Can I save income tax on it?

Saving taxes as a self-employed person: 10 tips on how it works

Save taxes as a self-employed person

There are many ways you can save taxes as a self-employed person. But when it comes to tax issues in particular, it is not always easy to keep track of things. That's why we're giving you the following 10 tips on how you, too, can save taxes with your business.

1. Cost of finding information - claim it through business expenses

Once you've made the decision to go into business for yourself and start a business, you need all the information you need to ensure that nothing goes wrong. If there are costs to search for relevant information, you can claim these as anticipated business expenses for income tax and save taxes as a self-employed person. This also applies if the company does not start operations until the following year. The costs that can be deducted in this way include:

  • Travel costs (e.g. to potential suppliers),
  • Admission tickets (e.g. for congresses or trade fairs),
  • Fees (e.g. for training seminars),
  • Costs for books (e.g. for specialist literature)

With this regulation, the legislature ensures that a start-up does not get stuck with high costs even before the actual start. You will probably never get all of the money back from these advance payments, but you can at least expect a partial amount that the tax office will reimburse.

2. Use the private car for work - deduct travel costs from tax

Many self-employed or freelancers also use their private car for business trips. If you use your vehicle more than 50 percent for business trips, then it is part of the business assets for tax purposes. If business trips make up less than ten percent of all trips, the vehicle is considered a private asset. If, on the other hand, you use the vehicle more than ten percent and less than 50 percent for your job, then you are free to decide which part of the assets it is to be allocated. The following situations arise for tax treatment:

  • The vehicle belongs to private assets: Only costs for business use are claimed as business expenses; When selling, the proceeds remain private, the tax office receives nothing (only possible up to the limit of 50 percent).
  • The vehicle is a business asset: Running costs and depreciation are fully deductible as business expenses; Kilometers driven privately must be taxed (recorded in a driver's log).

Experts advise not to use the mileage allowance of 30 cents for operational kilometers, but to calculate the actual costs. These are often significantly higher than the flat rate.

3. Depreciation - this is how you control the amount of your profits and losses

A good way of influencing your income tax return is to write off so-called business assets. For example, you can state the purchase price of a filling machine over several years in your profit determination as a business expense. To get the depreciation amount, you need to find out:

  • Depreciation volume (acquisition costs minus residual value),
  • Depreciation period (period between acquisition and decommissioning),
  • Depreciation rate (100 percent: useful life - with a useful life of 5 years, it is 20 percent.

With a depreciation volume of 50,000 euros and a useful life of 5 years, you can then write off 10,000 euros annually. By the way: Since the beginning of 2018, it has been possible to write off minor assets in full immediately if the value is over 800 euros net.

A special form of depreciation is the so-called investment deduction amount (IAB). It is to be understood as a reserve that was formed in the period of up to three years before the acquisition of an asset. The maximum possible amount of the IAB is 40 percent of the probable purchase price. The investment deduction has a reducing effect on the profit. However, if it is not bought, it must be dissolved and has an increasing effect on the profit for the year in which it was invested.

4. Business expenses - reservoir for tax-deductible business-related expenses

Over the course of the year, there are a lot of costs for self-employed, freelancers or even start-ups. You can have many of these costs reimbursed at least in part by the tax office using your income tax return. This happens through the advertising costs for the self-employed, namely the business expenses. They decrease your profit. The tax return includes all costs that are incurred in the following areas:

  • Costs for a company car,
  • Amounts for the entertainment of business partners,
  • Costs for a home office,
  • Costs for a second home,
  • Telephone, postage and internet costs,
  • Rent (pro rata for an office in the private apartment),
  • Costs for office supplies,
  • Expenses for training,
  • Costs for specialist literature,
  • Gifts for business partners (maximum 40 euros per gift),
  • Costs for the tax advisor,
  • Wages, salaries and insurance contributions (for permanent employees),
  • Interest on Loans.

The individual items may be small at first, but the sum quickly adds up to an amount that significantly exceeds the tax exemption. Once this has happened, you can expect a not insignificant refund. In addition, you do not have to give the tax office any individual receipts for the amounts specified in the income tax return. However, it is advisable to keep receipts and other supporting documents for such expenses.

5. The shift in profits - bringing forward or backward payments or receipts

A not very well-known method of saving taxes as a self-employed person is profit shifting. For example, if you oversee a large project with a long duration of over two years, you can, for example, create partial invoices for certain dates for services that you have provided. And so then move part of the profit. For example, you can issue one partial invoice in 2017 and the other in the following year.

You can also shift profits by tactically ordering goods on specific dates. As a consequence, you then prepare the bills in such a way that they lead to a profit shift. Here, however, a sophisticated appointment system is necessary so that you are always adequately stocked with products despite this form of profit shifting.

6. Save taxes as a self-employed person - sponsoring and donations make it possible

Actually, as a self-employed person, you are not allowed to claim any donations for tax purposes. However, this regulation does not apply if you support an institution that aims to promote its members economically. In this case, there would be a company event and the donation would be deductible. In addition, regardless of what activity you do, you can of course make donations to eligible institutions and claim them as special expenses.

Sponsorship is not only a way to make your company better known, it is also a good way to save taxes. However, you can only claim sponsorship as business expenses if you actually get an economic benefit from the campaign. The sponsorship is reported in full as a business expense to the tax office.

7. Save taxes with your own website

As a self-employed person or freelancer, you also have to advertise your company. This works best with your own website. You claim all costs that arise for the creation and maintenance of a professionally used website as business expenses. Above all, this includes:

  • Cost of buying a domain,
  • Website creation expenses,
  • Expenses for regular updates,
  • Costs for the provider,
  • Maintenance costs,
  • Legal costs (e.g. in the event of a warning).

The tax office doesn't care what your company website looks like. The basic requirement for tax deductibility is that you use the site professionally and not for private purposes. You will also need the relevant receipts as proof of the expenses you have paid. The costs can be credited in full.

8. Use small investments

Even if many things are often only small investments, they can make a big financial difference in the long run and help save taxes. For example, purchases made at company costs can also be deducted from taxes. If you then invest in office equipment, computers, smartphones and smaller machines for the company, several hundred euros can flow back to you here. So here it can really be worthwhile to deduct small investments from taxes.

9. Change legal form and save taxes

Depending on how high the profit is with a partnership, it can be worthwhile to change the legal form to a GmbH. This pays off especially when the entrepreneur does not use his profit for himself, but leaves it in the company. Because with a GmbH, income costs between 23 and 33 percent in taxes, depending on the trade tax multiplier. These values ​​are similar in a partnership, but in a GmbH the managing director can pay off a decent salary plus the pension and deduct this as a business expense.

10. Apply for actual taxation

Companies that have to pay sales tax are subject to debit taxation. This means that you also have to transfer VAT from invoices that have not yet been paid to the tax office. Freelancers who determine their profit using an income-surplus calculation have the option of applying for actual taxation under certain conditions. With this you only have to pay the tax once the customer has paid his invoice. This can help you as an entrepreneur to more liquidity.

Conclusion: As a self-employed person, you can save a lot of taxes

As a self-employed person, you should always be aware of where you can save taxes and make money again. In fact, that's more than you might think at first. Especially when it comes to business expenses, it can be really worth taking a closer look and listing them in your tax return. This saves several hundred euros without any problems. It is therefore definitely worthwhile for every self-employed person to do this work and find out about possible cost savings.