, provided that they were paid or made available within the time limit resulting from the provisions of the labor law, contract or other legal relationship between the parties.
In the event of failure to meet this deadline, the taxpayer recognizes employee remuneration in tax costs, in accordance with the date of their payment.
In the case of civil law contracts (e.g. contract of mandate, contract for specific specific work), the date of payment of the remuneration is always decisive in order to classify the remuneration on account of them as tax deductible costs (Article 23 (1) (55) of the PIT Act). Taxpayers who keep a tax book of revenues and expenditures, payment of remuneration under employment contracts and civil law contracts, include in column 12 - remuneration in cash and in kind. Example 2.
XYZ Company pays the salaries of its salaried employees (employed under an employment contract) for the given month, up to the last day of the month. The wages for January were paid on January 31st. When can an entrepreneur include them in tax deductible costs?
The January wages paid on January 31 will be the January tax deductible.
XYZ Company pays the salaries of its salaried employees (employed under an employment contract) for a given month by the 10th day of the following month. The salary for January was paid on February 10th. When can an entrepreneur include them in tax deductible costs?
The wages for January paid on February 10th will be the January tax deductible.
Company XYZ paid the contractors' wages for January on 5 February. When can an entrepreneur include them in tax deductible costs?
The contractors' remuneration for January paid on February 5 will be the tax expense of February.
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Interest on loans and tax deductible costs
The issue of recognizing interest on loans and borrowings as tax deductible costs is regulated in Art. 23 of the Personal Income Tax Act, which, as a rule, defines which expenses cannot be classified as tax costs.
Pursuant to Art. 23 sec. 1 paragraph 32 tax deductible costs are not accrued, but unpaid or redeemed interest on liabilities. Therefore, the taxpayer should remember that the interest on the loan related to the business activity will constitute a tax cost, but only at the time of payment.
Column 13 - other expenses is the appropriate KPiR column for the recording of tax deductible costs, such as paid interest.
In the case of interest, additional attention should be paid to Art. 23 sec. 1 point 8 lit. a and art. 23 sec. 1 point 33 of the PIT Act.
Art. 23 sec. 1 point 8 lit. and the PIT Act:
"Expenses for the repayment of loans (credits) are not considered tax deductible, with the exception of capitalized interest on these loans (credits), except that tax deductible expenses are expenses for the repayment of the loan (credit) in the event that the loan (credit) was indexed with the exchange rate of a foreign currency, if:
- the borrower (borrower), in connection with the repayment of the loan (loan), returns the principal amount greater than the amount of the loan (credit) received - in the amount of the difference between the amount of the principal return and the amount of the loan (credit) received,
- the lender (creditor) receives cash, constituting a repayment of capital in the amount lower than the amount of the loan (credit) granted - in the amount of the difference between the amount of the loan (credit) granted and the amount of capital returned.” Art. 23 sec. 1 point 33 of the PIT Act:
"Interest, commission and foreign exchange differences on loans (credits) that increase investment costs over the life of these investments are not considered as tax deductible." Summing up, the recognition of tax deductible costs in the KPiR will not always follow general principles. Entrepreneurs should especially remember about those situations where the recognition of the cost is made not earlier than the moment of payment (e.g. in the case of posting interest on a company loan).