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Paying taxes as a freelancer: this is what the self-employed should know

Freelancers and Taxes: Income Tax

Income tax liability applies to freelancers in the same way as to all natural persons. In contrast, there is also corporation tax for corporations. Corporations are the GmbH, UG, Ltd. or AG. Since the freelancer is not a corporation, he has to pay income tax. This is based on the level of income.

For freelancers, this means in plain language that the income tax for freelancers is determined on the basis of personal sources of income. More precisely, the focus is on profit - i.e. sales minus costs. In Germany, the income tax rate is increasing progressively. This means that as profit increases, so does the personal tax rate.

Tip for freelancers: As a freelancer, you register your self-employment with the tax office, which promptly sends you a questionnaire for tax registration. This is where freelancers shouldn't make the mistake of being overly optimistic about their expected earnings. Because the taxes to be paid are determined on the basis of this information. If the profit is lower than planned, these will be repaid at the end of the year, but first they must be paid in advance during the year.

No tax for freelancers: the trade tax

Almost all start-ups have to register a business. Only the freelancer is exempt from this. In addition to not having to register with the trade office, the freelancer does not have to pay trade tax. However, the demarcation to the classic trade is not always clear and unambiguous. In principle, scientific, artistic, educational or writing activities are not subject to the trade regulations.

As a freelancer you can generate income from a commercial activity without losing your status as a freelancer, but you have to make sure that the freelance and commercial activity do not mix. Examples are provided by the doctor who sells dental care products on the side, or the IT consultant who sells PC software on the side. As soon as commercial activity takes on a larger role, the tax office may even classify all activities, including freelance, as commercial. Here freelancers should ask the tax office for possible exemptions or leeway.

Online tax advice: do your bookkeeping conveniently online. Optionally, a tax advisor is available to freelancers on site.

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Taxes for freelancers: sales tax

In addition to income tax, sales tax is also an important tax for freelancers. In Germany it is levied on almost all goods and services and is therefore a value added tax from an economic point of view.

Sales tax is only due on sales that are made in Germany. In Germany, the standard rate for sales tax is 19%, the reduced rate for books and a variety of groceries is 7%.

So the freelancer also beats the sales tax of mostly 19% on his services by adding them to the invoice amount. As a freelancer, however, you are not allowed to withhold this additional amount through sales tax, but have to pay this sales tax directly to the tax office.

Freelancers and Taxes: Input Tax

For freelancers, the counterpart to sales tax is input tax. Because freelancers who collect sales tax are allowed to offset it with what is known as input tax. This is included in all expenses made for self-employment.

The input tax is determined as follows: In order to be able to offer one's own services, the goods or services of other companies are usually used. The supplier will also invoice you a sales tax for this. Freelancers can claim and offset this amount of sales tax as input tax against their own sales tax. Here is a sample calculation for input tax.

This is how freelancers pay taxes up front

The advance tax payment is an advance payment that is paid to the tax office during the course of the year. There are two reasons why freelancers also have to pay taxes in advance:

  • Firstly, the aim is to save the taxable freelancer from having to make a high additional payment.
  • Second, this ensures the liquidity of the state budget.

The amount of the advance tax payment to be made is mostly based on past tax assessments or is estimated based on the expected income. This applies, for example, if the freelancer has just started working.

The freelancer receives an advance payment notification from the tax office, subject to verification. In this way, the calculated advance payment amount can even be adjusted if the amount of the freelancer’s income changes. The difference between the advance payment and the actual tax liability is then calculated in the annual tax return.

If the freelancer has paid more than forecast in advance, he will get back the overpaid taxes. If the total tax liability for the year is actually higher than originally estimated, a subsequent payment of the outstanding amount must be made within one month of receipt of the tax assessment.

The following deadlines are to be observed for income tax on a quarterly basis:

  • March 10th
  • the 10th of June
  • September 10
  • 10th of December

This advance payment is only set if it would amount to at least 400 euros in the calendar year and at least 100 euros for an advance payment date. In general, the amount of the advance payment is based on the income that was earned during the last assessment.

Sales tax pre-registration: obligations and deadlines

In contrast to the advance payment of income tax, which is determined by the tax office, the pre-registration of the sales tax is the responsibility of the taxable freelancer. He must therefore carry out the advance VAT return himself.

The pre-registration for sales tax must also always be made on the 10th after the regular pre-registration period has expired. Whether a year, a quarter or a month is chosen as the pre-registration period depends on the amount of tax liability.

  • If the tax liability of the previous year was over 7,500 euros, the VAT advance notification must be made monthly. The deadline for registration can be extended by one month with a permanent extension.
  • If the tax liability was between EUR 1,000 and EUR 7,500, the advance VAT return must only be submitted quarterly.
  • If the tax liability is less than 1,000 euros in the previous calendar year, the freelancer can be exempted from pre-registration. The freelancer pays his taxes regularly once a year.

At the end of the year, the tax office checks what tax liability the freelancer has and what amount of sales tax has actually been paid. Here, too, in the worst case, an additional payment has to be made and in the best case you get something back.

Difference between target and actual taxation

The main difference between the target and the actual taxation lies in the time of the advance VAT notification. If the freelancer writes on April 12th an invoice, the advance VAT return for the month of April must be submitted by May 10th (without permanent extension) and the VAT must also be paid to the tax office in May. However, if the customer only pays the invoice two months later, the freelancer has to advance the sales tax for two months, so to speak. In the case of debit taxation, the sales tax must be received by the tax office in the following month, even if the customer has not yet paid his invoice.

The actual taxation can accordingly be more advantageous, especially when it comes to high bills. Because here the sales tax is only paid to the tax office when the customer has paid his invoice. This means that it is not the month in which the invoice was issued, but the month in which the money was received that is relevant for the VAT advance return. If the invoice from April 12th only on June 12th Paid by the customer, the freelancer first has to enter the tax in the sales tax return for June. This saves liquidity.

Tax return for freelancers

For freelancers, the accounting according to the income-surplus-invoice (EÜR) comes into question. It is a simplified method of determining a company's profit. In general, all companies that are not registered in the commercial register can use the income-surplus-calculation.

For the EÜR, all actual entries and exits of the account are to be noted in a so-called journal. If the freelancer wants to calculate taxes and do his bookkeeping according to the income-surplus-account, he should structure his income and expenses according to the types that he incurs and use the official form of the EÜR.

Examples of income of the EÜR in the journal are the operating income at the full sales tax rate and at the reduced sales tax rate, but also the sale or withdrawal of fixed assets as well as the private use of the company car represent income in the sense of the EÜR. Examples of expenditure by the EÜR in the journal are Costs for office supplies and the study, entertainment costs, depreciation or even the tax advisor.

If you as a freelancer determine taxes and want to do the EÜR, you always have to show the amounts in the EÜR as a total amount, i.e. without sales tax or input tax. A balance must be created in the journal every month. The values ​​of the individual categories are then to be transferred to the form for the income surplus invoice, which must then be attached to the tax return if the profit is over 17,500 euros per year.

There are many programs available to assist freelancers with bookkeeping. We have put together a few providers.

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In this way, freelancers can reduce their tax burden

If freelancers want to save taxes on a targeted basis, they look in the direction of income tax. Because it is their height that can be influenced. So if you want to lower taxes as a freelancer, you have to reduce your profit - of course, only according to the permitted tax rules.

Well-known ways to reduce taxes as a freelancer are through deductible business expenses, such as

  • Rent for the office including office equipment and office supplies,
  • Training and further education measures that every freelancer and entrepreneur should take advantage of,
  • minor assets up to 410 euros that can be sold immediately,
  • Contributions to private pension provision as well as high costs due to extraordinary burdens, e.g. an illness.

In addition, there are many other ways to save taxes as a freelancer. A tax advisor can explain what these are and, above all, implement them. The tax advisor is also tax deductible.

A company car is a popular way of reducing taxes as a freelancer. The general rule here is that the costs of acquiring, maintaining and using the company car are deductible as business expenses, provided that they are classified as necessary business assets. The division between private and business use plays a major role.

If freelancers use the company car for at least 50% of their journeys, the company car counts as company assets. Then you can claim the costs for the company car completely as business expenses. As soon as freelancers use the company car for less than 50% of their journeys, they have to keep a logbook. On this basis, the operating costs of the company car are credited proportionally to the operating expenses.

If the company car is used more than 50% for business purposes, the freelancer has to pay tax on the private part according to the 1% rule - provided the freelancer does not keep a driver's log to determine the private part. This logbook is difficult to create because it has to be submitted promptly, completely and in a closed form, but freelancers only tax those vehicle costs that are actually attributable to the privately driven kilometers. Especially with expensive company cars that are rarely driven privately, several hundred to thousand euros can be saved annually with a logbook.

In addition, you can also work with an electronic logbook. The electronic logbook automatically records all journeys via GPS technology, so that you have little work.

But sometimes it is also cheaper the other way around. If freelancers want to save taxes on their car, it may be advisable to keep the car in their private assets and only claim the costs of business use as a business expense. This is possible with a business use of up to 50%. Especially when the freelancer wants to sell his car again, the proceeds go into his pocket alone. The tax office gets nothing. In addition, it is also better to write down the kilometers actually driven here than to be satisfied with the flat-rate travel allowance of 0.30 euros. Because most of the time the costs are higher than the flat rate.

Tax advisor: having taxes made as a freelancer

Bookkeeping is certainly not the most popular task among start-ups and young entrepreneurs - and yet it has to be done. Since it is not a core competency of the job for most freelancers, freelancers should consider handing over their bookkeeping directly to a professional, such as the accountant or tax advisor. Sure, it costs money, but it also saves valuable time and nerves.

When freelancers have to pay taxes, many steer clear of the tax advisor. In doing so, he can even reduce the tax burden.

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Author: Für-Gründer.de editors

As editor-in-chief, René Klein has been responsible for the content of the portal and all publications by Für-Gründer.de for over 10 years. He is a regular interlocutor in other media and writes numerous external specialist articles on start-up topics. Before his time as editor-in-chief and co-founder of Für-Gründer.de, he advised listed companies in the field of financial market communication.