Saving Tax as a Freelancer: Tips

Bear in mind that German tax law is complex. The tax statutes provide numerous opportunities to reduce tax payments. That is, in principle, good news — but non-specialists are often overwhelmed by the task of exploiting these opportunities fully. In the sections below, we show you where to start. A detailed account of all tax-saving tips would, however, go beyond the scope of this article, particularly since tax saving depends on your individual circumstances. If you wish to optimise your tax position effectively, contact an experienced tax adviser!

As a freelancer, you pay income tax on your profit. In concrete terms, this means: you deduct your business expenses from your business income to arrive at the taxable profit. Reducing this profit leads to lower tax demands — this is the first means of saving tax. This does not mean you should generate less business income. Rather, you should optimise your business expenses.

The second opportunity relates to general tax-saving tips for all taxpayers and, specifically, for self-employed individuals. The tax office recognises many expenditures and outgoings as tax-reducing items. Your Guhr Steuerberatung advisers will help you make the most of these opportunities.

Freelancers incur business expenses to varying degrees. Some, for example, work from a home office; others rent separate office premises. Some require a company car; others do not. There are many further types of business expense. Examples include:

- Salaries and other staff costs

- Marketing expenditure

- Costs for technology such as PCs and printers

- Expenditure on office furniture and office supplies

Experience shows that without competent support, freelancers overlook individual items of expenditure or record them incorrectly in their tax return. The consequence is that they declare an amount that is too low under business expenses.

An example illustrates this: someone works from a home office and assumes they cannot claim this for tax purposes. The rules for recognising a home office are strict and depend on the physical set-up and the actual use of the space. It is therefore entirely possible that the tax office refuses to allow the claim.

No one should, however, simply assume this without checking: ask your Guhr Steuerberatung advisers instead! Your workplace may well meet the tax law requirements, in which case you can claim a proportionate share of rent and service charges for the office as business expenses. The tax authority would then accept renovation costs and expenditure on furnishings in full as a business expense!

Borderline cases frequently arise with business expenses — not only in relation to the home office. With technological devices and similar items, the question is how large the proportion of private use is. This determines whether you may claim the costs in full or only proportionately as business expenses. Experienced tax advisers ensure that all your expenditure has the maximum tax-reducing effect.

As a freelancer, you declare your profit separately in your tax return: the relevant schedules are Schedule S and the cash-basis income statement (EUER). In these schedules you include your tax-reducing business expenses. As a freelancer, however, you can also save tax beyond this!

The legislature recognises a wide range of private costs as special expenditure (Sonderausgaben) or retirement and insurance provisions (Vorsorgeaufwendungen). These items of expenditure can reduce your tax payments considerably!

Your expenditure on retirement provision and health insurance deserves particular mention. The tax office recognises these outgoings to a substantial extent as tax-reducing items. With private retirement provision in particular, it is well worth making full use of these opportunities.

It is best to entrust your income tax return to competent tax advisers: they ensure that the tax office takes into account all existing business and private expenditure. In addition, tax specialists highlight the possibilities for forward-looking tax optimisation!