Private property used for business purposes
Starting your own business is associated with many costs. An entrepreneur entering the market is often not able to cover all of them at once, therefore it happens that private property of the owner is used for corporate purposes.
Private property for fixed assets
It should be remembered that when introducing a private asset into the company, it cannot be classified as other expenses related to business activity. Such assets should always be entered as fixed assets.
A fixed asset is a private asset that is owned or jointly owned by the taxpayer, is complete and fit for use on the date of acceptance for use, the expected period of use is longer than one year, and it is used for business purposes.
The basis for the valuation of the initial value of the fixed asset depends on the method of obtaining the component. It can be determined on the basis of the purchase document if the asset was acquired through purchase. If the owner has produced a fixed asset himself, its initial value will be the manufacturing cost - the value (in the purchase price) of the tangible assets used for the production, third party services used, remuneration costs for work and other costs. On the other hand, the costs of generating the taxpayer's own labor value, his spouse or minor children, general management costs, sales and other operating costs or financial operations cannot be included. However, in the case of receiving an asset as a donation or inheritance, the initial value is the market value of the item as at the date of purchase or the amount resulting from the free transfer agreement, if it is lower than the market value.
In a situation where the buyer does not have a purchase document for a fixed asset, it is necessary to carry out a valuation on your own. Such valuation should be made on the basis of the market prices of fixed assets of the same type in December of the year preceding the year in which the records were established or the inventory was prepared, as well as the condition and degree of wear and tear of a given asset. However, if the taxpayer is unable to determine the cost of production, the initial value is determined in the amount specified by an expert appointed by the taxpayer, taking into account market prices in December of the preceding year.
The transfer of a private asset to the fixed assets of the conducted business activity requires the preparation of an appropriate document. Such a document should contain data confirming the fact that such an operation has been performed and specify:
- the date it was made,
- type of fixed asset transferred,
- data necessary to enter the fixed asset into the records and to correctly determine the depreciation.
The depreciation of fixed assets introduced into economic activity from private property does not differ from the depreciation of fixed assets acquired directly for the needs of the company. This means that there is a traditional choice of depreciation method - straight or degressive. In the event that the depreciated fixed asset was used or improved, individual linear depreciation, the limits of which are specified in Art. 22j - k of the PIT Act. If the initial value does not exceed PLN 10,000, it is possible to depreciate once and immediately include the entire expenditure on a fixed asset as tax deductible costs.
Small Taxpayers and entrepreneurs who are just starting their business activity may also benefit from de minimis aid - they can depreciate their fixed assets up to a total amount of EUR 50,000. However, it should be remembered that only some fixed assets are subject to one-off depreciation under de minimis aid - these are fixed assets included in the Classification of Fixed Assets to groups 3 - 8, excluding passenger cars:
- group 3 - boilers and power machines,
- group 4 - machines, devices and apparatus for general use,
- group 5 - specialized machines, devices and apparatuses,
- group 6 - technical devices,
- group 7 - means of transport (excluding passenger cars),
- group 8 - tools, instruments, movables, equipment.
A private car used for corporate purposes
A private passenger car owned by the entrepreneur may be used for business purposes. There is no obligation to enter it into the company's fixed assets.
Tax deductible costs include fuel expenses and vehicle operating expenses. However, for such a possibility, the entrepreneur must keep a register of vehicle mileage. It consists of two parts. The first, concerning limits, should include:
- surname, first name and address of the person using the car,
- vehicle registration number and engine capacity,
- entry number, date and purpose of departure,
- route description (from where to),
- the number of kilometers actually traveled and the rate for 1 km,
- the amount resulting from the multiplication of the number of kilometers by the rate,
- signature and details of the taxpayer.
The limit of expenses that may be considered costs is calculated by multiplying the number of kilometers traveled by a private vehicle by the appropriate rate: for a passenger car with an engine capacity of up to 900 cm3 - PLN 0.5214, for a passenger car with an engine capacity above 900 cm3 - PLN 0.8558. In this way, the upper limit of expenses that the entrepreneur may incur in a given month for the use of a private vehicle for the company's needs is obtained. The limits are set on the basis of §2 of the Regulation of the Minister of Infrastructure on the conditions for determining and reimbursing the costs of using passenger cars, motorbikes and mopeds not owned by the employer for business purposes.
The second part of the records concerns incurred expenses and should include:
- invoice / bill date and issuer's details
- specification of the type of expenditure
- the amount of the expense (in the case of purchasing fuel for a vehicle in mixed use, the net amount is added to the limit and 50% of the VAT amount not deducted).
Expenses that may be included in the records include primarily fuel charges, but also expenses for fluids, tires, repairs, insurance and parking fees. When calculating tax deductible costs, the limit amounts and expenses are compared and always posted with the lower one. If the expenses do not exceed the limit, its surplus will be transferred to the next month and vice versa - the surplus of expenses will be booked into costs in the next month. The limits apply for a given tax year, they do not apply to the following year.
The vehicle mileage record is not an accounting document, but only a tool used to document the use of a private car. Expenses must therefore be booked with the appropriate accounting vouchers. Currently, in order for an accounting document to confirm the purchase of fuel or other operating expenses, it does not have to contain the registration number of the relevant vehicle (since January 1, 2013, such an obligation has been abolished).
The entrepreneur also has the right to use a truck in his business, not a truck entered into the register of fixed assets. In this case, there are no restrictions in the acts on recognizing the operating costs of such a vehicle as tax deductible costs. Therefore, the owner is not obliged to keep a log of the vehicle mileage. It is only important that the expenses incurred for the operation are documented as incurred in connection with the conducted business activity.
In business activity, an entrepreneur has the right to use private premises or part of it for business purposes, without qualifying it as fixed assets. It is then possible to classify the incurred expenses as tax deductible costs due to the fact that the company has its registered office in private premises or that the business is conducted.
Operating costs include expenses related to the ordinary use of the property (charges for water, electricity, fuel) and expenses necessary to maintain the property in a non-deteriorated condition and fit for use as intended (minor renovations, repairs). However, if the entrepreneur runs his business in private premises, which is also his place of residence, remember to separate the expenses incurred for running the business and the expenses of a purely personal nature. Such a division should be made in a proportional manner (area used for business purposes and the total area of the premises). The fees for the telephone subscription can be included in the costs only if the contract has been signed for a company. The fee for the calls themselves should be divided according to the bill. In the case of the Internet, the incurred expenditure can be classified as costs if the contract is signed for a company.
Expenses that will be considered corporate and for which the entrepreneur does not have an invoice issued for company data should be documented with internal evidence prepared on the basis of primary documents.
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Depreciation of premises
Pursuant to Art. 22c point 2 of the Personal Income Tax Act, in the case of private premises used for business purposes, it is the owner's responsibility to depreciate such premises.
When the entrepreneur decides to depreciate his premises, its initial value should be determined. This can be done on the basis of the purchase price when purchased or the total cost of production. However, it should be remembered that in order to establish the initial value in this way, appropriate documentation is necessary.If it is not available, the valuation takes into account the market price, taking into account the prices of similar buildings / premises from December of the previous year, and the degree of wear and tear of the property.
If only part of the building or premises is intended for business purposes, it is possible to apply a simplified valuation. Then the value resulting from the multiplication of square meters of the used area of the premises by the rate for 1 m2 of the area is considered the basis for depreciation.
The depreciation rate for buildings / residential premises is 1.5%, and for non-residential buildings 2.5%. If the property is used or improved, it is also possible to set an individual depreciation rate, however, the limitation in this case is the depreciation period not shorter than 10 years.
Private property - withdrawal from the company
At the time of setting up a business, the entrepreneur's property is divided into two groups - private and corporate. The possibilities of classifying private property as corporate property have been described above. There is also a reverse option - transferring an asset from corporate to private property.
In order to withdraw a fixed asset from economic activity, it should be deleted from the fixed assets register, specifying the date and the reason for withdrawal. This type of operation does not generate any income. However, the problem may arise when the fixed asset has not been fully depreciated. Then, after deleting it from the records, you should stop deducting depreciation write-offs (the last one should be booked in the month of withdrawal). The non-depreciated part of the fixed asset can no longer be recognized as tax deductible costs.
The withdrawn fixed asset may be sold. The date of sale is very important in this matter. If 6 years have elapsed since the withdrawal, the sale of such an asset will not constitute income and will not be taxed. In the event that the period between the date of withdrawal and sale is less than 6 years, the sum obtained is considered as income from business activity and is subject to taxation. In this case, the exception is the withdrawal of residential premises from the company property.
When selling company property also pay attention to its timing. If, in the case of a fixed asset (other than real estate or property law), the sale took place within 6 months from the end of the month in which the asset was acquired, the income from such sale will be taxed. As for real estate or proprietary rights, the taxable period for the sale is 5 years from the end of the year in which the acquisition or construction took place.
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Business liquidation - inventory
An entrepreneur liquidating a business is obliged to prepare, as of the date of liquidation:
- inventory of assets - for the purposes of personal income tax
- physical inventory - for the purposes of keeping the KPiR or registered lump sum and VAT.
The taxpayer has the option of transferring his corporate property to private property. Taxation of the listed assets will not take place until they are sold. Here, too, the rule of a 6-year period between the date of liquidation and disposal will apply - after this time, the sum obtained from the sale will no longer be considered taxable income. However, it should be remembered that in the event of liquidation of the activity, the revenue from the disposal of the fixed asset may be reduced by the part that has not been redeemed so far.
An entrepreneur who is a VAT taxpayer must also take into account the fact that regardless of the period of use of fixed assets from which VAT was deducted upon purchase, its sale should be subject to VAT.
If company property is too worn or damaged and is not suitable for further use, it may be liquidated. Therefore, it will not be taxed with VAT. In the case of most assets, it is sufficient in this case to draw up a liquidation report. If, on the other hand, the liquidation concerns, for example, electronic equipment, you should obtain a document proving that such an element was handed over to appropriate institutions for disposal.