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Taxes for the Self-Employed - Part 10: Step by Step Into Self-Employment on the Net - Many self-employed people consider taxation a necessary evil.

Now you can argue about types of tax and tax amount, the fact is that as a self-employed person you have to pay attention to a lot, otherwise you can easily get into trouble.

In addition, the due date of taxes is not entirely easy and there are always self-employed people who ignore/neglect this and then do not have enough money to service the tax office.

To avoid such anger and not even have to experience the seizure of your account, the self-employed should deal with the topic of taxes.

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Part 11a - Financial tips >>

[Overview of the article series " Step by step into independence on the Internet "]

Questionnaire for Tax Collection

Taxes for the Self-Employed

The tax office notices everything. In any case, for example, the trade office informs the tax office about start-ups, and 2-4 weeks after the start-up, self-employed people usually receive the “ Questionnaire on tax registration ” (PDF).

Filling out the questionnaire should be done carefully and correctly. If you have any questions, you can find help on the internet or contact your tax advisor *.

The tax offices now also offer online help with filling out the form.

Tax Types

In the following, I would like to introduce the types of tax that are usually relevant for self-employed people on the Internet.

Income tax

Every self-employed person has to pay income tax on his taxable income. However, there is a basic tax-free allowance of currently 9,000 euros (2018) that is tax-free. If you have less income (profit minus special expenses and extraordinary burdens), you don't pay any taxes, but of course, you still have to file the annual income tax return.

If you earn more than this basic allowance, the income above that is taxed. The tax rate ranges from 14 to 42 percent and increases with increasing income (45% at over 260,533 euros (2018)).

Income tax is generally paid once a year, with the tax office setting advance payments during the year.

Sales Tax

Very important for the self-employed and, in addition to income tax, usually the largest tax burden is sales tax. This is 19% for most things, while it is only 7% for certain products and especially services (e.g. the transfer of usage rights). It remains to be seen whether this division of sales tax makes sense. Usually, 19% applies to traders.

The most important thing, however, is that as a self-employed person you quickly become aware that the sales tax does not belong to you. This amount ends up in your account after the customer has paid, but basically, you should get used to the fact that around 1/6 of the money in your account does not belong to you.

Input Tax Deduction

As a self-employed person, you will not only send invoices, but you will certainly also pay them. The sales tax in business expenses can be deducted from the own sales tax to be paid. This is called the input tax deduction.

So if you buy a computer for work, for example, you have to pay the sales tax contained in it to the dealer but claim it on your sales tax return and then this amount is deducted from your own sales tax.

In the first two years of self-employment, you have to submit a monthly VAT return (electronically, e.g. by Elster) by the 10th of the following month.

If the sales tax burden is then less than 7,500 euros per year, the quarterly advance sales tax return is sufficient.

With a permanent extension of the deadline, the deadline can be postponed by exactly one month, so that the VAT return does not have to be submitted until the 10th of the month after the next.

A sales tax return is then due once a year

Small Business Regulation

If you take advantage of the small business regulation, you submit your invoices net. This means that no sales tax is reported.

You cannot then deduct any input tax. This relieves you of the VAT return, but you also lose money.

Because the income is net-like “normal” self-employment, but you can usually not pay for business purchases net, you have to pay the sales tax there and sit on it, because you can not get this back from the tax office.

The small business regulation is usually only worthwhile if you don't have any major expenses.

Trade Tax

The trade tax applies to self-employed people. Freelancers are not affected. As a sole proprietorship or partnership, however, there is an allowance of 24,500 euros. The trade tax is only due when there is more profit.

If you have more profit, only the amount over 24,500 euros is taxed.

The taxation itself is made up of a uniform tax index, which is 3.5%. And the tax assessment amount calculated from this is multiplied by the assessment rate for your municipality.

Example:

If I have a profit of 50,000 euros a year, then 24,500 euros will be deducted from that.

I multiply the 25,500 euros by 3.5%, which then results in a tax base of 892.50 euros.

This amount is then multiplied by the local tax rate (e.g. 300%), which in this example results in a trade tax of 2,677.50 euros.

As a self-employed person or partnership, you can deduct 3.8 times the tax base from your taxable income. This reduces the income tax burden.

Further information on trade tax can be found in a PDF from the IHK Trier.

Wage Tax and Social Security Contributions

If you have employees, there is another tax, the wage tax. In addition, there are social security contributions that you have to pay for your employees.

But all of this is beyond the scope of this article. Especially since you should go to a tax advisor at the latest when hiring employees.

Prepayments

The greater the tax burden, the more the tax office relies on advance payments.

This is to prevent the annual tax payment from becoming too high.

So it is currently the case with me that I have to make a quarterly advance income tax payment. That may seem annoying at first sight and you always have to keep an eye on the appointments and make sure that your account has enough funds.

On the other hand, it is good if the actual income tax payment is not quite as high.

The tax office estimates the advance payments based on the income from the previous year and then calculates the actual income tax burden against the advance payments at the end.

As already said, as a self-employed person you should always put money aside for taxes. The prepayment helps to make these tax payments in smaller bites.

Bookkeeping

I will deal with the subject of bookkeeping again in a separate article, as it is also very extensive.

Depending on the legal form (see the article “ The right legal form ”) and turnover, the self-employed are obliged to either simple bookkeeping (income surplus calculation) or double bookkeeping.

Tax Errors

Tax mistakes can be costly.

For example, anyone who provides false information or whose account does not contain enough money to pay taxes can face fines. Even imprisonment is possible.

That's why you should take taxes very seriously.

Due to the complexity of the topic and the infinite details that have to be considered, you either have to deal with it very intensively yourself or you get a specialist.

I understand very well that many want to save on the cost of an accounting office and tax advisor. However, I would like to point out that you cannot do it yourself for free.

If you factor in how much valuable working time you spend on bookkeeping and tax matters, and then make it clear that as a layman you are giving away more or less money because you don't know the details very well, then it's worth it a professional mostly.

Conclusion

A complex topic that I don't enjoy at all. That's why I have both my accounting and my tax returns have done externally.

This saves me a lot of nerves and allows me to spend my working hours doing things that make me money and fun.

However you go about it, you shouldn't ignore or take the subject of taxes lightly.

Survey

Do you do your accounting and tax returns yourself?

• Yes, I do my accounting and tax returns completely myself. (45%, 1,427 votes)
  
  
• I'm just collecting receipts. An accounting office/tax advisor takes care of the rest. (34%, 1,065 votes)
  
  
• I do the bookkeeping myself, but the tax advisor does the closing. (21%, 655 votes)

Number of participants: 3,147 (1 vote)

So It Goes on

Part 11a of the series of articles “Step by Step into Self-Employment on the Net” deals with the topics “ Finances and Liquidity ”.

What role does liquidity play and how best to deal with your finances?

Related Video: Taxes for the Self-Employed - Part 10: Step by Step Into Self-Employment on the Net

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