Profit as personal income
The profit from the sole proprietorship is included in the personal income tax return. Usually Anlage G or, for self-employed activities, Anlage S is relevant.
Setting up a sole proprietorship
Tax support when setting up a sole proprietorship – from tax registration and VAT questions to ongoing profit determination.
Initial tax decisions are often underestimated. They directly affect invoicing, advance payments, EÜR and later tax returns.
Tax classification of a sole proprietorship
A sole proprietorship is not a separate legal entity. The profit is attributed personally to the entrepreneur and taxed under income tax. For commercial activities, trade tax may also be relevant.
Commercial activity
For commercial sole proprietorships, trade tax must generally also be reviewed. Natural persons have an allowance under section 11(1) sentence 3 no. 1 GewStG.
Entrepreneur within the meaning of the UStG
Anyone who sustainably supplies services for consideration may be an entrepreneur for VAT purposes under section 2 UStG. In particular, it must be reviewed whether section 19 UStG should be used or regular VAT taxation applies.
EÜR or balance-sheet accounting
Many smaller sole proprietorships determine profit by income-surplus calculation under section 4(3) EStG. If certain thresholds are exceeded or for commercial-law reasons, bookkeeping obligations may arise.
Important tax topics
Section 19 UStG
The small entrepreneur regulation can reduce administration but excludes input VAT deduction. The decision should not be made solely on expected revenue.
Invoices
Depending on the VAT classification, invoices must contain specific information. Errors can cause queries, input VAT problems or correction requirements.
Business expenses
Business-related expenses are deductible. Mixed use, private portions or missing evidence require careful separation.
Purchases and investments
Purchases must be classified correctly for tax purposes: immediate deduction, low-value assets, pool depreciation, depreciation or, where applicable, section 7g EStG.
Withdrawals
Withdrawals are not business expenses. Cash withdrawals generally do not reduce taxable profit.
Advance payments
Based on the profit forecast, income tax and, where applicable, trade tax advance payments may be assessed.
Required information
The documents required depend on the specific facts. A tailored request is made after initial classification.
What is offered?
Description of planned services or products, target customers, sales channels, platforms and any foreign elements.
Revenue and profit forecast
Expected revenue, costs, investments, ongoing expenses and realistic profit estimate for the start year and following year.
Documents, account and software
Information on business bank account, invoicing software, document filing, cash records, online platforms and payment service providers.
Start and existing registrations
Start date of the activity, trade registration already made, existing letters from the tax office and invoices already issued.
Process
Clarify activity and start date
Description of planned services, target customers, start date and expected revenue.
Review trade registration
For commercial activity, a trade registration is usually required. Freelance activities must be distinguished.
Tax registration questionnaire
Electronic notification of the activity to the tax authorities and application for tax registration.
Structure invoices and documents
Set-up of a traceable structure for outgoing invoices, incoming invoices, bank statements and ongoing reports.
Important limitation
Do not underestimate VAT and profit forecast
Start-ups are often reported too late for tax purposes, the small entrepreneur regulation is chosen too generally, business expenses are not documented cleanly or private withdrawals are misunderstood. These points can usually be structured at the beginning with manageable effort.