Flat-rate expenses or actual costs?

One of the first questions every self-employed person asks when filling out their tax return is: should I claim flat-rate expenses, or keep records of actual costs? There's no one-size-fits-all answer. It depends on your field of business, your actual level of expenditure, and whether you want to claim a spousal tax credit or child tax benefit. In this article, we'll break down both options in detail, walk through calculation examples for various professions, and finish with a practical decision tree to guide you toward the right choice.

What are flat-rate expenses and how do they work

Flat-rate expenses (sometimes called a "percentage expense deduction" or "income-based expenses") are a simplified way to claim expenses on your tax return. Instead of tracking every invoice, receipt, and purchase document, you simply declare that your expenses amounted to a certain percentage of your income. This percentage is set by law and varies depending on the type of your business activity.

The legal basis for flat-rate expenses is found in Section 7(7) of Act No. 586/1992 Coll., on Income Taxes. Detailed information and guidance is available on the Czech Financial Administration website.

Flat-rate expense rates in 2026

In 2026, the same percentage rates apply as in previous years. However, each rate has a maximum absolute cap that cannot be exceeded:

Who can use flat-rate expenses

Flat-rate expenses are available to virtually any OSVČ with income under Section 7 of the Income Tax Act. However, there are situations where they cannot be used or don't make financial sense:

• Cannot be combined — flat-rate and actual expenses cannot be mixed within the same type of income (Section 7). If you have multiple activities falling under Section 7, you must choose either flat-rate or actual expenses for all of them.
• Joint taxation with a spouse — if you claim flat-rate expenses, you cannot simultaneously split income with a cooperating spouse in a way that would optimise your tax liability beyond what the law permits.
• Keeping full accounts — if you are required to keep full accounting records (as opposed to a simple tax ledger), you cannot claim flat-rate expenses.

What are actual costs

Actual costs mean you claim the exact expenses you can demonstrably prove were incurred in order to generate, secure, and maintain your income. You must have a supporting document (invoice, receipt, contract) for every expense, and you must maintain a tax ledger or full accounts.

Typical actual expenses for OSVČ

Actual expenses can cover a wide range of items:

• Purchase of materials and goods
• Office, studio, or workshop rent
• Utilities, internet, phone (proportional share when working from home)
• Fuel and business vehicle running costs
• Asset depreciation (computer, machinery, equipment)
• Software and licences
• Liability insurance
• Training and education related to your business
• Postage and administrative costs
• Travel allowances

Practical comparison: calculators for different professions

Let's look at specific examples of when flat-rate expenses pay off and when actual costs are better. All calculations use 2026 rates: 15% income tax, personal tax credit of 30,840 Kč, social insurance at 29.2% of 50% of profit, health insurance at 13.5% of 50% of profit.

Example 1: Tradesperson (80% rate)

Jan, a plumber, has annual income of 900,000 Kč and actual expenses of 450,000 Kč (materials, tools, fuel, insurance).

For tradespeople, the 80% flat rate almost always wins, because actual expenses rarely reach 80% of income.

Example 2: Graphic designer (60% rate)

Petra, a graphic designer with a free trade licence, has annual income of 1,200,000 Kč and actual expenses of 350,000 Kč (software, computer depreciation, co-working space rental, training).

Example 3: Tax adviser (40% rate)

Martin, a tax adviser, has income of 1,500,000 Kč and actual expenses of 750,000 Kč (a part-time assistant, office rent, accounting software, professional literature, insurance).

Example 4: Landlord (30% rate)

Eva rents out a flat that is included in her business assets. Annual rental income is 360,000 Kč, and actual expenses (depreciation, insurance, repairs, property management) come to 150,000 Kč.

For property rental, actual costs are often more advantageous thanks to depreciation and maintenance expenses.

Decision guide: how to choose the right option

Use the following decision tree. Answer the questions to find out which option is optimal for you.

When flat-rate expenses clearly win

• Craft trades (80%) — your actual costs would have to exceed 80% of income, which is exceptional
• Services with minimal overheads — developers, consultants, trainers with low running costs
• First-year entrepreneurs — in your first year you often don't have enough documentation to prove expenses
• OSVČ with income up to 2,000,000 Kč and low cost ratios

When actual costs pay off

• High fixed costs — expensive rent, vehicle leasing, part-time or full-time employees
• Investment in equipment — depreciation of expensive machinery, tools, or technology
• 40% or 30% rate with expenses exceeding that percentage
• Need to claim a child tax bonus for dependent children (see below)

An important detail: child tax benefit

When claiming flat-rate expenses, there is a significant restriction. If the sum of partial tax bases where you are claiming actual costs does not make up at least 50% of your total tax base, you cannot receive a child tax bonus. You can still apply the child tax credit up to the amount of your calculated tax, but if the credit reduces your tax liability to zero and there is still credit left over, you cannot receive the remainder as a cash payment.

Can you switch between the two options?

Yes — the decision on how to claim expenses is made each year in your tax return. It is not a permanent choice. You can choose flat-rate expenses this year and switch to actual costs next year if your circumstances change.

Flat-rate expenses vs. flat-rate tax: don't confuse the two

Many self-employed people mix up flat-rate expenses and the flat-rate tax regime. These are two entirely different things:

If you'd like a detailed look at the flat-rate tax, read our article on flat-rate tax 2026.

Practical table: when does the flat rate pay off by profession

Impact on social and health insurance contributions

The choice between flat-rate and actual expenses affects not just income tax but also the amount of social and health insurance contributions you pay. The assessment base for both types of insurance is calculated on 50% of profit (income minus expenses). The lower the profit you report, the lower your contributions.

This means that if flat-rate expenses result in a lower reported profit, you'll also pay lower insurance contributions. Bear in mind, however, that minimum advance payments apply — you cannot pay less than:

• Social insurance: minimum advance payment of 5,720 Kč/month (primary activity) in 2026
• Health insurance: minimum advance payment of 3,306 Kč/month in 2026

If your calculated assessment base falls below the minimum, you pay the minimum advance payment. In practice, this means that for OSVČ with low income, the difference between flat-rate and actual expenses in terms of insurance contributions is negligible.

Specific situations

OSVČ with multiple activities

If you carry out multiple activities with different flat-rate percentages (e.g. a craft trade at 80% and a free-trade activity at 60%), you apply each activity's own rate. However, note that you must choose either flat-rate expenses for all Section 7 activities, or actual costs for all of them. You cannot mix the two.

OSVČ who is also an employee

If you are employed and run a side business, you can use flat-rate expenses in exactly the same way. Your business tax base is added to your employment income and the combined tax base is taxed together. Flat-rate expenses apply only to business income (Section 7).

Spouses running a business together

If you use the cooperating person arrangement (splitting income with your spouse), flat-rate expenses are applied to total income and expenses before the split is made to the cooperating person.

Frequently asked questions (FAQ)

Do I need to keep any documents when using flat-rate expenses?

Yes — even with flat-rate expenses you must keep a record of income and hold documentation of your income (issued invoices). You do not need to file expense documents for tax purposes. That said, we recommend keeping purchase invoices anyway — they may come in handy for other purposes (complaints, warranty claims, insurance events).

Can I claim flat-rate expenses if my income exceeds 2 million?

Yes, there is no restriction on the level of income. The only limitation concerns the absolute amount of flat-rate expenses (caps of 1,600,000 / 1,200,000 / 800,000 / 600,000 Kč). Above a certain income level, however, the effective percentage decreases and the flat rate loses its advantage.

Are flat-rate expenses better, or is the flat-rate tax regime?

It depends on your situation. The flat-rate tax regime is even simpler (no tax return required), but it comes with stricter conditions — income up to 2,000,000 Kč, you must not be a VAT payer, and you must not have employment income exceeding 50,000 Kč. If you meet these conditions, it's worth comparing both options.

How do I find out which rate applies to me?

The key is the classification of your trade. On the trade register (administered by the Ministry of Industry and Trade) you can check whether you hold a craft trade licence (80%), a free or regulated trade licence (60%), or whether you operate under special regulations (40%).

Can I use flat-rate expenses one year and actual costs the next?

Yes — you decide how to claim expenses each year. However, you must make the transition adjustment to your tax base when switching (see the section on switching above).

Will my choice of expenses affect my future pension?

Yes. The assessment base for social insurance is calculated on your profit. If flat-rate expenses result in a lower reported profit, you pay lower contributions — and this also reduces your future state pension. OSVČ with a primary activity pay at least the minimum advance payments, but higher contributions mean a higher future pension.

Summary: key rules for making your decision

1. 80% rate (trades, agriculture) — flat-rate expenses almost always win
2. 60% rate (free and regulated trades) — flat-rate expenses are advantageous for service businesses with low overheads; for trading activities with high cost of goods, consider actual costs
3. 40% rate (liberal professions) — depends on the actual level of costs; professions with their own premises and staff often benefit from actual costs
4. 30% rate (rental) — actual costs are usually more advantageous thanks to property depreciation
5. Parents with lower incomes — actual costs may be necessary in order to claim the child tax bonus

Official sources and links

• Czech Financial Administration – flat-rate expenses — official information on percentage-based expense deductions
• Czech Financial Administration – flat-rate tax 2026 — conditions and bands for the flat-rate tax regime
• MOJE daně portal — electronic tax return submission
• Trade register — verify the type of your trade licence
• ČSSZ – social insurance advance payments — minimum advance payments and assessment base

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This article is for informational purposes only and does not replace professional tax advice. For the specific implications for your own tax situation, please consult a tax adviser or accountant. The information is accurate as of the date of publication (February 2026) and reflects currently applicable legislation.