As the old saying goes, "family only looks good in photos." This means we can't rely on our own family, especially when it comes to finances. Is it really better to take family photos than to do business? According to the tax authorities, both can be equally successful.
The case I'd like to present today involved a taxpayer who ran a window and door business and wanted to expand his business to include furniture sales. This furniture was to be manufactured by his wife's company. The taxpayer had doubts as to whether such a purchase for resale would constitute a tax-deductible expense.
In his interpretation (0112-KDIL2-2.4011.460.2023.2.IM), the Director of the National Tax Information Service (KIS) recognized that the goods purchased from his wife could constitute a tax-deductible expense. He reiterated that tax-deductible expenses include all rational and economically justified expenses related to business activity, the purpose of which is to generate revenue, secure, and maintain a source of revenue.
In order for an expense to be considered a tax deductible cost, the following conditions must be met:
- was incurred by the taxpayer, i.e. ultimately it must be covered from the taxpayer's assets (expenses incurred for the taxpayer's activities by persons other than the taxpayer do not constitute costs of obtaining the taxpayer's revenues),
- is definitive (actual), i.e. the value of the expense incurred has not been reimbursed to the taxpayer in any way,
- is related to the business activity conducted by the taxpayer,
- was incurred in order to obtain, maintain or secure revenues or may have an impact on the amount of revenues achieved,
- has been properly documented,
- it cannot be included in the group of expenses which, in accordance with Article 23 paragraph 1 of the Personal Income Tax Act, are not considered to be tax deductible costs.
Tax laws do not exclude expenses for the purchase of goods and services from immediate family from tax-deductible costs. However, it should be remembered that a spouse, as well as relatives and next-of-kin up to the second degree, are related entities. This means they are obligated to establish prices based on terms that would be agreed upon by unrelated entities. Otherwise, the tax authority may determine the taxpayer's income (or loss) without taking into account the conditions arising from these relationships.
In the case at hand, the spouses run separate businesses. Therefore, it cannot be concluded that one spouse is providing their own work for the benefit of the other spouse's business. Therefore, transactions concluded between spouses have the same tax consequences as all other transactions. The marital property regime is irrelevant in this case. The fact that the spouses are in community of property is therefore irrelevant.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of February 12, 2024
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