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If you conduct a company, it may happen that the total operating costs during the tax year in question will exceed the sum of the revenues generated. It means that you spent more than you earned. In that case you face a loss.
Remember that the rules allow for the deduction of losses from the income and reduction of income tax. You can do this when you reach your income, that is to say, when your revenues are higher than the expenditure incurred. You have the right to reduce the amount of the income by losses suffered in a given tax year over five consecutive years. Please bear in mind certain conditions.
The first - loss from previous years must reduce the income obtained from the same source. Second, the single deduction of loss in a given year may not exceed 50 % of the amount of the loss.
You can choose when within the five-year period you will deduct loss and at which level (and of course the amount deducted may not exceed 50 % of the amount of the loss for the year in question).
If you deduct loss obtained for more than one year, the amount of the deduction should be calculated for each tax year separately.
If you do not have income in a certain tax year, you are not entitled to offset loss. In extreme case, when during the five following tax years there is no income, tax loss may not be cleared. If you earn sufficient income from the same source from which the loss was incurred - the full settlement of loss can be made within two tax years.
Example of settlement of loss
Jan Kowalski who conducts economic activity suffered a loss of PLN 5000 in 2014, and in the following year 2015 — a loss of PLN 3000.
Assuming that the following years of his business he will achieve a sufficiently high income, he will be able to account for it in the settlement of tax for 2016 to 2017:
|The amount of loss for 2014 to be deducted from income||2500||2500|
|The amount of loss for 2015 to be deducted from income||1500||1500|
A loss may also be settled in the longer term in the next five tax years following the year in which the loss occurred.
|The amount of loss for 2014 to be deducted from income||1250||1250||1250||1250|
|The amount of loss for 2015 to be deducted from income||600||600||600||60060||600|
Note *: The above table shows clearance of losses every year in equal shares. Of course, you can settle the loss in different amounts each year (you decide), as long as the amount deducted in a given year shall not exceed 50 % of the loss in value.
If you settle according to general rules, you demonstrate the amount of loss deducted from the income in the tax year in the annual tax return PIT-36, part E, in Item 151 or 152 - the source of loss and amount deducted should be indicated.
If you settle income on the basis of linear method, tax deducted from the income, the amount of tax year losses in the PIT-36L annual tax return, part E, Item 23 — specify the source of loss and deducted amount.
If you pay lump sum on registered income, when you fill in PIT-28 tax return, the amount of loss deducted from the revenues in a tax year loss you demonstrate in part D, Item 68.
Taxable persons who are subject to the provisions of the Act on corporation tax, the amount of loss deducted from the income in the tax year of loss from previous years in form CIT-8/0, part B.2, item 60, and this amount together with other deductions from the income listed in part B.3 of this form is shown in part E.1.item 47 of CIT-8 annual return.
You do not need to wait for the settlement of loss from activity for previous years until the settlement of the annual income tax. You can deduct it during the course of the tax year from current income. This will reduce the taxable amount and the amount of the advances on income tax payable to the tax authorities. If in the final settlement of annual income tax you do not reach income but loss, therefore you will not be able to benefit from the deduction of loss from previous years, you will not lose the amount of loss which you "deducted during the year. This amount may be deducted in subsequent tax years.
If you close or suspend your company which you settled on the basis of the Act on income tax and then you open it, you retain the right to settle the losses from previous years under the same conditions as you would have if you did not close your activity. The five-year period for settlement of the loss shall take into account the period when activity was suspended or closed.Share Print