A flat tax involves taxing income (that is, income – expenses) at a single tax rate, which is 19%. When choosing to tax income on a straight-line basis, all factors must be considered. First of all, the entrepreneur must take into account the expected income and any tax reliefs and preferences that the entrepreneur is entitled to. This form of taxation is available only to persons conducting non-agricultural business activity or who earn income from special divisions of agricultural production. Income from employment contracts or contracts of mandate cannot be taxed at the flat rate. If you choose the flat tax rate, you are obliged to tax in this way for the entire tax year. It is important to note that the flat tax does not have a tax-free allowance.
Flat tax – Advantages and disadvantages
Advantages of the flat tax scheme include one tax rate regardless of the income earned. It is particularly advantageous in case of high income from business activity (over 100 000 PLN). In this form of taxation income from different sources is not combined. This means that income taxed according to the flat tax method does not increase the tax rate on income subject to the tax scale (from 17% to 32%). In addition, the calculation of tax is easier as there is no need to remember about the tax scale and the taxressive amount. One of the most important disadvantages of the flat tax is the lack of possibility to settle jointly with a spouse. Another disadvantage is the inability to take advantage of most of the tax reliefs such as: internet tax, children tax relief, rehabilitation tax relief and the inability to settle as a single parent.
Flat tax – tax allowances
A significant limitation with this type of taxation is that you cannot take advantage of most of the reliefs that are available under the tax scale, such as joint taxation with a spouse or as a single parent. You can only reduce the tax base by deducting
- losses incurred,
- contributions paid in a given year for social insurance and insurance of co-workers,
- payments made in a given year to an Individual Retirement Security Account (IKZE).
