Guidelines with a Focus on Self-Employment in Germany

by Elisa Stella of ELP-Expat – Expatriate Support

Tax time always brings up the question: “What deductions can I use to save money?” The answer is “a lot” – provided you know how to do it right! And I’m here to help you.

There are many traps when it comes to taxes and how to pay as little as legally possible. Self-employed people in particular often discover that they didn’t make use of all the possibilities. Even if the principle of tax deductions is quite simple, the implementation is not.

Calculating your income tax depends on several variables and consists of different steps. There are various options for each person to deduct expenses, and each starting point can lead to a different calculation. That’s why we can’t list here all the specific possibilities, special rules, and exceptions. But we can go through a deductions checklist step-by-step, and explain in general where you may be able to deduct some of your expenses from the taxes you owe.

German tax forms. PHOTO: Wikimedia Commons

Einnahmen versus Einkünfte
First of all, income (Einnahmen) refers to revenue, consisting of all the payments you receive. But these are not equal to your actual earnings (Einkünfte). Frequently, the two terms are confused. Tax law, however, clearly distinguishes between the terms.

Revenue is all the money received in the account (your salary or turnover/receipts). Earnings (your profit or gains) equal the money you receive, minus operating expenses and expenses related to generating your income. If you add all income types, you get the total amount of income. This total includes all taxable income such as your self-employment, your employment pay (if any), your rental income, or interest income. From this amount you can deduct your business expenses and extraordinary expenses.

To deduct as much as possible, and thereby reduce your profits, is the first step in saving taxes. After all, the lower your profit, the lower the amount of taxes you pay.

You can declare all the costs associated with generating your income. In addition to renovation costs, medical expenses, donations to charitable organizations, additional pension plan, professional equipment, training costs, travel costs to work, household costs, liability and other insurance, funeral costs, etc. – which salaried employees may also deduct – you can deduct all “business expenses,” including those listed below.

Some Typical Self-Employed Deductible Business Expenses:

• Software, hardware, licenses for software, subscription costs for accounting and accounting software
• Tax consultancy and preparation costs
• Work equipment (laptop, mobile phone, etc.), office supplies (paper, pens, some decoration, etc.), office furniture and equipment
• Telephone, internet, and website maintenance costs
• Office rent and utilities; for a home office then proportionally to your total living area (e.g. 100 square meter flat, of which 20 sq. m. is your office, then one-fifth of the rent and utilities is deductible)
• Office refreshments for clients (e.g. coffee, juices, candies, catering for meetings)
• Christmas presents for clients, up to 35 euros each
• Business lunches and dinners, provided that you ask the waiter for a so-called “Bewirtungsbeleg” and fill in the name of the guests
• Wages, salaries, third-party services such as purchased services or mini-jobber expenses
• Dues for professional associations and associations related to your self-employment; participation in professional conferences and the corresponding travel expenses
• Seminars, technical and training literature, expenses for online training
• Travel expenses for business travel, vehicle costs for a company car
• Advertising, production of advertising material, online advertising
• Company insurance (e.g. professional liability insurance)

Keep in mind that you may have more items that you can deduct, and that losses are deductible. For instance, if you have losses in one year, you can carry these losses back and forth. If you had a loss of €20,000 in 2018, you can consider part of it for the year 2017, or claim the loss together with the profits in 2019.

Be sure to keep all your money-related documents (receipts, order confirmations, bank transfers, contracts) in order. As is often the case in Germany, “Ordnung” and documentation are the key to proving every deduction you claim in your tax forms.

Also see: Tax Help for Expats Living in Germany by Elisa Stella

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