Usually, as a self-employed you want to know how much you are earning. Besides yourself, there are various authorities and institutions, which need proof for your profits or losses. The most common ones for the self-employed are the tax authorities, which calculates the taxes you need to pay based on your profits, and health insurance funds, which set the health insurance contributions according to your profit.
What is the profit and loss statement?
The profit & loss statement (in german called Einnahme-Überschuss-Rechnung, in short EÜR) is a summary of your annual income and expenses.
In general, if your income is higher than your expenses the EÜR will show a profit and vice versa it will reveal a loss.
Keep in mind that the EÜR statement is calculated based on your actual cash flow, i.e. the date on which you received or sent the payment. For example, if you wrote an invoice in December 2019, and you received the payment from your client on the 1st of January 2020, the income should be added to the 2020 EÜR report.
Who needs to submit it?
Every company - regardless of its legal form - is required to prepare an annual report of their profit and loss. Small businesses are allowed to use single entry bookkeeping, and can determine their year-end profit by means of a simple profit & loss (EÜR) calculation.
The following are exempt from the obligation to keep accounts under commercial law:
- Freelancers and
- Sole-traders whose turnover does not exceed 600,000 Euro and whose profit does not exceed 60,000 Euro in two consecutive financial years
How do I prepare the profit and loss statement?
To create your profit and loss statement, you should summarise your actual received income and paid expenses on the basis of relevant supporting documents. The profit and loss statment should follow the structure below:
Income, broken down by tax rates, for example:
- Net revenue (e.g. for services provided or goods sold)
- Revenue from the sale of fixed assets
- Value-added-tax (VAT) collected.
Work-related expenses, broken down by categories, for example:
- Work equipment and software
- Travelling to work or business trips
- Business meals
- Home office
- Telephone and internet costs
- Office expenses
- VAT Paid to the tax office.
The profit & loss statement gives you an overview of your financials. This also helps you to identify your company's strengths and weaknesses and compare your performance to previous years.
How does it relate to the income tax return?
In the annual income tax return, all possible types of income are reported, including income from trade or freelance work. Your income tax is calculated based on your earnings. Therefore, the profit you declare as a freelancer in the profit & loss statement (EÜR) plays a crucial role in calculating your income and should be submitted before the income tax return.
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 get additional help from your dedicated tax advisor on Sorted.
Looking for a solution to declare your EÜR statement? With Sorted you can easily record your income and expenses and it will automatically calculate and send the EÜR report for you.