How to claim business expenses on tax from before you were a registered freelancer
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Starting your freelance career is not something you decide over night. A lot of thinking, planning, and trying goes into launching your own business, and it is therefore not uncommon to have business expenses relating to your freelance job before you are even registered as a freelancer with the tax office. But the good news is: These expenses are recognised by the tax officials and can be claimed on your tax. Here’s how it works.
Freelancer or Gewerbetreibender (tradesperson)?
Before you can start out as a self-employed person, you must register your occupation with the relevant government bodies. At this point, you already need to be clear on whether your self-employment is going to be a freelance activity (Freiberufler) or a commercial activity (Gewerbe). Freelancers register at their local tax office, while a Gewerbetreibender must contact the relevant Gewerbeamt (trade office), where they can also apply for their Gewerbeschein (trade license).
In both cases, you will have to fill out the tax registration questionnaire (Fragebogen zur steuerlichen Erfassung) in order to get your tax number and officially get to work.
💡Tip from Accountable: As of this year, you can fill out the tax registration questionnaire online. And we are here to help! We have created a step-by-step guide on how to fill out the Fragebogen zur steuerlichen Erfassung.
Tax deductions on upfront costs
If you are self-employed, there are many business related expenses you can claim on tax. You can use our search tool to find all the expenses you can deduct. But what about costs you had before you registered as a freelancer? These costs are classified as launch or set up expenses and must be paid upfront, before you have any business income.
Generally speaking, there are two types of upfront costs you can claim on tax: intangible and tangible costs.
Deductions for intangible costs
In some cases, freelancers have to gain some extra skills or need external help in order to start their business. These expenses are considered intangible costs and include
- Seminars for founders,
- Buying relevant literature,
- Costs for individual coaching,
- Costs for the creation of a business plan,
- Driving costs in relation to your freelance business,
- Expenses for consultants (e.g. accountant or lawyer) or
- Costs for your phone, postage, printing or copying.
You also shouldn’t forget expenses related to registering your business, as depending on the legal nature of your business, you might have to pay a fee for the registration or even involve a solicitor.
Deductions for tangible costs
The second type of deductible expenses are tangible costs, referring to any and all equipment you need to start your business. This can be office furniture, or products and gadgets needed to start production. To claim these expenses, you need to collect the receipts as proof of your costs. Keeping and organising your receipts is therefore generally recommended for freelancers, and a crucial part of your accounting.
Tax deductions before registration in Germany
Business related expenses you had before registering as a freelancer may be deducted for up to three years after the launch of your self-employed business. But it is important to have all the receipts and invoices to prove the expenses were related to your business activity.
One exemption is registering your business after being unemployed. While you didn’t have any positive income during this time, it might be worth claiming the upfront cost of your freelance career on tax, as you can claim a so-called loss carryback in the Anlage sonstiges in your annual tax declaration. In this case, your deficit from the upfront business costs will be offset with the positive income from the following year. Alternatively, the tax office might issue an additional tax assessment for the deficits from your upfront business expenses..
Tax deductions with Accountable
Our free app makes organising your finances and collecting receipts easier than ever before – and having your accounting in order is one of the key factors when it comes to claiming your business expenses. Here’s how easy it is with Accountable:
Step 1: Download Accountable.
Step 2: Create your profile and enter all the relevant information, including your tax number, your VAT ID and your occupation description, and click save.
Step 3: Enter your expenses. Thanks to our receipt recognition system, you can simply take a photo or scan all your receipts. The expenses are then automatically organised in different tax categories and can even be connected to your bank account.
Step 4: To include all upfront costs before your registration, you must list these expenses in your first VAT return. This allows you to get back any VAT you paid for your business expenses while reducing your income tax at the same time.
💡Tip from Accountable: Not sure how to file your VAT return? This article explains it all.
Conclusion: Receipts, receipts, receipts
The path to self-employment is often lined with many upfront costs before you make any money from your freelance job at all. Luckily, you can claim these expenses on tax. All you have to do is collect your receipts and organise your accounting so you can quickly and easily use them for your tax declaration.