Accounting for freelancers: basics, options and helpful tips
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The topic of accounting is on every freelancer’s mind – but for many, it’s still a seemingly huge obstacle.
There is nothing to worry about! The matter is actually not as obscure as many think. With a little background knowledge, you can keep your bookkeeping in accordance with the rules. In the following, we will explain what is important in accounting for freelancers and what options you have as a freelancer. In addition, we have valuable accounting tips for you!
The basics: What is accounting and why is it important?
Accounting or bookkeeping is the most important tool for monitoring your figures as a freelancer. It provides you with an overview of your flow of money and goods, serves to determine profits and losses, reveals critical situations and provides information about the feasibility of any investments. Also, your bookkeeping provides information about the success or failure of your business year and thus forms the basis for the determination of your tax burden or tax refund by the Finanzamt (tax office).
💡Tip from Accountable: It is essential that you keep your bookkeeping records accurately and without gaps. In this way, you not only ensure an unbiased overall picture of your business but also avoid penalties from the tax authorities.
Accounting for freelancers: do I need to do it?
In general, every profit-oriented company in Germany is obliged to do proper bookkeeping. However, in order to answer the question posed above, it is important to better understand the term “Buchführungspflicht” (accounting obligation). This term describes the obligation to keep “doppelte Buchführung” (double-entry bookkeeping). This only applies to companies that exceed a certain revenue threshold (annual revenue of more than 600,000 euros or annual profit of more than 60,000 euros) and/or are registered in the German Commercial Register. The latter includes companies that bear the following legal forms:
- e.K. for eingetragene:r Kaufmann:frau (registered merchant)
- UG for Unternehmensgesellschaft haftungsbeschränkt (limited company)
- KG for Kommanditgesellschaft (imited partnership)
- OHG for offene Handelsgesellschaft (general parternship)
- AG for Aktiengesellschaft (stock corporation)
- GmbH for Gesellschaft mit beschränkter Haftung (limited liability company)
- GmbH & Co. KG for Gesellschaft mit beschränkter Haftung & Compagnie Kommanditgesellschaft (limited liability company & compagnie limited partnership)
That means, as a freelancer, you are not obliged to the more complex double entry bookkeeping. Nevertheless, also as a freelancer, comprehensive documentation of your income and expenses per year is obligatory. The advantage: You can make use of the so-called simple bookkeeping. This means you have to submit a profit & loss statement for each tax year. It’s called Einnahme-Überschuss-Rechnung (EÜR).
💡Tip from Accountable: Never done an EÜR in Germany before? No worries! This is how easy it’s done with the tax solution from Accountable!
The advantages of simple bookkeeping
So as a self-employed proffessional in Germany, you don’t need to do the double-entry bookkeeping. The advantage for you is, that your accounting obligations are much less complicated and you don’t have to know an awful lot about financial accounting. You are also not required to prepare a balance sheet, keep sub-ledgers or handle inventories. With a little practice and experience, you can even avoid the need and costs for a tax consultant!
💡Tip from Accountable: Accountable is the tax solution for the self-employed proffesional in Germany. Download the free app or create an account online. It’s both available in English. This way, you have your bookkeeping and tax obligations like VAT return under control right from the start. Our team will also help you personally in the chat at any time!
Should I do double-entry bookkeeping?
I general, you don’t need to do double-entry bookkeeping as a freelancer and don’t have any advanteages with it. Nevertheless, under certain circumstances it is reasonable to opt for this variant. This is the case, for example, if your business contains high assets and has become so complex that you have difficulty keeping track of expenses, income and so on.
💡Tip from Accountable: Attention! If you decide to use double-entry bookkeeping, the preparation of a balance sheet and a BWA (business analysis) is mandatory. This task, as well as accounting in general, is usually done by a tax consultant, who will of course charge you for it.
Bookkeeping for freelancers: How to keep your accounting simple and correctly
You just need to invest a little bit of time and you will be able to handle your bookeeping and taxes as a freelancer with ease. Here, we provide you with the most important tips for a bulletfroof bookkeeping for freelancers.
Tip 1: Keep your receipts
As a freelancer, you have to save your receipts. It makes sense to scan the collected documents at least once a month and store them digitally, so you have them ready to hand at any time. This saves you a nerve-racking search at the end of the year, because ultimately, a receipt must be available for each of your bookings.
Tip 2: There is no way around complete documentation
As is also the case with companies, accounting for freelancers must not contain any gaps. Every single business-relevant step must be recorded in a watertight manner. Otherwise, you won’t have an accurate picture of your assets and liabilities.
Tip 3: Keep an eye on income and expenses
Your profit is calculated from the difference between your income and expenses. If the amount of your expenses exceeds your income, you will make losses – in the long run, this will inevitably lead to insolvency and the end of your self-employment. To avoid this, it is essential to focus on these two variables.
For the best possible overview, it is advisable to create a table that you can also use for your final income statement. An even more effective option is to use Accountable. With the software you always see how much you earned, what your expenses are and what you need to set aside for taxes.
Tip 4: Pay attention to chronology
Recording your receipts and documenting all business transactions should be done in chronological order. A wild chronological confusion not only has a negative impact on any VAT charges, but also destroys the authenticity of your figures.
Tip 5: Clarity makes work easier
It is not helpful for you or for third parties – such as the Finanzamt – if your accounting is unclear. Make sure that there is a corresponding receipt for every expense or revenue and that your accounting can formally withstand any audit, no matter how strict.
Tip 6: Comply with retention periods
According to GoBD (principles for the proper keeping and storage of books, records and documents in electronic form), tax-relevant accounting documents must be kept for a period of ten years. This premise applies not only to all companies that are subject to mandatory bookkeeping (i.e. double-entry bookkeeping), but equally to freelancers and other self-employed persons.
Tip 7: If in doubt, seek help
If the topic of bookkeeping for freelancers still gives you a headache, it is advisable to seek help from a third party. For example, you can contact a tax advisor. The usually faster and cheaper alternative are accounting and tax programs that are specifically designed for the needs of freelancers. At Accountable we will help you with any questions!