In a sole proprietorship it is precisely the costs that decide the amount on which you pay tax. The higher and properly documented your costs are, the lower your taxable income — provided that the given expense may actually be treated as a cost. We explain what tax-deductible costs (koszty uzyskania przychodu) are, what conditions an expense must meet, what cannot be deducted, and what to keep in mind regarding payments and documentation in 2026.
What tax-deductible costs are
Under Art. 22(1) of the Polish Personal Income Tax Act, tax-deductible costs are expenses incurred in order to earn income or to maintain or secure its source, except for the costs expressly excluded in Art. 23 of the Act. In practice this means that an entrepreneur can deduct a very broad range of business expenses — from the purchase of goods and materials, through rent, utilities, equipment, fuel, accounting services, phone and internet, to training or marketing activities. Costs reduce the tax base, so accounting for expenses correctly has a direct impact on the amount of tax due.
Three conditions an expense must meet
For an expense to be recognised as a cost, several conditions must be met at the same time. First, it must have a causal link with the business — it must be incurred in order to earn income or to maintain or secure its source. Second, it must not appear on the list of expenses excluded from costs, that is, in Art. 23 of the Act. Third, it must be properly documented, most often by an invoice or a bill issued to the company's details. The burden of proving the link between the expense and the income rests with the entrepreneur, so in case of doubt it is worth keeping additional evidence, such as a contract, correspondence or a description of the purpose of the purchase.
What you cannot deduct
The Act expressly excludes some expenses from costs, even if they are connected with the business. Among other things, you cannot deduct expenses of a representation nature — for example the purchase of alcohol or a lavish meal with a contractor. Costs also do not include fines and penalties paid, interest on tax arrears, income tax itself, or purely private expenses. Special rules apply to passenger cars, for which separate limits and percentage restrictions on costs apply — we have devoted a separate article to this topic. Before you treat an expense as a cost, it is worth checking whether it is not on the list of exclusions.
The cash payment limit and the VAT white list
The method of payment also affects whether an expense can be treated as a cost. The cash payment limit between entrepreneurs is PLN 15,000 gross per transaction. If you pay in cash for a transaction exceeding this threshold, you will not be able to treat it as a cost — and if you pay part by transfer and part in cash, the cash part is excluded from costs. For transfers above PLN 15,000 to an active VAT payer, it is also worth checking the contractor's account number on the white list (biała lista) of taxpayers kept by the National Revenue Administration (KAS). A transfer to an account outside this list may likewise deprive you of the right to treat the expense as a cost.
Fixed assets, equipment and documentation
Not every purchase becomes a cost in full straight away. Assets with an expected useful life of more than one year and a value exceeding PLN 10,000, such as machinery or more expensive equipment, are as a rule entered in the fixed-asset register and accounted for over time through depreciation write-offs. Expenses of a lower value, on the other hand, can be treated as a cost on a one-off basis. All costs are recorded in the tax revenue and expense ledger (KPiR) on the basis of documents, so keeping invoices in order and posting them on time matters just as much as the amount of the expenses themselves.
The form of taxation and costs
Whether you can account for costs depends on the chosen form of taxation. Under the tax scale and the flat (linear) tax you pay tax on income, that is, on revenue reduced by costs — here accounting for expenses matters most. It is different under the lump-sum tax on recorded revenue (ryczałt od przychodów ewidencjonowanych), where the tax is calculated on revenue alone and costs are, as a rule, not deducted at all. The decision on the form of taxation should therefore also take into account how high the costs are that you actually bear in your business.