Business Expense Deductions in Sole Proprietorship
What can you deduct in 2026?
Business expenses are all costs incurred to earn income. The more expenses you deduct, the lower your profit, and thus the lower your income tax. This article explains what can be deducted in a sole proprietorship, limits, and how to document expenses.
What are business expense deductions?
Business expenses are all costs necessary to operate a business and earn income. The right to deduct expenses is one of the greatest benefits of sole proprietorship — it makes income tax significantly lower than it would be on gross revenue.
Formula: Profit = Revenue - Expenses
If you earn PLN 50,000 annually with PLN 15,000 in expenses, your taxable profit is PLN 35,000, not PLN 50,000.
Expense Categories — What Can You Deduct?
1. Materials and Raw Materials
Can be deducted:
- Materials directly consumed in production (e.g., wood for carpenter, fabric for tailor)
- Packaging (boxes, bags, labels)
- Spare parts for products sold
Requirement: Materials must be actually consumed in business — cannot deduct materials for personal use.
Documentation: Invoices from suppliers, receipts, or purchase proof.
2. Fuel and Energy for Business
Can be deducted:
- Electricity for workshop or office (percentage if home-based)
- Gas for heating office
- Fuel for company vehicle
- Water for production
Limits: If using part of home as office, deduct percentage of utilities (e.g., 30% if 30% of home is office).
3. Transportation and Vehicle Fuel
Option 1: Actual Fuel Costs
- Keep fuel receipts
- Deduct 100% of costs (if vehicle used exclusively for business)
Option 2: Fuel Allowance (PLN 0.25 per km in 2026)
- Deduct PLN 0.25 for every business kilometer
- No fuel receipts needed — just mileage log
- Often more advantageous than actual costs
Requirement: Vehicle must be used for business. If used for both personal and business, deduct only business portion.
Example: Drove 10,000 km annually, 6,000 for business. Cost: 6,000 km × PLN 0.25 = PLN 1,500 (allowance option).
4. Home Office
Can be deducted:
- Portion of rent (if apartment rented)
- Portion of utilities (percentage of home)
- Internet (if used for work)
How to calculate percentage: If apartment is 60 m² and office is 15 m², deduct 25% (15/60) of utility bills.
Limit: Maximum home office deduction in 2026 is PLN 500 annually (or actual costs if lower).
Alternative: Flat rate of PLN 200/month (without documentation) — if renting, choose flat rate instead of actual costs.
5. Equipment and Tools (up to PLN 3,500)
Can be deducted:
- Production tools and equipment (saw, drill, pliers)
- Computer, laptop, monitor (if cost up to PLN 3,500)
- Camera, photographic equipment
- Office furniture (desk, chair, shelves)
Limit: Items up to PLN 3,500 can be deducted immediately (fully in year of purchase). More expensive items are depreciated (over several years).
Example: Laptop for PLN 2,500 — deduct fully in 2026. Car for PLN 80,000 — deduct over 5 years (PLN 16,000 annually).
6. Business Travel and Accommodation
Can be deducted:
- Accommodation (hotel, Airbnb) during business trips
- Per diem (daily allowance — PLN 50/day or actual food costs)
- Transportation tickets (plane, train, bus)
- Taxi to/from airport
Documentation: Hotel invoices, tickets, restaurant receipts (if claiming meal expenses).
Per diem limit: PLN 50/day (no proof needed), or actual expenses with receipts (up to PLN 100/day).
7. Phone and Internet
Can be deducted:
- Phone plan (full cost if business phone)
- Office internet
- VoIP services (e.g., Skype Business)
Mixed use (personal and business): Deduct percentage of business use — e.g., if 70% of calls are business, deduct 70% of bill.
8. Professional Services — Accountant, Tax Advisor, Insurance, Legal
Can be deducted:
- Accountant fees (full cost)
- Tax advisor fees
- Attorney fees (legal advice)
- Business account bank fees
Requirement: Services must be directly related to business — cannot deduct personal financial advisor fees.
9. Professional Training and Courses
Can be deducted:
- Programming course (if you're programmer)
- English course (if language required in profession)
- SEO training (for marketing specialists)
- Professional certification
Condition: Training must relate to your industry and business activity.
10. Business Insurance
Can be deducted:
- Liability insurance (general liability)
- Property insurance (building, equipment)
- Employee insurance (if you have employees)
Cannot deduct: Personal insurance (health, personal vehicle).
What CANNOT Be Deducted?
- Taxes: VAT, PIT, CIT — these are obligations, not expenses
- Loan Payments: Cannot deduct principal, but can deduct interest
- Fines and Penalties: Penalties for errors, parking fines
- Personal Expenses: Home bills (unless office), personal travel
- Gifts and Donations: Charitable purchases, gifts to friends
- Personal Clothing: Unless protective wear (e.g., safety vest for construction)
Documentation — What Must You Keep?
You must keep:
- Invoices from suppliers (paper or electronic)
- Receipts (if purchase without invoice)
- Utility Bills for utilities, phone, internet
- Proof of Payment (e.g., contribution confirmations)
- Mileage Log (if using fuel allowance)
Retention Period: Minimum 5 years from end of year in which expense occurred.
Tip: Scan or photograph documents — if audited, easier to prove expenses were real.
Practical Examples — Expenses by Industry
IT Consultant
- Laptop: PLN 3,000 (full deduction)
- Internet: PLN 100/month = PLN 1,200 annually
- Training: PLN 2,000
- Business Travel: PLN 2,000
- Total: PLN 8,200
Hairdresser (Home-Based)
- Fuel (client visits): PLN 2,400 (allowance)
- Products: PLN 3,000
- Home Office: PLN 300 (30% of apartment)
- Insurance: PLN 300
- Total: PLN 6,000
Graphic Designer (Home Office)
- Monitor: PLN 1,500
- Software: PLN 1,200 annually
- Internet: PLN 600
- Home Office (flat rate): PLN 2,400
- Training: PLN 1,000
- Total: PLN 6,700
Frequently Asked Questions
Q: Can I deduct every utility bill if I have home office?
A: Only proportional portion. If office is 20% of home, deduct 20% of utilities (max PLN 500 annually).
Q: Can I deduct a PLN 60,000 vehicle?
A: Yes, but not all in one year. Depreciate over 5 years — PLN 12,000 annually. If 70% business use, deduct 70% = PLN 8,400 annually.
Q: What if tax authority questions lunch with client?
A: Deductible if business meal. Have receipt and be ready to prove business purpose (e.g., contract discussion).
Q: Can I deduct website and hosting?
A: Yes, completely. These are direct business costs.
Q: Can I buy on spouse's receipt and deduct?
A: No. Invoice must be in your name. If spouse buys for your business, it should be in your name.
Tax Minimization Strategies
Allowances Instead of Actual Costs
In some situations, allowances are more advantageous:
- Home office: PLN 200/month (no proof) vs actual bills
- Fuel: PLN 0.25/km vs fuel receipts
- Per diem: PLN 50/day without food receipts
Tax Form Options
Depending on income, consider:
- PIT Scale: 12% to PLN 120k, 32% above — revenue minus expenses
- Flat-rate Tax: 8.5% - 20% of revenue (no deductions)
- Lump-sum Tax: Fixed amount (for small income)
Usually PIT scale with expenses is most advantageous, but depends on industry and revenue.
Disclaimer — Important Information
This article contains educational advice on sole proprietorship expenses. Information is provided for informational purposes only and does not constitute tax advice. Each situation is individual — before making final decisions, consult a tax advisor or accountant. Regulations may change — follow current rules on official government websites.
Need Help With Sole Proprietorship Expenses?
The Accounting365 team specializes in sole proprietorship services and tax optimization. We offer:
- Expense classification and documentation
- Advice on profitable allowances
- Tax return preparation
- Expense audit — are you deducting everything possible?
Schedule a free tax consultation
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Anna specializes in sole proprietorship accounting, small business accounting, and tax optimization. For 12 years, she has supported entrepreneurs in record-keeping, expense classification, and reducing tax burden. Ministry of Finance Certified.