There are differences in income, sales and profit

The tax profit of the freelancer

The profit is certainly defined differently by everyone. One calls it profit if there is no minus on the account at the end of the month, the other if the expenses are less than the income and something is left over. From a tax point of view, this is Profit the Sum of money, after deducting all expensesthat have been classified as operationally relevant, is left. A distinction is made between different types of income.

A total of seven types of income must be taken into account for profit!

In theory, any type of income can generate a profit; in practice, the types will be limited to a few. For the freelancer it is the income from self-employed work, the other income and possibly other points. Income from commercial operations, from agriculture and forestry and from non-self-employed work can theoretically come into question, but are rather irrelevant.

If you now take all types of income together, you get the total income. The operating expenses are now deducted from this. This is the tax profit.

Income less business expenses result in the taxable profit

However, it does not have to be taxed, because other expenses must be deducted that directly affect the person of the freelancer. Insurance, for example, is based on it, such as statutory health insurance, private pension insurance or liability insurance. Such expenses are referred to as extraordinary burdens for tax purposes. They do not diminish the tax law profit, but the personal one. The taxable income is therefore defined as follows:

  • Total revenue minus Business expenses minus Exceptional costs (Special expenses) equals taxable income.

If the profit is to be reduced to a formula, this is:

Total income minus business expenses equals profit

As you can see, tax law has a slightly different view of the definition of profit. Of course, here too the profit is what is left in the end. But whoever thinks privately of profit, thinks of the sums that are actually available to him and not of those from which expenses still have to be met, as is the case with the tax law profit, from which the special expenses are still deducted .

Note: This information is not a substitute for individual tax advice.

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Different methods

As a freelancer, you can choose between different methods of determining profit. Use either the income-surplus-calculation or the accounting. The EÜR is the easiest way to determine profit. Tax expertise is not required here and double-entry bookkeeping with inventory is not required.

In addition, there are various options for shifting profits if the income-surplus calculation is used.

Note: Income and expenses can be postponed if necessary.

The accounting

A freelancer has a choice of which method of determining profits he uses. There are also freelancers who use accounting. You then have to show double-entry bookkeeping. Freelancers can also choose accounting for their company and the taxation due, even if they only decide to do so after one year.

You are then obliged to draw up an opening balance sheet. In addition, it is now important to have some basic tax knowledge. There are corresponding tips from the tax advisor.

Author: Jürgen Busch

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The tax profit of the freelancer
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