Start-ups do not just have to fight to establish themselves in the market. You also have to keep an eye on the many tax aspects of your job. In addition to the obligations, there is room for maneuver: from input tax flat rate deductibility to the deduction of anticipated operating expenses. But which are the best tax tips for entrepreneurs? Our guide explains.
The first steps in the tax office
Registration as a freelancer or trader?
Anyone who wants to become self-employed has the choice between registering as a freelancer or as a trader. Freelancers do not have to register a trade. Standard occupational groups include independent literary, artistic, teaching, educational or scientific activities . They offer or produce services, not goods.
Freelancers, full-time or part-time, have the following advantages over traders:
- they pay no trade tax
- they can apply for the actual taxation
- you just have to create the revenue-surplus bill
- they are not mandatory members in the IHK
- There is no double entry bookkeeping
- There is the possibility to be insured by the inexpensive artist social fund
This means that self-employed people such as retailers, restaurateurs, craftsmen, manufacturers and producers need to register a business to start their business. After registration of the trade, the tax office will be informed. The tax office will automatically send the questionnaire for tax collection . Many start as small entrepreneurs in the self-employment, which has the advantage, without bureaucratic effort to raise their own projects as a sideline. Depending on the industry and customers, the small business can lead to public perception of reduced professionalism. Small business owners also have higher business expenses since they are not allowed to deduct input tax from incoming invoices . This is critical during the foundation due to larger purchases. Whether the small business worth it, is best to clarify with a tax consultant.
The business registration questionnaire
As soon as a trade is registered, the tax office will send the questionnaire on taxation a few days later. While the general information on the sheet is unproblematic to answer, it becomes critical in the naming of their own income . These, together with possible investments, are difficult to calculate for start-up founders.
Therefore, a low annual profit or even the number 0 should stand. If the revenue is reported to the tax office, the four-year advance payments for income and trade tax based on the income can significantly increase. When it comes to the question of sales in the year of the start-up and the following year, the amount should be estimated lower .
The sales tax pre-announcement
VAT must be reported to the tax office monthly or quarterly with the advance VAT return. This process is repeated at the end of the year. The procedure is complicated by different tax rates . Every freelancer and self-employed person must pay sales tax on products and services offered. Of this, only the sales tax paid on goods and services purchased for the business may be deducted. This information is given in the VAT return . In addition, the VAT return will be submitted at the end of the year. Only the difference between value added tax and input tax is paid to the tax authorities .
In this case, the target taxation applies: An entrepreneur executes the sales tax when an invoice has been sent out. The receipt of payment has no relevance here. Freelancers such as lawyers, doctors and creative people do not have to declare their sales tax until payments have been received. Companies that face liquidity shortages can apply for this actual taxation if their turnover in the previous year did not exceed EUR 500,000. There is no legal claim.
The sales tax pre-registration is submitted electronically via the Elster Portal . It must be received by the tax office by the 10th day after the pre-registration period.
It is possible to apply for a time extension. The treasury is extremely meticulous in the VAT registration. If the pre-announcement is made more than once too late, a verifier quickly appears in the company. The submission of the VAT advance notice should be planned carefully. In order to avoid trouble with the tax office, it is necessary to check whether the correct tax rates of 7 or 19 percent are specified and whether the contributions of the annual declaration differ from the monthly or quarterly pre-registrations.
Tax advantages for entrepreneurs
What tax benefits can founders use?
All purchases from the tool to the office equipment required by a company can be claimed for tax purposes. This may significantly reduce the tax liability . If these expenses exceed the income, the tax office partially refunds the VAT in full. Even low-value assets that cost no more than € 410 can save a lot of money.
1. Tax tips for start-up entrepreneurs: take account of EUR limits
Entrepreneurs may act only after a revenue surplus bill, if the sales below 600,000 euros and the profit is less than 60,000 euros. Freelancers are exempt from this rule.
2. Tax tips for entrepreneurs: The sales tax pre-notification
The monthly sales tax pre-registration is mandatory during the first two years of the business start-up. If the payload exceeds 7500 Euro, it will stay at the monthly rate. If it is lower, the pre-registration will be made quarterly. If it is up to 1000 euros, an annual turnover tax return is sufficient. Young entrepreneurs should take a close look at the limits and readjust if necessary.
3. Tax tips for entrepreneurs: anticipated business expenses
Already in the year before the foundation tax can be saved with losses and business expenses. All these costs may be reported to the tax office as anticipated operating expenses . Tax tips for start-up companies include the fact that the resulting losses can be tax-deductible with other income later charged.
Typical costs are:
- Telephone, postage, copying
- Technical literature around the foundation
- Fees for tax consultants and lawyers
- Costs for start-up seminars and founders fairs
- Travel costs around the foundation
The founder of the business should explain to the tax office on an extra page how these costs relate to the foundation. If you start your own existence from unemployment , there is no positive income. The early operating expenses should still be recognized for tax purposes. Without income, a loss return is considered, which leads to tax savings, as soon as positive income with the business start-up is achieved.
4. Tax tips for entrepreneurs: Input tax flat rate
A self-employed person can calculate the profit of his company after a simple revenue-surplus calculation and show the VAT in the invoices. The sales tax from incoming invoices of other companies can be offset against input tax. If the annual turnover is less than € 61,356, the advantage of the input tax flat rate applies.
5. Tax tips for entrepreneurs: Small business regulation as a tax advantage
If the turnover does not exceed € 17,500 in the previous year and does not exceed € 50,000 in the current calendar year, the small business rules apply. This means that invoices do not have to show VAT, but no input tax may be deducted. Outgoing invoices and business expenses do not require a gross-net distinction. These processes reduce administrative overhead. Compared to private customers, there is a price advantage of 19 percent, which is lost to commercial customers.
6. Tax tips for entrepreneurs: Actual taxation: Application for actual taxation
If the sales are below € 500,000 per annum, start-up founders can apply for actual taxation. The VAT must first be paid to the Treasury, if the customer has paid.
When will there be a start-up grant?
The start-up grant from the employment office can help to get out of unemployment and set the starting point for a life as a successful entrepreneur. Anyone applying for unemployment benefit I may apply for it. Even those who receive other benefits under SGB II, can benefit if a residual entitlement to unemployment benefit of at least 150 days exists and unemployment is to be terminated by the start-up. The approval represents a discretionary performance. The mediator decides in individual cases on the promotion. Eligible are all self-employed activities that are to be exercised as a main occupation. The corporate concept must be sustainable and promise success. The expected profit must be sufficient to secure the existence.
Funding is provided in two phases. During the first phase of six months, the full ALG I will be paid , plus 300 euros for social protection. On the basis of the results presented during these six months, the Employment Agency examines the sustainability of the concept. The first goals from the business plan should have been achieved. If the decision is positive, this is followed by a further nine-month funding period . During the second phase, only the subsidy of 300 euros per month will be paid. Those who meet the requirements for the start-up grant require a completed application, a business plan and the plan for capital requirements and financing for the application. In addition, a sales and profitability forecast, the viability certificate, which represents an expert opinion, the CV of the founder and a proof that the self-employment has been registered with the commercial or tax office.
Benefits for employees of start-ups
Especially in the initial phase founders like to rely on the help of family members in the company. Decisive for a possible advantage is the distinction between contractually defined, dependent employment relationships , family work without salary or co-entrepreneurship .
Family members can be marginally employed on 400 Euro basis . In dependent employment, social security contributions and payroll tax are payable. The family member is at the same time a health, care, – unemployed and pension insurance. Tax tips for start-up founders are then clear, the wage and labor costs as a personnel expense claim. The relative must be active in the company. His salary must be based on the tariff, local level . This also applies to working hours, because the authorities check very carefully here. If a member of the family helps out occasionally and receives compensation for it, it is family-friendly cooperation.
Family members who support business risk are considered co-entrepreneurs. For this reason, at the beginning of the activity , the subtleties of insurance law must be examined . In the event of discrepancies, entrepreneurs and family members must prove that they are actually employees because the tax office automatically classifies them as co-entrepreneurs . This means that despite paid contributions, there are no entitlements to social benefits. Paid contributions will be reimbursed within a period of four years.