Income tax, as the name suggests, is the tax that you pay on your income.
If you are employed by a company, this is usually easy and mostly taken care of by your employer.
As a self employed person, you have to take care of your own income tax declaration.
Income tax rate
The income tax rate in Germany ranges from 14% to 42%. As of 2020, anyone with income above €9,408 has to pay income tax. On top of income tax, there is also a solidarity surcharge of 5.5% and a church tax if you are a member of a church.
Income tax declaration
Self employed persons must submit an income tax declaration every year. Germany tax year is the normal calendar year (i.e. 1st of January to 31st of December).
The income tax declaration is a summary of all your income and expenses during the year, and is done to determine the taxable income.
The deadline for submitting the income tax declaration is the 31st of July of the following year, or the 28th of the second following year if the report is submitted by a certified tax advisor. Note that in 2021 the deadline for the annual reports of 2020 was postponed to the 31st of October 2021.
Your income can be based on multiple sources, including income from employment, investments, real estate, etc...
As a self employed person, your main source of income would be self employment, although it's of course possible to have other sources as well. For example, it's possible to have a part time employment income while having self employment income.
It is possible to reduce your taxable income, by deducting the costs of different expenses, like health insurance, or by claiming the costs of childcare.
As a self employed, you are able to deduct any expense that was part of your business, for example work equipment, office rental, travelling, etc...
The profit and loss report (EÜR)
The profit and loss (P&L) report is an annual summary of all your income and expenses from self employment. In this report, you will have to provide the tax office more details about the income and expenses you had during the year as part of your business.
How does it relate to the income tax declaration?
The income from self employment in your income tax declaration is the final profit or loss amount calculated in the P&L report. As a consequence, submitting the P&L is the first step in preparing your income tax declaration.
Income tax prepayments
The income tax for the self employed is paid in prepayments quarterly along the year.
The prepayments are based on your income estimation from previous years.
After submitting your yearly income tax declaration, you will either pay the Finanzamt or get reimbursed for the difference between the prepayments and the final income tax amount.
How are the prepayments determined for new businesses?
When registering as a self employed person, as part of the tax registration form (Fragebogen zur Steuerlichen Erfassung), you will have to provide the Finanzamt estimations for your expected yearly income, the prepayments will be based on those estimations.
Does it make a difference if I'm married?
Yes, married couples can pay income tax together, meaning that the total income will be added, and then divided by two. This usually results in a lower tax burden.
What if my partner is employed by a company?
You can still submit your income tax declaration together, since income from employment is just another source of income, along with your income from self employment.
Sorted tax guides are provided without liability and do not replace a tax advisor.
To get an accurate answer for your specific case, please consult a tax advisor.
You can always ask one of tax advisors on the Sorted platform.
Looking for a solution for doing your taxes?
Sorted helps you to calculate your taxes, prepares your profit and loss report (EÜR) and connects you with a tax advisor that can prepare your income tax deceleration.