Carrying Forward Tax Losses – How They Reduce Future Liabilities

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Not every business year ends with a profit. Sometimes expenses exceed revenues, resulting in a loss. While this may seem negative, in practice it can provide benefits – a tax loss from previous years can reduce taxable income in the following years, lowering the tax due.

How does tax loss deduction work?

Income and expenses are always calculated within the same source of revenue – e.g. non-agricultural business activity. If a loss arises from business activity, it can only be offset against income from the same source.

Taxpayers have two options:

1. Gradual deduction – over the next 5 tax years, up to 50% of the loss per year.

2. One-time deduction – up to PLN 5 million in a single year. Any remaining balance can still be deducted in subsequent years (but again, no more than 50% of the loss in a single year).

   
   

Example 1 – Deducting in equal parts

A taxpayer incurred a loss of PLN 50,000 in 2024. They deduct it over the next five years, PLN 10,000 each year.

Category / Year	2025	2026	2027	2028	2029
Income earned in the year	12,000	100,000	10,000	35,000	25,000
Loss deducted in the year	10,000	10,000	10,000	10,000	10,000
Taxable income	2,000	90,000	0	25,000	15,000
Remaining loss to be deducted	40,000	30,000	20,000	10,000	0

Example 2 – Deducting in two years

The same loss can also be settled faster, using the 50% per year maximum allowance.

Category / Year	2025	2026	2027	2028	2029
Income earned in the year	12,000	100,000	10,000	35,000	25,000
Loss deducted in the year	0	25,000	0	25,000	0
Taxable income	12,000	75,000	10,000	10,000	25,000
Remaining loss to be deducted	50,000	25,000	25,000	0	0

Example 3 – Large loss and the PLN 5 million limit

A taxpayer incurred a PLN 7,000,000 loss in 2024. In 2025 they earned PLN 10,000,000 and in 2026 PLN 3,000,000.

Category / Year	2025	2026
Income earned in the year	10,000,000	3,000,000
Loss deducted in the year	5,000,000	2,000,000
Taxable income	5,000,000	1,000,000
Remaining loss to be deducted	2,000,000	0

In the first year, the maximum deduction is PLN 5 million. The remaining PLN 2 million may be used in later years, subject to the 50% cap.

Changing the taxation method

Switching from general rules or flat tax to lump-sum taxation (ryczałt) does not mean losing the right to deduct past losses. Taxpayers may still offset previous losses against income earned under the new taxation method.

Deducting losses during the year

A taxpayer may already apply past losses when calculating advance income tax payments. If the year eventually closes with a loss, the right to offset remains valid for the next years.

Losses and business suspension

Suspending or even closing a business does not cancel the right to deduct past losses. The five-year period continues to run, even if the company is inactive.

Summary

A tax loss is not just a negative result – it can become an important tool for tax optimisation. By applying the right strategy, entrepreneurs can significantly reduce future tax liabilities.

Legal basis:

• Art. 9(3) – Art. 9(6) of the Act of 26 July 1991 on Personal Income Tax (consolidated text: Journal of Laws of 2025, item 163, as amended)

• Art. 7(5) – Art. 7(6) of the Act of 15 February 1992 on Corporate Income Tax (consolidated text: Journal of Laws of 2025, item 278, as amended)

• Art. 11(1) – Art. 11(3) of the Act of 20 November 1998 on Lump-Sum Income Tax on Certain Revenues Earned by Individuals (consolidated text: Journal of Laws of 2025, item 843, as amended)