Whether freelancer, small business owner, or trader: As a self-employed person, you cannot avoid the topics of accounting and tax returns. So that you can get an overview of the jungle of administrative tasks that await you as a self-employed person, we give you helpful accounting and tax tips in this article.
- For freelancers, small businesses, and traders, sometimes different regulations apply with regard to accounting and tax returns.
- Good time management and a careful way of working are the be-all and end-all of accounting.
- The creation of invoices, the collection of receipts, and the overview of income and expenses can be carried out easily and quickly by self-employed persons.
- In order to escape the pitfalls of German tax law, many self-employed people hand over complicated tax matters such as the tax return or the annual profit statement to a tax consultant.
The different types of self-employment
As a self-employed person, you have to take care of insurance such as health, pension, accident insurance for yourself, a cheap SR22 Bond, and pay income tax to the tax office. Unlike employees, you work on the account, set your fee yourself, and have to pay VAT to the tax office (small business owners are exempt from paying VAT – more on this below). In addition, you have no legal entitlement to payment in the event of illness or protection against dismissal. Freelancers, small business owners, and tradespeople are equally considered self-employed. But there are differences:
Freelancers are self-employed persons who work in one of the following catalog professions in accordance with § 18 of the Income Tax Act:
- scientific, artistic, literary, teaching, or educational activity
- Doctors, dentists, veterinarians
- Attorneys-at-law, notaries, patent attorneys, tax consultants, tax agents
- Surveyors, engineers, architects
- Commercial chemist
- Auditing economists and business economists
- Certified Accountants
- Photo reporter
- and similar professions
As a freelancer, you do not pay trade tax and do not have to be a member of the IHK.
Small Business Owner
Small entrepreneurs are self-employed persons whose turnover in the previous calendar year did not exceed an amount of 17,500 euros and are less than 50,000 euros in the current calendar year. Small businesses are not subject to VAT and are therefore not allowed to charge VAT.
Traders are self-employed persons whose professions do not fall under the above-mentioned catalog professions. Traders include, for example, goods producers, dealers, or car rental companies. You must be registered in the commercial register and a member of the Chamber of Industry and Commerce. In addition, they are obliged to pay trade taxes and double-entry bookkeeping.
Accounting tips for the self-employed
Acquisition, consulting, offers, sale of products or services – self-employed people have to do a lot of things themselves, which are distributed over several shoulders in large companies. This is usually not a nine-to-five job. Mandatory tasks include accounting and tax returns. With a few accounting and tax tips, however, you can ensure that you do not expect any nasty surprises after the end of the fiscal year.
Writing invoices is of particular importance. After all, without an invoice on the account, no transfer is received. In order for the invoice to be accepted by the tax office, it must contain the following information:
- Your name, address, VAT ID, or tax number
- Name and address of your customer (VAT ID is required for customers from the EU)
- Date of performance or delivery
- Term of payment
- consecutive invoice number
- Type, quantity, and price of the service or product (subdivision into the net price, VAT amount, and gross amount; as described, small businesses do not charge VAT).
- Invoice folder
Profit determination – accounting of income and expenditure of the company
In order for you to have an overview of the income and expenses of your company, a profit determination must be created as part of the accounting. It distinguishes between:
- Commission income
- VAT collected
- Interest income from the operating account
- VAT paid
- Publicity expenditure
- Costs for cars, telecommunications
- Training costs
- Wage and personnel costs
- Rent for the office
- Expenditure on goods and raw materials
If you have a tax consultant, you can of course also transfer the creation of the profit determination to him. If you want to dare to determine your own profits, you will find a variety of software solutions on the Internet.
ALSO READ: Benefits Of Property Accounting Software
Collect receipts for the tax office
In order to be able to prove all income and expenditure to the tax office, the corresponding receipts and receipts must be kept carefully. For this purpose, the systematic creation of a folder has proven to be very helpful:
- Create a folder with separators and the categories Income and Expenditure.
- In turn, divide your income and expenses into the categories of the bank (for transfers), cash book (for cash payments), and open invoices.
- All documents are sorted in chronological order.
With this order, you always keep track of your income, expenses, and amounts still to be paid and do not have to search the entire house for missing receipts before filing your tax return.
Of course, you don’t want to become an auditor, but an operator of an economy. Nevertheless, a few accounting basics are essential if you want to run your business properly. This is as much about the profitability of your business as it is about avoiding mistakes that can cause a lot of trouble. Accounting in general: It is very important that you sort all your receipts, separate private and business expenses, and hand over the documents to your accountant on time and in full. This is the only way to avoid nasty surprises during a tax audit. Not only do you face back payments – you can also face high fines.
Debit accounting: Instead of actual accounting, which only registers cash receipts, cash expenses, and account transactions, you should choose debt accounting. All invoices are posted, even if they have not yet been paid. This is the only way to see what result you have actually achieved at the end of the month. Another advantage: In debit accounting, you can claim the input tax amounts of invoices that have not yet been paid from the tax office.
Staff: Because they occupy the largest item in gastronomy, you should subject personnel costs to regular controlling. The most important value is the turnover per employee. Simply divide total revenue by the number of employees you have. It is also important to keep personnel records clean. In addition to pay slips, and proof of social security declarations, this also includes a work permit.
GoBD: The “Principles for the proper management and storage of books, records, and documents in electronic form as well as for data access” have been in force in Germany since 01.01.2017. What sounds so bulky means new bookkeeping, recording, and storage obligations for you or for your electronic POS system. Therefore, make sure that you get a GoBD-compliant cash register.
Note important dates and submissions
In addition to the deadlines, client appointments, and other tasks, you should also note all important accounting appointments in your digital or analog appointment calendar so as not to miss any important appointments. Late payments often result in late penalties or fines. The most important dates include:
- Deadline for making the advance payment of income tax
- Deadline for submission of the advance sales tax return
- Deadline for filing the tax return
- Due dates for all invoices
Offsetting input tax against VAT
Sales tax is the tax that your customers pay to you. The input tax, on the other hand, is the sales tax that you have to pay yourself together with the purchase of products and services. The sales tax you have received must be paid monthly or quarterly (depending on the amount of your income) to the tax office. To do this, you must submit an advance VAT return via the Elster online portal of the tax office. In this advance sales tax return, you also specify the input tax paid and can deduct it from the VAT to be paid to the tax office.
Preparation of the annual financial statements
Every merchant as well as every corporation and partnership is obliged to prepare annual financial statements. An exception is merchants whose turnover is less than 600,000 euros or whose annual surplus is less than 60,000 euros. The annual financial statements are based on the balance sheet and the profit and loss account. The independent preparation of the annual surplus is associated with some pitfalls. In this case, the commissioning of a tax consultant can be worthwhile.
Should I hire a tax consultant to prepare my tax return?
While many self-employed people do their day-to-day accounting themselves with easy-to-use accounting software, the preparation of the tax return or annual financial statements is often handed over to a competent tax consultant due to the high complexity. A specialist knows exactly which costs can be deducted and how. In addition, he can be contacted at any time for further questions in the area of taxes and accounting.
Self-employed persons can basically be divided into freelancers, small business owners, and traders. Simple accounting tasks such as the creation of invoices, the clear accounting of income and expenses, as well as the collection and structuring of receipts and receipts are taken over by most self-employed themselves. For complicated matters such as the preparation of the tax return or annual financial statements, it is advisable to hire a tax consultant. In this way, self-employed people avoid legal difficulties and can also save money.