Business Expenses for Freelancers: How to Reduce Your Profit with These Deductions

Business expenses comprise all expenditure that has a business cause. The opposite is expenditure on private living expenses. As a freelancer, you have considerable latitude with regard to these expenses: determine the type and level of your business expenses flexibly — the tax authority must generally accept them.

For example, it is not permitted to examine whether a cost item is appropriate. Even expenditure from which you derive no economic benefit will reduce your tax payments.

When it comes to business expenses for freelancers, the question arises whether you can claim them immediately and in full in the current financial year. All ongoing operating costs are deducted from your income straight away — for example rent and salary payments.

The position differs for purchases such as company vehicles and office furniture: here, depreciation in accordance with the AfA depreciation tables applies — you spread the costs over several years.

However, an exception exists for such purchases: for low-value assets, the tax office permits immediate write-off (Sofortabschreibung). This applies to assets that can be used independently and have a net purchase price of up to 800 euros. For costs up to 1,000 euros, there is the alternative of pool depreciation.

When examining business expenses as a freelancer, you should also look at mixed-use costs. These are expenditures that have both a professional and a private element — and which you may partly deduct. You must apportion these costs in a way that is transparent and comprehensible to the tax office.

This applies, for example, to travel serving both professional and private purposes, and to mixed use of devices or telecommunications contracts. Ideally, you should document the actual usage — though this often proves difficult in practice. Your Guhr Steuerberatung is here to help.

When it comes to the tax deductibility of business expenses, there are numerous special rules and exceptions. These relate to different aspects: in some cases, whether you can deduct costs as business expenses depends on the nature of the asset and the extent to which it is used for business purposes. The classic example is the home office.

For other deductible expenditures, the legislature limits the extent to which they may be offset for tax purposes. Below we give you two brief examples to give you a sense of the complexity.

The rules on vehicle costs are particularly complex. For instance, the legislature treats journeys from home to the business premises differently from journeys from the business premises to a client. It also matters whether the vehicle is a private car or a company vehicle.

If the business use proportion is at least 50%, you may add the vehicle to your business assets. You can then depreciate the acquisition costs and list ongoing costs as business expenses. You must declare the private use element as a taxable benefit in kind.

For a home office, the first question is whether it meets the conditions for the business expense deduction. It must be a separate room, and private use may not exceed 10%. The tax office will also examine, in the course of a tax audit, whether the remaining living space is adequate.

If you satisfy these conditions, you may deduct the rent and ancillary costs on a pro rata basis as business expenses. These include your rent including heating, your electricity costs, your refuse collection charges, and your household contents insurance. The decisive factor for the proportionate calculation is the size of the room relative to the total size of the property.

For a limited number of professions, the legislature provides a simplified form of business expense deduction. As a member of one of these professions, you may claim an annual flat rate regardless of the costs actually incurred. The following rules apply:

• Writing or journalism as a primary occupation: 30% of business receipts, up to a maximum of 2,455 euros per year
• Scientific, artistic or writing activities as a secondary occupation: 25% of business receipts, up to a maximum of 614 euros per year
• Activity as a midwife: 25% of business receipts, up to a maximum of 1,535 euros per year

Tax law for self-employed individuals is a challenge — and the wide-ranging rules on business expenses bear that out. Your Guhr Steuerberatung will support you with expert guidance. With our help, you will declare all business expenses correctly and benefit from the maximum tax saving.

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