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What freelancers need to look out for when it comes to taxes

Let's be honest: Nobody likes to deal with the topic of bookkeeping and taxes. As a self-employed person, however, you cannot afford to close your eyes to it. Freelancers in particular work predominantly as Solo self-employed. They do not have the opportunity to hand over their bookkeeping to employees and most of the time they also do not have the financial means to do so Accountant or tax consultant to commission. In addition, it is advisable to keep track of your finances at all times. Anyone who, as a freelancer, thoroughly deals with the subject of taxes from the start will ultimately benefit in several ways: Nobody will fool you, you keep an eye on your income and expenses, save costs for tax advice and save yourself trouble with the tax office .

Self-employed, freelancers or freelancers are obliged to pay taxes to the tax office. Which of the numerous Tax types are relevant depends on the Type of your independence and the Legal form of your company from.

Self-employed, freelancer or freelancer: what's the difference?

Anyone who is not tied to a permanent employer and earns their money with self-employed work is initially considered to be self-employed. German tax law also distinguishes between self-employed persons Traders and Freelancers. In order to know which types of taxes are relevant for you, you first have to clarify which group of self-employed your work is assigned to under tax law.

ATrader is first of all every self-employed person who runs a business. In which profession you do your trade, it doesn’t matter at first. Before starting your activity, you must register your trade with the responsible personcommercial office log in to aTrade license to obtain. You are therefore obliged to pay trade tax. Of course, you also have to register your business with the tax office. The legal basis for your company is the trade regulations (GewO).

At Freelancers § 18 Income Tax Act (EStG) specifies which activities are to be carried out liberal professions counting. Freelancers carry out scientific, artistic, literary, teaching or educational activities and must have certain qualifications for this. The freelancer is characterized by the fact that, unlike the tradesman, he neither manufactures nor sells anything and thus does not no exchange of goods operates. Accordingly, as a freelancer, you enjoy the privilege of not registering a business and thus also no business tax to have to pay.

The group of freelancers includes the self-employed, one of the so-called Catalog jobs exercise. These include, for example:

  • doctors
  • pharmacist
  • Therapists
  • Naturopath
  • Physiotherapists
  • Architects
  • Engineers
  • Commercial chemist
  • Craftsman
  • Computer scientist
  • tax consultant
  • Auditors
  • Accountant
  • Advisory economists and business economists
  • Lawyers and notaries
  • Journalists
  • Photo reporter
  • Authors
  • translator
  • free teachers or educators
  • Pilots

It is not always clear which professions are considered freelance work recognized by the tax office. Since this assessment is relevant for your taxes, if anything is unclear, speak to the tax office before starting your work in order to avoid misunderstandings.

Another form of self-employment is that Freelancer: Asfreelancers orfreelancers they are usually project related working for different companies. Which taxes are relevant for you depends on whether your activity is a business or a freelancer.

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Taxes for freelancers: The income tax

As a freelancer, you are required to pay income tax. This is based on the amount of your income, i.e. the turnover generated minus the costs incurred. For the calculation of taxes, all income from a calendar year is used for the freelancer. Most of this is income from self-employment. Income tax is due to those whose taxable income is Basic tax allowance of 9,408 euros per year exceeds. This allowance also applies to freelancers. Income tax is only due for taxable income that exceeds the tax-free amount.

Since the tax rate for income tax in Germany rises progressively, freelancers pay more taxes with increasing profit. If you hand in the tax registration questionnaire at the tax office at the beginning of your self-employment, it is therefore advisable not to be too optimistic about your expected income. Based on your estimate, your taxes to be paid as a freelancer will be determined. It is true that overpaid taxes are also reimbursed to the freelancer as part of his income tax. Until then, however, the money will not be available to them.

When determining the amount of your income tax, costs that you incur in the context of your work as a freelancer are deducted from the turnover generated. To the so-called deductible business expenses for freelancers, for example

  • Rental costs
  • ride costs
  • Purchases of goods and services
  • Depreciation costs
  • Vehicle fleet costs

An online business account in combination with a suitable app helps you to keep an eye on your income and to manage your finances.

The calculation of income tax

In order to calculate the amount of your income tax, your income from the respective calendar year is used. They form the basis for the calculation. In addition, all types of income are added and business expenses, advertising costs, allowances and extraordinary burdens are deducted. Child allowances and hardship compensation for income subject to income tax, from which no tax withholding has been made, are also deducted.

The total that comes out is the taxable income. The taxes due on your taxable income as a freelancer can be found in the basic income tax table for individual assessments. The splitting table applies to married couples for whom income tax is assessed jointly.

The amount of your income tax or the tax rate Alternatively, freelancers can also find out online, for example with the tax calculator of the Federal Ministry of Finance.

The solidarity surcharge

The Solidarity surcharge or solos has been known as Supplementary levy levied on income tax and corporation tax and is also relevant for taxes for freelancers. Currently the average rate is included 5.5 percent of taxable income. Anyone who pays less than EUR 972 income tax in a calendar year with an individual assessment is exempt from paying the solidarity surcharge. The exemption limit doubles for couples who are jointly assessed. From a tax amount of 973 euros per calendar year, the solidarity surcharge increases gradually. The full rate is due from an income tax of 1,340 euros per year for individually assessed individuals and for jointly assessed individuals from an income tax of 2,680 euros per year.

From 2021 the exemption limit, up to which there is no solidarity surcharge, is increased from 972 euros to 16,956 euros per calendar year. This means that up to a taxable income of 61,717 euros per calendar year, no more solos will be due in the future.

Taxes for freelancers: The sales tax

In principle, freelancers, just like traders, are obliged to pay taxes on their sales and submit a corresponding sales tax return. However, there are exceptions to the rule here: Anyone who works in education, culture or human medicine does not pay sales tax under certain circumstances. Doctors, for example, have to distinguish between tax-exempt and taxable sales in their invoices. If a freelancer works in the field of education, it must first be checked for taxes which educational institution he is working for.

Tax law distinguishes between two Sales tax rates. Theregular tax rate is 19 percent, the reduced at 7 percent. For freelancers, taxes are usually charged at the regular tax rate. According to Section 12 of the Sales Tax Act, the reduced tax rate does not apply to freelancers, for example

  • on admission to theaters, concerts and museums, as well as performances by performing artists comparable to theater performances and concerts,
  • the provision of films for evaluation and showing as well as film screenings,
  • the granting, transfer and exercise of rights arising from the copyright law.

The payment of sales tax takes place under the Advance VAT return instead of. For this you need a VAT identification number, which will be allocated to you when registering your freelance work with the tax office. The tax office decides whether the payments are due monthly, quarterly or semi-annually.

Freelancers who pay sales tax can, on the other hand, have it reimbursed for their own expenses as well. When you buy products, you initially pay the gross price, but as a freelancer you can offset the taxes for professional expenses as input tax against the sales tax when you register your sales tax in advance.

Sales tax: target and actual taxation

When paying the sales tax, between theTarget taxation and the Actual taxation differentiated. With debit taxation, you pay sales tax as soon as you have created an invoice for a customer. You kind of go in Advance payment. The date of the invoice is decisive for the due date of the sales tax, not the date on which the money is received.

In the case of actual taxation, sales tax is only paid when the customer has actually paid an invoice. The advantage is that, as a freelancer, you do not have to advance taxes on sales in this case. This means that your own liquidity no longer depends on the payment behavior of your customers.

The best thing to do is to apply for actual taxation in the Questionnaire for tax collection. The prerequisite is that you will probably not generate more than EUR 500,000 in sales in the year of establishment or, as a freelance professional, are not obliged to keep double-entry bookkeeping or voluntarily keep books.

The advance VAT return

If you show the sales tax on your invoices, you as a freelancer have to pay these taxes to the tax office accordingly. This is also accompanied by the obligation to submit an advance VAT return as well as theVAT prepayment. The tax office decides whether the payments are due monthly, quarterly or semi-annually. Anyone who is new to self-employment is initially obliged to do the Advance VAT return to be delivered monthly. After that, the period depends on the sales tax burden of the previous year.

The deadline for the Submission of the advance VAT return is always that 10. of the following month. If the tenth falls on a weekend or a public holiday, you have until the next working day. If you miss the deadline, you have to go with aLate payment surcharge calculate. However, the tax office also gives you the option of one Permanent extension with which you have one month longer to submit the advance VAT return.

The submission takes place exclusively online via the Tax software from the German tax administrationMAGPIE. You can request the relevant certificate that you need for your taxes as a freelancer online from your local tax office.

How is a freelance part-time job taxed?

For a freelance part-time job, both income tax and sales tax must be reported to the tax office.

What is the small business regulation?

Freelance professionals who use the Small business regulation makes is exempt from paying sales tax. The prerequisite for taking advantage of this regulation is that your turnover in the previous calendar year was less than 22,000 euros and is likely to remain below 50,000 euros in the next calendar year. The advantage is that you give your customers your Offer services cheaper since there is no sales tax payment. The small business regulation makes sense especially if you mainly have private customers or if your customers are largely VAT-exempt educational institutions, public institutions or non-profit associations.

However, there is also a disadvantage: freelancers who do not pay taxes on their sales cannot claim input tax in their tax return. At high acquisition costs the small business regulation can have a detrimental effect on freelancers.

Taxes for freelancers: income tax and what else?

Like any business owner, freelancers are required to pay taxes on their income Income tax, to pay. But they are from the Taxes for freelancers: income tax, trade tax, sales tax - which types of tax are relevant? freed. In addition, there is no general statement as to which other taxes are relevant for freelancers. The individual case must be considered here. For example, those of the Small business regulation Makes use of is exempt from paying taxes on sales as a freelancer. Freelancers who pay sales tax can choose to use the Actual or target taxation apply for. Depending on the amount of your taxable income, the Solidarity surcharge due.

Before starting your work, it is important to clarify with the tax office whether your profession is actually a free occupation is recognized. Whether you are recognized as a freelancer has a decisive impact on the taxes that are relevant to you. The more intensely you deal with your rights and obligations right at the beginning of your self-employment, the more trouble and effort you will be spared in the end.