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How to reduce income tax in a sole proprietorship?
In running their own business, every entrepreneur seeks ways to optimize costs. One of the largest 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 company budget. Below we present an overview of methods worth applying when planning finances for the upcoming 2026 year.
Choosing the form of taxation: tax scale, flat tax, or lump sum on recorded revenues?
The decision on the choice of taxation form is the foundation upon which the amount of tax will depend.
- Tax scale (12% and 32%) vs. flat tax (19%): The tax scale allows for the use of a tax-free amount and a range of deductions (e.g., for children), but once the threshold of 120,000 PLN annual income is exceeded, 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 profit. This means you cannot deduct business expenses. The lump sum is often beneficial for businesses with high revenues and low costs (e.g., freelancers, programmers, online creators, cooks, bakers).
Costs of obtaining revenue – legal savings
Correctly accounting for the costs of obtaining revenue is a way to reduce the tax base. For an expense to qualify as 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 appropriate documentation (invoices),
- including representation expenses as costs, i.e., activities whose main purpose is image building, not 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 (except for health insurance) for the first 6 months. After this period, you 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 income donations made for charitable, church, or public benefit purposes (charitable purposes, including, for example, foundations and associations focused on 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 a given year. In 2025, this preference can be utilized by e.g.: Small taxpayers (with revenues up to 2 million euros annually) 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 annually (214,000.00 PLN in 2025).
As a result, the purchase of, for example, machines, computers, or office equipment can be immediately included in the costs of obtaining revenue, 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 expenditures 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 complex and dynamic. Therefore, regular collaboration 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 avoiding paying taxes, but rather sensible financial management in accordance with the law. The key is conscious action — from choosing the form of taxation, to documenting expenses, and taking advantage of available deductions. Start planning your finances for 2026 today and consult with an expert to fully leverage the opportunities.
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