Tax-deductible costs (koszty uzyskania przychodów, KUP) are one of the most important elements of a business owner’s tax settlement. Identifying and documenting them correctly can significantly affect the amount of income tax you pay. Taxpayers on the general rules (the tax scale) or the flat tax can reduce their tax base by tax-deductible costs, but not every expense can be treated as a tax cost. We explain how revenue differs from income in our article on the difference between income and revenue.
Understanding the definition of tax-deductible costs and the rules for documenting them is essential for every business owner. Classifying expenses incorrectly can lead to problems with the tax authorities and to paying additional tax with interest. On the other hand, using all the available options correctly lets you optimise your tax burden within the law.
Definition of tax-deductible costs
Under Article 22(1) of the PIT Act (personal income tax), tax-deductible costs are expenses incurred to earn revenue or to maintain or secure a source of revenue. This definition is fundamental to classifying expenses correctly as tax costs.
Tax-deductible costs are expenses incurred to earn revenue or to maintain or secure a source of revenue, except for the costs listed in Article 23 of the PIT Act
For an expense to be recognised as a tax-deductible cost, it must meet several key conditions at the same time. First, it must actually be incurred by the taxpayer, which as a rule means it is borne by the taxpayer’s assets (under the accruals method, an invoice that has not yet been paid can also be a cost). Second, the expense must be definitive, that is non-refundable — you cannot recover it in the future.
Another important condition is the link between the expense and your business activity. The expense must serve to earn revenue or to maintain or secure a source of revenue. It must not be private or personal. In addition, the expense must not appear in the list of costs that are not tax-deductible set out in Article 23 of the Act.
An expense can be recognised as a tax-deductible cost only if it was incurred by the taxpayer, is definitive, is linked to the business activity and has been properly documented
The last but equally important condition is proper documentation of the expense. Documents must meet specific formal and substantive requirements to serve as the basis for treating an expense as a tax-deductible cost.
List of expenses that are not tax-deductible
Article 23 of the PIT Act contains a list of expenses that cannot be treated as tax-deductible costs, regardless of their link to the business. Knowing this list is essential for classifying expenses correctly. The conditions an expense must meet to count as a cost are described in our article on general rules on tax-deductible costs.
The most important non-deductible expenses include entertainment costs (koszty reprezentacji), in particular those incurred on catering services, food and drinks, including alcohol (Article 23(1)(23)). The Act does not define entertainment, so whether, for example, hosting a business partner at a restaurant, a hotel for a guest or tickets to an event count as entertainment is decided on the basis of the purpose and circumstances of the expense.
Entertainment costs cannot be treated as tax-deductible costs, even if they are linked to the business. This applies in particular to catering services, food and drinks, including alcohol, connected with hosting business partners, clients and associates
Another category is default interest on late payments of budgetary receivables and other receivables to which the Tax Ordinance Act (Ordynacja podatkowa) applies (Article 23(1)(18)). This means that if you are late paying taxes, ZUS (Social Insurance Institution) contributions or other public-law charges, the interest on those arrears cannot be treated as a tax cost.
Repayments of loan and credit instalments are not tax-deductible costs either (Article 23(1)(8)(a)). The exception is the interest part of a loan instalment, which can be a cost provided it has actually been paid (Article 23(1)(32)). As a rule, the principal of a loan or credit is not a cost. An expense is also not a cost to the extent that payment for a transaction worth more than PLN 15,000 was made without a payment account or to an account not on the VAT taxpayer white list (Article 22p).
| Type of expense | Tax status | Notes |
|---|---|---|
| Entertainment expenses | Not a cost | Complete ban |
| Interest on tax arrears | Not a cost | Budgetary and other receivables to which the Tax Ordinance Act applies |
| Loan/credit principal | Not a cost | Only interest can be a cost |
| Depreciation above the limits | Not a cost | Limits from 2026: PLN 100k / PLN 150k (CO2 emissions below 50 g/km) / PLN 225k for electric cars |
Special limits also apply to depreciation of passenger cars. From 1 January 2026, depreciation charges calculated on the part of the car’s value that exceeds PLN 100,000 (CO2 emissions of at least 50 g/km), PLN 150,000 (CO2 emissions below 50 g/km) or PLN 225,000 (electric and hydrogen cars) are not a cost — Article 23(1)(4). For cars entered in the fixed asset register before 2026, the previous limit of PLN 150,000 applies.
From 2026, depreciation of passenger cars is limited to a value of PLN 100,000 (CO2 emissions of at least 50 g/km), PLN 150,000 (emissions below 50 g/km) and, for electric cars, PLN 225,000. Depreciation on the value above these amounts is not a tax-deductible cost
Similar limits apply to comprehensive (autocasco) insurance for a passenger car. Only the part of the insurance premium that corresponds to the ratio of PLN 150,000 to the value of the car adopted for insurance purposes can be a cost (Article 23(1)(47)).
Advances and prepayments and tax-deductible costs
Advances and prepayments raise many doubts among business owners. The basic rule is that advances, deposits and prepayments paid are not tax-deductible costs at the time they are paid.
The reason is that an advance is not definitive. Only expenses that are final and non-refundable count as tax-deductible costs. An advance may be refunded if the contract is not performed, or settled against future supplies of goods or services.
Advances, deposits and prepayments paid are not tax-deductible costs at the time they are paid because they are not definitive. They become a cost only once they are settled against the supply of goods or the performance of a service
In individual tax rulings (KIS), the Director of the National Tax Information service states (for example in the ruling of 29 October 2026, 0112-KDIL2-2.4011.819.2026.2.MC) that an expense is a tax-deductible cost if it meets all the following conditions:
- The expense was incurred by the taxpayer
- It is definitive, that is non-refundable
- It is linked to the business activity
- It was incurred to earn revenue or to maintain a source of revenue
- It is not listed among the costs in Article 23 of the Act
- It has been properly documented
An advance becomes a tax-deductible cost only when it is settled against a specific supply of goods or performance of a service — also partly, to the extent of the part of the service actually performed and documented (as stated in the ruling of 29 October 2026 cited above). It then loses its temporary character and becomes a definitive expense.
Documenting tax-deductible costs
Proper documentation of tax-deductible costs is a precondition for treating them as tax costs. The rules on documentation are set out in the regulation of the Minister of Finance and Economy of 6 September 2025 on keeping the tax revenue and expense ledger (Journal of Laws, Dz.U. 2025 item 1299), in force since 1 January 2026.
The entries in the ledger are based mainly on invoices, VAT RR invoices, bills and customs documents (§ 6(3)(1) of the regulation). These documents must meet specific formal requirements to serve as the basis for treating an expense as a tax-deductible cost.
Documents that form the basis for recognising tax-deductible costs must be drawn up in Polish, completely and clearly. Documents in foreign currencies must be converted into złoty in line with the tax act (§ 6(4) of the regulation)
Documents other than invoices (§ 6(3)(3) of the regulation) must contain at least:
- A reliable identification of the parties to the transaction
- The date the document was issued and the date of the business transaction
- The subject of the business transaction and its value
- The signatures of persons authorised to document the transaction
Documents must be numbered or marked in another way that links the document to the accounting entries. It is also important that they are drawn up in Polish, completely and clearly.
Accounting documents must be numbered or marked in another way that links them to the accounting entries. All abbreviations used in documents must be generally accepted and understandable
For documents issued in a foreign currency, the business owner must convert the amounts into złoty in line with the PIT Act. A cost in a foreign currency is converted at the average NBP (National Bank of Poland) exchange rate from the last working day before the day the cost is incurred (Article 11a(2) of the PIT Act), and the result of the conversion is shown on the document or in an attachment to it (§ 6(4) of the regulation).
Internal documents as accounting evidence
In certain situations, the business owner can issue an accounting document themselves in the form of an internal document. Such documents have the same evidential value as external documents, provided they meet the formal requirements.
Internal documents must bear the date and the signatures of the persons who made the expense. They should also state the name, quantity, unit price and value of the goods, and for services, the subject of the business transaction and the amount of the cost (§ 8(1) of the regulation).
The regulation allows internal documents to be issued only in the following cases (§ 8(2)):
- Purchases of plant and animal products not industrially processed directly from a domestic producer
- Purchases from private individuals of medicinal plant raw materials, wild herbs, berries and forest mushrooms
- The value of products from your own crops or livestock
- Per diems and other business travel expenses
- Purchases from private individuals of post-consumer waste that is a secondary raw material
- Rent, electricity, telephone, water and gas costs in the part attributable to the business
- Court and notary fees
- Car parking expenses
Since 2026, the regulation no longer provides for an internal document or a receipt for purchases of materials in retail shops — a fiscal receipt (paragon) can be used only to document purchases of fuel or oils abroad (§ 8(4)).
Internal documents can be issued by the business owner themselves only in the specific cases provided for by law. They must meet all formal requirements for accounting documents
Proper documentation of car parking expenses is particularly important. The basis for issuing an internal document can be a parking meter ticket, a coupon or a single-use ticket, which must be attached to the internal document.
The most common tax-deductible costs in a business
The expenses most often treated as tax-deductible costs are, above all, purchases of goods for resale and basic materials. These usually form the largest cost item in trading and manufacturing businesses.
Common costs also include expenses for maintaining and equipping premises, including rent for office or warehouse space and utilities such as electricity, water, gas and central heating. These costs can be deducted in full if the premises are used only for business, or proportionally if they are used for mixed purposes.
Premises costs can be treated as tax-deductible costs in full or proportionally, depending on how the space is used. With mixed use, you need to determine the share related to the business
A significant category is telecommunications, including phone and internet subscriptions and the cost of business calls. More and more business owners also deduct the costs of their online presence, such as domain fees, hosting and website services.
You can also deduct:
- Accounting and tax advisory services
- Bank charges for running a business account
- Purchases of computer hardware and software
- Vehicle running costs, including fuel
- Depreciation of fixed assets
- Property insurance related to the business
The costs of using a vehicle in the business include not only fuel, but also repairs, inspections, third-party liability (OC) insurance and a proportional part of comprehensive (autocasco) insurance within the applicable limits
Pay particular attention to mixed-use expenses, which can be linked both to the business and to private life. In such cases, only the part of the expense that actually serves the business can be treated as a cost.
Mixed-use expenses and non-standard costs
One of the biggest practical challenges in applying the rules on tax-deductible costs is classifying mixed-use expenses correctly. These are expenses that can serve both the business and the taxpayer’s private purposes.
The basic rule is that business costs can include expenses linked to the business that are not personal in nature. With mixed-use expenses, you must separate the part that serves the business and treat only that share as a cost.
An example of a non-standard cost is clothing bought by the business owner. As a rule, clothing is a personal expense and cannot be a tax-deductible cost. In certain cases, however, when clothing serves an advertising function or is necessary for a specific activity, it can be recognised as a tax cost.
Clothing purchases can be treated as tax-deductible costs only in exceptional cases, when the clothing serves an advertising function or is necessary for a specific business activity
In a ruling of 18 September 2017 (0114-KDIP3-1.4011.235.2017.2.IF), the Director of KIS stated that expenses on business attire bearing a permanent mark of the business (a permanently applied monogram or coat of arms identifying the business) can be a tax-deductible cost, because such clothing loses its personal character and is closely linked to the business.
A business owner providing tax advisory services bought a suit with the company logo permanently applied, which they wear only at conferences and client meetings. Thanks to the permanent business marking, the expense can be recognised as a tax-deductible cost, although the assessment depends on the circumstances of the specific case.
If you are unsure whether an unusual expense can be treated as a tax-deductible cost, consider applying for an individual tax ruling (interpretacja indywidualna, KIS). Following the ruling protects you if the actual facts match those described in the application (Articles 14k–14m of the Tax Ordinance Act).
Procedure for recording tax-deductible costs
Recording tax-deductible costs correctly requires a procedure that ensures compliance with tax and accounting rules. The first step is always to check whether the expense meets the definition of a tax-deductible cost and is not on the list of excluded expenses.
The process of recording costs follows these steps:
- Checking the formal correctness of the source document
- Verifying the link between the expense and the business
- Confirming that the expense is not on the list of exclusions
- Choosing the right accounting account
- Making the entry in the KPiR (tax revenue and expense ledger) or in the accounting books
- Archiving the document in line with the rules
Each accounting document must undergo a formal check covering the completeness of the data, the correctness of amounts, dates and signatures. Next, you need to verify the substantive link between the expense and the business.
Each accounting document must pass a formal and substantive check before it is entered in the ledger. The check covers the completeness of the data, the correctness of the amounts and the link to the business
Choosing the right account is key to classifying costs correctly. Different types of expenses should be posted to the appropriate analytical accounts, which makes it easier to prepare cost statements and analyses later.
If you keep a KPiR, enter expenses in the appropriate column according to the type of cost. Your accounting system should automatically assign expenses to the correct categories based on the type of transaction selected.
The most common mistakes in settling tax-deductible costs
Business owners make many mistakes when settling tax-deductible costs, which can lead to problems with the tax authorities. One of the most common is treating entertainment expenses, such as restaurant meals during business meetings, as costs.
Another frequent mistake is incorrect documentation. Incomplete documents, without the required signatures or dates, cannot serve as the basis for treating an expense as a tax-deductible cost. Documents in foreign languages that have not been translated or properly described are particularly problematic.
Mixed-use expenses also cause problems when business owners deduct the whole expense even though part of it is private. This applies in particular to costs of using a car, phone or premises for mixed purposes.
The most common mistakes in settling costs concern deducting entertainment expenses, incorrect documentation and failing to separate the private part of mixed-use expenses
Mistakes also concern advances and prepayments. Business owners often deduct them when they pay them, whereas they should be settled only after the goods are received or the service is performed.
Take particular care with vehicle-related costs. Depreciation limits and the restrictions on comprehensive (autocasco) insurance are often overlooked or applied incorrectly.
Tax audits of tax-deductible costs
The tax authorities check particularly carefully whether expenses have been correctly treated as tax-deductible costs. Audits can cover both the accounting records and the actual nature of the expenses incurred.
During an audit, the accounting records are checked above all for completeness and formal correctness. Inspectors verify whether documents contain all the required elements and whether they have been properly described and recorded.
Inspectors pay particular attention to unusual or high-value expenses. In such cases, they may ask for additional explanations or evidence confirming the link between the expense and the business.
During tax audits, unusual and high-value expenses and those that may be mixed-use are checked particularly carefully. Inspectors may ask for additional explanations and evidence
Business owners should be prepared for a possible audit by:
- Keeping reliable accounting records
- Retaining all source documents
- Preparing additional descriptions for unusual expenses
- Documenting the shares for mixed-use expenses
- Keeping a vehicle mileage log
If the tax authority challenges your costs, you have the right to appeal and to present additional evidence confirming that the expense was correctly treated as a tax-deductible cost.
Optimising tax-deductible costs
Optimising tax-deductible costs correctly lets you legally reduce your tax burden while staying compliant with the law. The key is to review all expenses systematically to see whether they can be treated as tax costs.
The first step in optimisation is a full review of all business-related expenses. Many business owners overlook small expenses that can add up to a significant amount over a year. These include parking fees, small purchases of office supplies and courier costs.
It is also important to settle mixed-use expenses correctly. Instead of giving up on such costs, separate the part that serves the business and deduct it in the appropriate proportion.
Optimising tax-deductible costs requires reviewing all expenses systematically, settling mixed-use costs correctly and making full use of the options available within the law
Pay particular attention to expenses on developing skills and qualifications. The costs of training, courses, specialist literature and industry conferences can be tax-deductible if they serve to improve your professional qualifications.
Planning expenses over time is also important. The moment a cost is recognised follows from the law (Article 22(4)–(6b) of the PIT Act) and cannot be moved freely between settlement periods — what you can plan is the timing of the purchase itself, in line with the accruals or cash method, depending on the method you use.
