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How to reduce income tax in a sole proprietorship?
In running their own business, every entrepreneur looks for ways to optimize costs. One of the biggest burdens is income tax. Although at first glance its amount seems fixed, there are many legal ways to minimize it, ultimately leaving more money in the business budget. Below we present an overview of methods worth applying when planning finances for the upcoming year 2026.
Choosing a tax form: tax scale, flat tax, or lump sum on recorded revenues?
The decision to choose a tax form is the foundation on which the amount of tax will depend.
- Tax scale (12% and 32%) vs. flat tax (19%): The tax scale allows for the use of the tax-free amount and a range of deductions (e.g., for children), but after exceeding the threshold of 120,000 PLN in annual income, the rate rises to 32%. The flat tax is a constant 19% regardless of income, but it deprives you of most deductions.
- Lump sum on recorded revenues: This form of taxation is characterized by the fact that you pay tax on revenue, not on income. This means that you cannot deduct the costs of running the business. The lump sum is often profitable for companies with high revenues and low costs (e.g., freelancers, programmers, internet creators, chefs, bakers).
Costs of obtaining income – legal savings
Correctly accounting for the costs of obtaining income is the way to reduce the tax base. For an expense to be considered a cost, it must be related to your business and serve to achieve, maintain, or secure a source of income.
What expenses can you include?
- office rent, utility and internet costs,
- purchase of equipment and materials,
- advertising and marketing expenses,
- fuel and vehicle operating costs (if you use it for business),
- accounting, legal, and other services.
Common mistakes to avoid:
- accounting for expenses of a purely personal nature (e.g., grocery purchases),
- lack of proper documentation (invoices),
- including representation expenses as costs, which are actions primarily aimed at building an image rather than promotion (e.g., expensive gifts for contractors).
Deductions and allowances – support for entrepreneurs
The Polish tax system provides for a number of allowances that can significantly reduce tax.
- Start-up allowance and Small ZUS Plus: The start-up allowance exempts new entrepreneurs from ZUS contributions (excluding health insurance) for the first 6 months. After this period, one can benefit from Small ZUS Plus or preferential contributions. This is excellent support for those starting a business.
- Donations and other deductions: You can deduct from your income donations made for charitable, church, or public benefit purposes (charitable purposes, including, for example, foundations and associations dealing with animal protection, helping socially excluded individuals, and other similar activities). There are also other allowances, such as the research and development (R&D) allowance, the robotics allowance, or the thermal modernization allowance (the allowance does not apply to entrepreneurs – only to individuals owning property, but not for commercial purposes), which can be applied depending on the industry and ongoing investments.
- One-time depreciation: A method that allows you to quickly classify expenses for fixed assets as costs and thus reduce income tax in the given year. In 2025, this preference can be used by e.g.: Small taxpayers (with revenues up to 2 million euros per year) and taxpayers starting a business, regarding fixed assets from groups 3–8 of the KŚT (excluding passenger cars), up to a total limit of 50,000 euros per year (214,000.00 PLN in 2025).
This means that the purchase of, for example, machines, computers, or office equipment can be immediately included in the costs of obtaining income, instead of spreading deductions over several years.
Tax planning
The greatest benefits come from a systematic approach to finances.
- Cost planning: Do not leave tax decisions until the end of the year. Plan your expenses strategically. If you know you need to buy a new computer, do it in the year when you have higher revenues.
- Expert support: Tax regulations are complicated and dynamic. Therefore, regular cooperation with a trusted accounting office, such as Finestro, can protect you from mistakes and help you effectively utilize every legal opportunity to reduce tax.
Summary
Tax planningit is not about avoiding taxes, but about managing finances wisely in accordance with the law. The key is conscious action — from choosing the form of taxation, through documenting expenses, to taking advantage of available reliefs. Start planning your finances for 2026 today and consult with an expert to fully utilize the opportunities.
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