Running a business involves not only earning revenue but also incurring various costs related to its operation. However, not every expense incurred by a business owner can automatically be treated as a tax-deductible cost (koszty uzyskania przychodów, KUP). Correct classification of costs is crucial for optimising the tax burden and avoiding problems with the tax authorities.
Under the Personal Income Tax Act, tax-deductible costs are expenses incurred for strictly defined purposes and meeting specific conditions. Understanding these rules is essential for every business owner who wants to settle their business correctly and make full use of the options offered by the tax system. Recording expenses in the KPiR or accounting books is an everyday part of our accounting services.
Definition of tax-deductible costs under the law
The basic definition of tax-deductible costs is set out in Article 22(1) of the Personal Income Tax Act. Under this provision, tax-deductible costs are costs incurred to earn revenue or to maintain or secure a source of revenue, except for the costs listed in Article 23 (PIT (personal income tax) Act, consolidated text Journal of Laws (Dz.U.) 2026, item 592). For companies and other corporate income taxpayers, an equivalent definition is contained in Article 15(1) of the CIT (corporate income tax) Act (consolidated text Dz.U. 2026, item 554), and the list of exclusions in Article 16(1) of that Act.
The definition of tax-deductible costs is general, which means that every expense incurred by the taxpayer should be analysed individually to determine whether it can be classified as a tax-deductible cost. The only exception is where the Act expressly states that it belongs to the category of costs or excludes the possibility of treating it as such a cost
In all other cases, you need to examine whether there is a causal link between incurring the costs and earning revenue or a real chance of earning taxable revenue, or maintaining or securing its source. This analysis requires the business owner to understand thoroughly not only the literal wording of the rules but also how they apply in practice to their business.
The key element of the definition is the purpose for which the expense was incurred. It is not enough for the expense to be incurred as part of the business - it must serve specific purposes related to generating revenue or securing it.
The causal link between costs and revenue
The fundamental condition for treating an expense as a tax-deductible cost is a cause-and-effect relationship between the expense incurred and the revenue earned or potential revenue. This link does not have to be direct - it can also be indirect, as long as it is objectively justified.
A tax-deductible cost must be purposeful. When determining whether an expense can be charged to tax-deductible costs, you therefore need to establish the purpose for which it was incurred. An expense will be recognised as a tax-deductible cost if there is a causal link between incurring it and the creation, increase or possibility of creating revenue.
The burden of proving the causal link lies with the taxpayer, who in the event of a tax audit should be able to justify the expense incurred. Proper documentation and the ability to explain the purpose of the expense are key to avoiding problems with the tax authorities
Classification of tax-deductible costs that is correct and consistent with the statutory rules should take into account the following factors:
- The purpose of the expense and its expediency and justification for the operation of the entity
- The possibility that the expense will contribute to earning revenue, assessed on the date the expense is incurred on the basis of objective criteria
The expression "to earn revenue" used in Article 22(1) of the PIT Act is not defined in the Act. It is accepted that the phrase "to" (w celu) should be understood as striving to achieve a certain state of affairs, and the taxpayer's efforts are purposeful if, on the basis of available knowledge of cause-and-effect relationships, it can reasonably be assumed that the cost incurred may bring the expected result.
Obligation to document expenses
The business owner must properly document the expense incurred, which will help establish objectively the conditions for treating the expense as a tax-deductible cost. If the taxpayer does not have the appropriate documents, the tax authority has grounds to challenge the classification of the expense as a tax-deductible cost.
In such a situation, the business owner must be prepared to pay the outstanding tax liability with default interest. Proper documentation is not limited to having an invoice or receipt - it is equally important to document the business purpose of the expense.
Tax-deductible costs should be linked to the relevant source of revenue. It is not possible to settle business costs under another source of revenue, for example employment. Each cost must be assigned to the correct source of revenue
It is also worth noting that expenses that are properly documented but not actually incurred cannot be tax-deductible costs. In that case the invoice or other accounting document does not document an actual business event. The tax authorities pay particular attention to whether transactions are genuine and whether the taxpayer actually incurred the expense. The method of payment also matters: if payment for a transaction with another business worth more than PLN 15,000 was made without using a payment account or – in 2026 – to an account not on the VAT taxpayer white list, the cost is not treated as a tax-deductible cost to that extent (Article 22p(1) of the PIT Act in conjunction with Article 19 of the Entrepreneurs' Law; for CIT - Article 15d). From 1 January 2027 (Dz.U. 2026, item 1371), for invoices issued from that date, only a payment made without using a payment account counts. Defining and documenting tax-deductible costs is a topic for a separate article with examples.
Mr Janusz runs a sole proprietorship as the owner of an online shop selling sports accessories. He is taxed under the general rules on the tax scale (12% and 32%). He bought a printer that he will use to handle orders and run the shop, but during the purchase he forgot to tell the seller that it was for his business and received a receipt (paragon) without his NIP (tax identification number). The seller can no longer issue an invoice with his NIP for such a receipt (Article 106b(5) of the VAT Act), and from 1 January 2026 the regulation on keeping the KPiR (tax revenue and expense ledger) (Dz.U. 2025, item 1299) allows a receipt as evidence for recording a cost only when buying fuel or oils abroad (§ 8(4)). In this situation the best solution is to return the printer and buy it again giving his business details, because a purchase documented with a receipt without NIP makes it very difficult to treat the expense as a tax-deductible cost.
Conditions for treating an expense as a tax-deductible cost
An expense is a tax-deductible cost when all of the following conditions are met together, and they must be checked individually for each expense:
- It was incurred by the taxpayer - ultimately it must be covered from the taxpayer's own assets
- It was incurred for the right purpose - to earn, maintain or secure a source of revenue, or it may affect the amount of revenue earned
- It is connected with the business - it must be linked to the business activity carried on by the taxpayer
- It is final - the value of the expense incurred has not been refunded to the taxpayer in any way
- It is properly documented - there is appropriate documentation confirming that the expense was incurred and its purpose
- It is not on the list of exclusions - it must not be among the expenses listed in Article 23(1) of the PIT Act
Expenses incurred for the taxpayer's business by persons other than the taxpayer are not the taxpayer's tax-deductible cost. It is crucial that the expense is actually covered from the assets of the business owner running the business
All these conditions must be met at the same time. If any of them is missing, the expense cannot be treated as a tax-deductible cost, which may increase the tax base and the tax liabilities. Disputes arise particularly often over management board expenses as tax-deductible costs.
Maintaining and securing a source of revenue
The Personal Income Tax Act does not define maintaining or securing a source of revenue. Therefore, to interpret the law correctly, it is worth referring to the definitions of these two words in the Polish dictionary, where to maintain means to keep something in an unchanged state, and to secure means to provide protection against something dangerous or harmful.
As the tax authorities state in their rulings, costs incurred to maintain a source of revenue are costs incurred so that revenue from the given source continues to be earned and so that the source continues to exist at all. These expenses are of a preserving nature and serve to maintain the existing state of affairs.
Costs that serve to secure a source of revenue are costs incurred to protect an existing source of revenue in a way that ensures its safe operation. The essence of such costs is therefore that they must be incurred to prevent the loss of the source of revenue in the future
Put simply, expenses incurred to maintain and secure a source of revenue are those incurred to ensure the continuity of the business so that it generates revenue in the future. These may be, for example, expenses on machinery maintenance, property insurance or expenses related to maintaining business premises.
The distinction between maintaining and securing a source of revenue matters in practice when assessing whether specific expenses are justified. Both types of costs are recognised as tax-deductible costs, but they require different justification from the taxpayer.
Direct and indirect costs
The PIT Act distinguishes between costs directly related to revenue and other costs (Article 22(5)-(5c)), and tax-deductible costs include both costs that have a direct cause-and-effect link with taxable revenue and indirect costs, which cannot be linked to specific revenue but are justified for the proper functioning of the business.
| Type of cost | Characteristics | Examples | Method of settlement |
|---|---|---|---|
| Direct | Directly linked to specific revenue | Purchase of goods, production materials | In the year the corresponding revenue is earned (Article 22(5)-(5b)); in the KPiR also on the date incurred (Article 22(4) and (6)) |
| Indirect | General operating costs | Rent, utilities, business phone | On the date incurred; proportionally where they relate to a period longer than the tax year (Article 22(5c)) |
Costs directly related to revenue are expenses that translate directly into earning specific revenue. They include, for example, expenses on buying goods for resale or materials and products that can be assigned to specific revenue. These costs are the easiest to document and justify to the tax authorities. More careful justification is needed, for example, for a lawn mower bought by a business as a tax cost.
Costs indirectly related to revenue, on the other hand, are expenses that are not directly reflected in the revenue earned, i.e. expenses that cannot be assigned to specific corresponding revenue. Indirect costs include, among others:
- A subscription for a business phone used to contact customers
- Lease instalments for a car used in the business
- The cost of renting an office or retail premises
- Utility charges at the place of business
- The cost of removing waste generated by the business
Indirect costs require particularly careful documentation of their link to the business. The taxpayer must be able to show that the expenses incurred serve the operation of the business, even if they cannot be directly assigned to specific revenue
Practical aspects of classifying costs
In business practice, business owners often face situations in which it is not obvious whether an expense is a tax-deductible cost. In such cases, it is crucial to analyse the purpose of the expense and its potential impact on generating revenue.
The causal link between incurring an expense and earning revenue or maintaining or securing its source should be assessed individually for each expense. The assessment of this link should show that the expense incurred can objectively contribute to earning revenue or serve to maintain or secure the source of revenue.
It is also important to understand that a cost does not have to lead directly to revenue - it is enough that there is an objective possibility of such an effect. This means that even expenses that ultimately do not bring the expected results can be recognised as tax-deductible costs, as long as at the time they were incurred there were rational grounds for expecting a positive effect on the business.
The taxpayer should keep detailed documentation not only of the expenses themselves but also of the business justification for incurring them. This documentation may prove crucial in a tax audit or when providing explanations to the tax authorities
Particular attention should be paid to mixed expenses, which serve both private and business purposes. In such cases only the part of the expense proportional to its use in the business can be treated as a tax-deductible cost. For passenger cars the Act sets flat-rate limits: for a business car (e.g. entered in the business assets or leased) that is also used privately, 75% of the expenses on its use are a cost (Article 23(1)(46a)), and for the business owner's private car not entered in the business assets - 20% (Article 23(1)(46)).
