No, an advance payment on your personal income tax is not a deductible professional expense. Want to know more about prepayments on your personal income tax? Find out here.
It is not a professional expense because it is actually personal income tax, which you will pay in advance (in part) via prepayment. Personal income tax is not a deductible professional expense and therefore neither is the advance payment on it.
Why is an advance payment not a professional expense?
Through a little calculation example, we explain the crazy outcome that would occur if personal income tax were a deductible business expense.
Suppose you have €1,000 in profit and you then decide to make €1,000 in advance payments. So in this example, your profit would drop to €0 (should an advance payment be a professional expense).
Great, because now you no longer have a profit and so you wouldn’t have to pay personal income tax. That €1,000 in prepayment will be refunded to you and it will count as income at that moment.
At least in our absurd example, where an advance payment is a professional expense and where refunds of advance payments would count as income. Which in reality, to be clear, is not the case.
The following year you have €4,000 profit and you still have the refund from last year worth €1,000. So you end up with €5,000 profit. You decide to make €5,000 in advance payments, so your profit is €0 again (should an advance payment be a professional expense).
You could continue to follow the above steps, up to the point where you end your self-employment and simply can no longer make prepayments.
Conclusion
In the end, you’re going to end up paying the same amount of taxes.
But as the amounts keep increasing, the financial risk of not being able to pay also increases. You may always need money for private expenses, making that amount unavailable to prepay again.
Moreover, in this scenario, the government would have to wait much longer for final income from taxes, which is obviously not a fun prospect.
Tip:
This is why taxes to be paid are not deductible professional expenses. This way you end up with a simplified tax system with less financial risk!
