Business expenses are the expenses or expenses that arise from your company, i.e. the operation. These expenses reduce your profit and you save taxes. Unfortunately, you cannot deduct all expenses or always in full. Most of what you have to take into account on this topic can be found in the Income Tax Act (EStG). In addition, this article is intended to give you a rough overview of all the important points.
What are business expenses?
The legal definition of the term can be found in Section 4, Paragraph 4 of the Income Tax Act : “Operating expenses are the expenses that are caused by the operation.”
Business expenses include all expenses that are directly related to your company . They may have been initiated for actual, factual or economic reasons. The costs or expenses for your business are initially not assessed according to whether they are customary, reasonable, necessary or expedient. First and foremost, they count as an expense .
If you have ongoing items in your company (amounts that you only collect and pass on for third parties), then these are irrelevant for determining your profit. Because these are neither your operating income nor your operating expenses. Money and material assets are tax deductible according to the Income Tax Act. And in the end, you have to subtract your business expenses from your business income. With the reduced profit, you ultimately also reduce your tax.
Business expenses flat rate
Flat rates are only available for certain professional groups
All or only the expenses that are actually caused by your company, as prescribed by § 4 EStG, are business expenses. So expenses in connection with your business, your self-employed work or agriculture and forestry. As a freelancer, in particular, you have to be very careful how you separate business expenses and personal expenses. Now the bad news: there are no statutory flat rates for business expenses. Only a few professional groups are exceptions to this. These may then set a percentage or a maximum amount for it.
Occupational groups and maximum limits
These groups include:
- Day mothers or day care workers who are allowed to deduct EUR 300 per month from their income. This amount applies to a daily care time of 8 hours per day and must be reduced accordingly in the case of shorter care.
- Self-employed midwives who are allowed to set 25% up to a maximum of € 1,535 / year.
- Full-time freelance journalists and writers who may apply up to 30% as a flat rate. The maximum limit is € 2,455 per year.
- Part-time self-employed persons in artistic, literary, scientific, lecturing or teaching activities according to § 3 No. 26 EStG . If you belong to this group, you can claim a maximum of 25% of your earnings. The maximum limit is € 614 per year.
If you belong to this group of people, you can find out more in the information brochure or guideline from the Federal Ministry of Finance (income tax guidelines and information on them), which you can find on the BMF website. In addition, there is a flat rate for an instructor according to § 3 No. 26 EStG of up to 2,400 euros / year and a volunteer flat rate of max. 720 euros per year according to § 3 No. 26a EStG. However, since the amounts can change, it is advisable to check the law again and again. Your tax advisor will support you if you have one. Because he is always familiar with the current legal situation!
If you can prove that you have higher expenses, you have to provide proof of this to the tax office without applying the flat rate. If you do not belong to this group of people, then there are no flat rates for you . Instead, you have to document your expenses to the tax office in accordance with the statutory provisions.
As a freelancer, apply the flat-rate operating costs or real costs?
So what’s the best way to react if you’re a freelancer and small business owner? Here you can only earn a maximum of 17,500 euros , but you also have correspondingly low expenses. If you were to include these small expenses in tax, you would of course have to pay tax on a much higher amount of your income. It is therefore cheaper for you if you take advantage of the flat rate and state the higher amount. Of course, this only applies to freelancers who fall under the groups of people listed above. If in doubt, you should work out the exact amounts and then decide which is cheaper to travel with. For example, there are costs for your office supplies, telephone and internet, but also the purchase of a computer or software for it, as well as costs for your office or study.
Can you switch between the flat rate and the real costs?
That is possible, but logically only in the next financial year. So you can determine annually whether the flat rate or the real costs are the better alternative for you.
Business expenses in commercial establishments
If you have registered a business or are self-employed or even work in agriculture and forestry, then you can deduct business expenses that are related to it. These include, for example, the following costs:
Costs for …
- your office (rent, phone, internet)
- your staff (wages, salaries)
- Tax advisor or lawyer
- Insurance and taxes (sales tax, vehicle tax)
- Financing and depreciation
- Business trips and training