Are sole proprietorships that keep books on a business basis required to make inflation adjustments?
Taxpayers who keep business books are not required to make inflation adjustments. These taxpayers can optionally make inflation adjustments for their fixed assets. Those who choose to make inflation adjustments for their fixed assets must also make inflation adjustments for their depreciation.
Some articles regarding the regulation in the Tax Procedure Law Communiqué No. 555 on the subject;
Legal basis
ARTICLE 2- (1) Law No. 213;
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Taxpayers who determine their earnings on a business account basis and self-employed individuals may also subject their economic assets subject to depreciation to depreciation based on the amounts adjusted in accordance with the provisions specified in this article.
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Those who will make inflation adjustments
ARTICLE 8- (1) Inflation adjustments are made by income or corporate taxpayers who determine their earnings based on the balance sheet principle, including collective, ordinary limited partnerships and ordinary companies. Inflation adjustments are made on the balance sheets of collective, ordinary limited partnerships and ordinary companies that keep books based on the balance sheet principle. The balance sheets of business partnerships that are corporate taxpayers are also subject to inflation adjustments.
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(6) Taxpayers who determine their earnings based on the business account principle (including agricultural business accounts) and self-employed taxpayers who keep a freelance earnings book cannot make inflation adjustments. However, they may subject their economic values subject to depreciation to depreciation based on the amounts adjusted in accordance with this Communiqué.
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Later disposal of non-monetary items included in the balance sheet subject to inflation adjustment
ARTICLE 53
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(2) Taxpayers and freelancers who determine their earnings according to the business account principle and the self-employed may allocate depreciation for their economic assets subject to depreciation in accordance with the provisions of this article, paragraph (A) of Article 298 of Law No. 213, in accordance with the provisions of this article, in the remaining useful life period of the calendar year 2024 and thereafter, including the adjustment made in 2023, based on the adjusted values. The depreciation amounts of the assets subject to adjustment for previous periods will also be subject to adjustment.
In case they dispose of these economic assets subject to depreciation, the inflation adjustment differences related to them will be considered as costs. However, for this purpose, the adjustment differences calculated as a result of the adjustment process to be made for the periods within the scope of the fourth section of the Communiqué must be recorded as income in the relevant period. It is possible to consider the difference arising from the correction of depreciation for the same period as expense.
Source: Tax Procedure Law Communiqué No. 555
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