How to calculate personal income tax?

As a business owner, you file a tax return every year to calculate how much income tax you owe the government. We’ll guide you through determining your taxable income and the tax amount.

Add up all your income

You may have a total of 5 types of income. Each type of income forms its own separate tax base, and each is governed by a different section of the Income Tax Act, so different rules apply to them. These are:

• income from employment (§ 6 of the Income Tax Act),
• income from self-employment (Section 7 of the Income Tax Act),
• income from capital assets (Section 8 of the Income Tax Act),
• income from rent (Section 9 of the Income Tax Act),
• other income (Section 10 of the Income Tax Act).

Let’s take a closer look at them.

Section 6: Income from Employment

This includes earnings from employment, whether from a primary employment relationship or a contract of service. This category also includes income from work as a partner or member of a cooperative, as well as compensation for managing directors. Tax on this income is most often calculated based on your gross salary, and you do not claim any expenses in this case.

You document the amount of income from employment with a certificate of taxable income issued by your employer.

§ 7: Income from Self-Employment

This refers to your income from business activities(both primary and secondary) or from creative work. You can tax income from self-employment in several ways, which we describe in detail in the article on taxation of self-employed individuals.

In short, you have the following options: either you simply record your income and claim so-called flat-rate expense deductions on your tax return, or you report your actual expenses. In that case, however, you must also maintain tax records or accounting records and provide documentation for your expenses.

Another alternative is to opt into the flat-rate tax regime, in which case, provided you meet the conditions, you do not file a tax return at all.

§ 8: Income from Capital Assets

This includes, for example, shares in the profits of business corporations, returns on deposits, or interest on securities.

Two situations may arise here:

§ 9: Rental Income

Income from the rental of real estate or movable property (cars, construction machinery, or manufacturing equipment) is taxed similarly to business income (unlike business income, however, you do not pay social security contributions on it).

Rental income within the joint property of spouses is taxed only for one of them, regardless of the number or type of rented items, based on their mutual agreement as to who will report this income on the tax return.

You may claim a flat-rate expense deduction of 30% of the rental income, or you may report the actual expenses related to the rental (typically depreciation or loan interest) on your tax return.

§ 10: Other Income

The “other income” section includes, for example, profits from the sale of stocks, cars, and real estate (unless the income is tax-exempt), earnings from the sale of cryptocurrencies, and winnings from lotteries, betting, or other games of chance. However, these are only taxed if they exceed the limits set by the Income Tax Act.

For the aforementioned assets, if the income from the sale is not tax-exempt (for example, if you do not meet the so-called time test—3 years for stocks and cryptocurrencies, 5 years for shares), you can claim the expenses incurred in acquiring them against that income on your tax return. Base this on specific information from your investment manager (e.g., crypto exchange, investment platform, etc.).

Other income also includes income from occasional activities. You often ask from what amount income tax is payable on these small side earnings—you only pay tax on them once their total amount exceeds CZK 50,000 in a calendar year.

Set aside tax-exempt income

Check to see if you have any income that is tax-exempt—if so, do not include it in your taxable income or report it on your tax return.

The following types of income may be exempt, for example:

• Sale of real estate – if you had your permanent residence there for at least 2 years prior to the sale, purchased it more than 10 years ago, or will use the proceeds from the sale to purchase your own home. You can learn more about this topic in the article on tax exemption for the sale of real estate.
• Gifts – from relatives in the direct or collateral line, from people who lived with you in a shared household for at least one year prior to the gift, or in the case of occasional gifts totaling up to 50,000 CZK per year.
• Occasional earnings – these are random and one-time income, such as the sale of an old bicycle at a flea market. You do not pay tax on them if their total amount does not exceed 50,000 CZK per year.
• Inheritance – this is always considered tax-exempt income.
• Lottery and betting winnings up to CZK 50,000 – while for lotteries this limit applies to each individual win, for sports betting your total annual winnings are considered.
• Alimony, pensions, or other benefits —such as maternity benefits, parental allowance, old-age pension (up to three times the annual minimum wage), and other social benefits.

Deduct the corresponding expenses

After determining all taxable income, proceed to deduct the expenses that can be claimed for the given type of income:

Calculate your tax base

If you’re unsure what the tax base is, it’s simply the difference between your taxable income and deductible expenses. Now you can easily calculate it.

This base consists of several components. Why? Many people have multiple sources of income, which must be carefully distinguished in their personal income tax return. So-called partial tax bases are therefore calculated separately for each type of income (employment, business, etc.). Finally, they are added together to form the total tax base, from which you calculate the amount of tax.

Reduce the tax base by deductions and allowable items

Once you know your tax base, you can reduce it using deductions and other deductible items. You will find these in your tax return as non-taxable portions of the tax base. These include, for example:

• interest on a mortgage, a building savings loan, or a loan for a cooperative apartment;
• donations to charitable causes;
• contributions to pension savings, life insurance, and long-term investment products (DIP);
• union dues.

Calculate your income tax

Are you interested in specific numbers and wondering how much income tax you owe? The basic rate is 15% of the calculated tax base.

However, if your tax base exceeds three times the annual average wage (the limit for 2025 is CZK 1,676,052, and for income in 2026 it is CZK 1,762,812), the portion of income above this threshold is taxed at a higher rate, the so-called progressive 23% tax.

Take full advantage of tax credits

Does the calculated tax seem high to you? You can reduce it using tax credits. Every individual, including self-employed persons, is entitled to a basic taxpayer credit of CZK 30,840 per year —this is always applied in full, even if you were self-employed for only part of the year.

Additional credits—such as those for a spouse, children, disability, or for holders of a ZTP/P card—can be claimed if you meet the legal requirements. These credits are calculated proportionally only for the months in which you met all the requirements for claiming them.

Settle Your Tax Underpayment/Overpayment

After deducting tax credits, you will arrive at your final income tax amount. You must pay this amount in full and on time; otherwise, you risk incurring a late payment penalty.

If you have an overpayment, request a refund directly from the tax office that has recorded the overpayment. The easiest way is to submit a request through the Moje daně portal.

Not sure if you calculated your income tax correctly?

Some things might not be clear to you while filling out the form. If you don’t want to worry about taxes yourself, have our specialists prepare your tax return for you. Just contact us using this form: