No, the amount paid in personal income tax is not a deductible professional expense. Want to know more about your personal income tax returns? Find out here.
Why is personal income tax not a professional expense?
We use a small calculation example to explain the crazy consequences of personal income tax being a deductible professional expense.
Suppose you have €1,000 in profit and you then decide to do only €1,000 in advance payments. Because an advance payment of personal income tax is just as much personal income tax. So in this example, your profit would drop to €0 (should personal income tax be a professional expense).
Nice, because now you no longer have any profit and would therefore not have to pay personal income tax. That €1,000 in advance payments on your personal income tax is going to be refunded to you and it will count as income at that point.
At least in our absurd example, where paid personal income tax is a professional expense and where back payments of your personal income tax would then count as income. Which, to be clear, is not the case in reality.
The following year you have a profit of €4,000 and a refund of €1,000 from the previous year. So you end up with €5,000 profit. You decide to do €5,000 in advance payments, bringing your profit back to €0 (should personal income tax be a professional expense).
Did you know.
You could keep doing the above steps, up to the point where you stop your self-employed activities and simply can no longer make advance payments.
Conclusion
At the end of the day, you are 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 it also increases. You may always need money for private expenses, making it unavailable to make advance payments again.
Moreover, in this scenario, the government would have to wait much longer for final income from taxes, which is obviously not a nice prospect.
Hence, personal income tax payable is not a deductible professional expense. So you end up with a simpler tax system with less financial risk.
