The most important answers on the subject of the 2023 tax return for small business owners
What taxes do small business owners pay?
Small business owners primarily pay income tax. They are exempt from value-added tax (VAT), trade tax, and corporate tax as long as they stay below certain revenue thresholds.
How much tax do small business owners pay?
The basic tax-free allowance in 2023 is 10,908 euros. For higher profits, a tax rate between 14 and 45 percent applies.
What should small business owners pay attention to in their 2023 tax return?
Small and sole proprietors should ensure that all expenses such as advertising costs, travel expenses, and insurances are declared in the tax return. Additionally, the submission of an income-surplus calculation is required. It is also important not to miss the submission deadline (September 2, 2024) to avoid additional costs.
The year 2023 marks a period of recovery for many entrepreneurs from the challenges of the past years, including the coronavirus pandemic and the energy crisis. Efficient tax planning can help conserve financial resources.
The following taxes are paid by small business owners
Small business owners are primarily subject to income tax. As long as their annual turnover remains below 22,000 euros, they are exempt from value-added tax (VAT). This also applies to trade tax and corporate tax.
So just how much in taxes do small business owners need to pay?
The question that probably concerns you the most: How much tax are you likely to pay? In principle, income tax is levied on profit. In 2023, profits up to 10,908 euros are tax-free. This is known as the basic tax allowance.
For every euro above this amount, a tax rate between 14 and 45 percent applies. How much you ultimately have to pay depends on your profit. Additionally, it's crucial how many tax prepayments you have made throughout the year. The tax office usually makes a suggestion for this, based on your profit from the previous year or your estimate for the first year as a small business owner.
This is what small business owners need to pay attention to when filing their 2023 tax return
For the tax return of small business owners, three main pillars are important:
- Consideration of all expenses in profit determination
- Submission of an income-surplus calculation
- Compliance with the tax return deadline
Deduct expenses from tax
Firstly, everything you want to deduct from taxes must be in a recognizable connection with your self-employed activity. In practice, this means: If you are a musician, for example, you can deduct the purchase of a guitar or a piano. However, if you are a lawyer, this is not possible. And: For everything you purchase, you should keep a receipt or an invoice. What can small and sole proprietors deduct in their tax return?
Education and training costs
If you take part in a training course that is directly related to your self-employment, you can deduct it. This can be particularly useful at the beginning of your self-employment in order to quickly deepen your specialist knowledge.
If you use your car more than 90% for yourself-employment, your car is considered work equipment. That means: You can claim costs such as insurance, petrol, or interest as business expenses.
You can fully deduct insurance policies that cover business risks. These include:
- purely corporate legal expenses insurance
- operational trade indemnity insurance
- operational fire, theft, and hail insurance
- statutory accident insurance
- business interruption insurance or loss-of-use insurance
- comprehensive, liability, and accident insurance for cars used for business purposes
- occupational accident insurance
- public liability, professional liability, and pecuniary damage liability insurance
- household contents insurance (pro rata) insofar as you have a home office
Special expenses and pension expenses
You can deduct the following insurances ona pro rata basis:
- health insurance
- daily sickness allowance insurance
- life insurance
- long-term care insurance
- accident insurance
- term life insurance
- personal liability insurance
- pension insurance
Advertising costs include working materials and contributions to professional associations. In addition, small business owners can deduct all other expenses they need for their self-employment as advertising costs in their tax return. These include office equipment, business accounts, company cars, promotional gifts, and work clothes. However, the tax office does not recognize the purchase of a business suit – these are too versatile.
Small businesses and sole proprietorships that rent an office or a space in a co-working space and/or buy office furniture can deduct it in their tax return. You can also claim your work place at home if you have a home office.
Tax consultancy and legal fees
If you use a tax advisor or incur legal costs for a consultation or a lawsuit, you can deduct these in your tax return.
Submitting a statement of revenues and expenditures
With the income-surplus calculation, small and sole proprietors calculate in their tax return how much profit they made in the year 2023. For this, you write down your business income and business expenses. The difference yields the profit that your company has generated.
Example: Suppose you received 15,000 euros and spent 3,000 euros for your business. Then you have made a profit of 12,000 euros.
The tax office bases your income tax on the profit you calculated. And: This is how it is determined whether you are still considered a small business owner.
When you have to file your tax return
Normally, the income tax return must be submitted by July 31 of the following year.However, due to the Corona crisis, the Federal Government has postponed the deadline for the 2023 tax return slightly. Therefore, the declaration must be submitted by September 2, 2024, at the latest. If companies work on their tax return with a tax advisor or a wage tax assistance association, the submission deadline is extended to June 2, 2025.
If you miss the deadline for submitting the income tax return, you will face a penalty - usually after a prior reminder from the tax office. The amount of the late submission surcharge is legally regulated. The surcharge is 0.25 percent of the tax liability, but at least 25 euros for each month started of the delay.
Tip: If you already foresee that you will not be able to meet the deadline, apply for an extension. Justify this and propose a new deadline. The tax office accepts reasons such as prolonged illness, missing documents, or a move.
Where to send the tax return
Typically, companies must submit their tax returns electronically to the tax office. For this purpose, they can use the "Elster" portal provided by the tax office, for example.
By the way,
Why the tax return is not just a time-consuming matter but often also saves companies money is shown by figures from the Federal Statistical Office. For example, 88 percent of the tax returns for the year 2018 resulted in a tax refund. On average, there was a refund of 1,072 euros.
Will you still be a small business owner in 2024?
To remain a small business owner, you must not have made more than 22,000 euros in turnover (not profit) in the previous year and not expect more than 50,000 euros in turnover for the current year.
If one of these conditions is no longer met, you must calculate value-added tax (VAT) for your services.
Settle back taxes with a loan from Puls
Especially at the beginning of your self-employment, it is difficult to plan how much money you will earn in a year - and how high your tax prepayments will be. If you underestimate, you may end up facing a significant tax back payment. If you cannot pay this, high penalties will be due.
To avoid this, you can take out a loan through Puls on a short-term basis and with little effort. Puls takes into account your income and expenses when calculating your current credit limit. You can then apply for the loan directly through the platform - without a credit check, without a bank, and with minimal paperwork. This way, you can fully concentrate on developing your business.