To-dos for entrepreneurs at the beginning of the new year
The end of the year is a stressful time for many companies: it is the last opportunity to optimise the annual result. There are therefore good opportunities during this period to save taxes and prepare for a successful start to the new year. Which is why we explain the most important to-dos for entrepreneurs and the self-employed at the turn of the year here. But first, we give some tips on which important changes in the law are being enforced in 2020 and which tax issues should be clarified at the turn of the year.
What is changing at the beginning of the new year?
Some changes in the law are being enforced in 2020. Both employers and employees have therefore had to get used to new "rules of the game". Two new aspects were particularly interesting and important for employees:
1. Increase in the basic allowance from EUR 9,168 (2019) to EUR 9,408 (2020). This means that every taxpaying citizen will pay EUR 240 less in taxes since 2020. Leaving them with EUR 20 more net salary in their pocket every month. This tax relief is a special feature at the turn of the year. Such a high or higher increase in the basic allowance was last seen at the turn of the year 2003/2004, so more than 15 years ago.
2. 2030 Climate Protection Programme: The climate protection package adopted in September 2019 has resulted in several tax changes from 2020. For example, the vehicle tax for vehicles with combustion engines increased. In addition, electric mobility and environmentally friendly renovation measures are being supported from then. For example, the private use flat rate for zero-emission company cars is set at 0.25 percent of their domestic list price (by way of comparison, it is four times as high for combustion engines). Anyone carrying out renovation work on a house or property in line with the climate protection package from 2020 (this includes replacing windows or heating and insulating roofs and external walls) can claim 20 percent of the costs for this work against tax.
The climate protection package in particular has far-reaching consequences and also applies to companies. Its scope namely extends to the Annual Tax Act 2019: For example, the acquisition of small and medium-sized commercial and delivery vehicles that are electrically powered is being subsidised by tax incentives. Anyone purchasing such a vehicle between 2020 and the end of 2030 can claim a special depreciation of 50 percent of the purchase price for tax purposes in the year of purchase.
The self-employed, freelancers or entrepreneurs: What do I have to consider at the end of the year?
First of all there is one question that is very important here: Is your own annual profit determined using a balance sheet or a net income method? The majority of the measures that can or should still be taken towards the end of the year depend on this. Here are two lists. Firstly, what you should consider as a net income method user and secondly, what you should consider when you prepare a detailed annual financial statement in the form of a balance sheet.
To-dos for freelancers and self-employed net income method users at the turn of the year:
- Checking the transfer of income and expenditure: you have two options to reduce the net income for the current year: either to pay outstanding invoices in the current year or to ask your customers to pay outstanding receivables to you in the following year. Both of these help you reduce your tax burden at the end of the year. Even if you are expecting to make new purchases soon, it may still be worthwhile doing so this year.
- Flat-rate deduction of operating expenses: some freelancers, such as journalists or private tutors, can also claim an operating expense allowance instead of actual expenses. In the case of journalists, this can be up to EUR 2,455 (but a maximum of 30 percent of income) per year. Such flat rates are available for full-time writers and journalists, as well as for part-time scientists, artists, writers, teaching and examination work. If you fall into one of the groups concerned, you should check whether your actual expenses were lower than the lump sum applicable to you. If this is the case, you should use the flat-rate deduction of business expenses.
To-dos for entrepreneurs and balance sheet users at the turn of the year:
- Transfer of profits: Profits can be transferred to the next year using appropriate accounting to a limited extent. This does not result in any immediate tax savings but the tax deferral will make additional liquid funds available. The aim of the measure is therefore to ensure liquidity for the company itself.
- Depreciation: Performance depreciation, unscheduled depreciation, regular depreciation, whatever kind it is, it’s worth it. Which is why the opportunities should be examined particularly closely and used towards the end of the year. This is particularly relevant with regard to low-value assets: Movable, depreciable and independently usable assets with a net acquisition or production cost value of up to EUR 800.00 belong to this group and can be written off in full in the year of acquisition, thus reducing profits.
- Investment deductions: If you are planning to purchase a "movable asset (i.e. usually a car, bus, etc.)" within the next three years, which is used more than 90 percent for business purposes, you can claim up to 40 percent of the expected purchase price as an investment deduction each year. Up to 200,000 euros can be deducted from profits in this way. Extremely practical: No other information, such as the function of the acquisition or expected costs, is required.
- Provisions: As provisions are considered as expenses, they reduce a company’s profit. They are permissible, for example, for deferred maintenance work. Many entrepreneurs forget that the obligatory 10-year retention of accounting documents also offers a way to save taxes: An archiving provision allows the costs which the documents from the current year will incur over the next 10 years to be claimed against tax. Costs arise, for example, from necessary equipment such as filing cabinets or room rentals.
- Logbook: It is possible to change from the 1-percent method to the logbook at the beginning of the year. As a rule of thumb you can remember: A logbook is particularly worthwhile for company vehicles with a high list price and low private use.
- Getting rid of old burdens: Since 31.12.2019 you can destroy some documents that you had to keep until then. In concrete terms, this means that you can destroy all trading books, inventories, balance sheets and accounting documents from 2008 and earlier if the last entry was made in 2009. You can now also transfer commercial and business letters received or sent before 2014 to the shredder.
Successfully into the future in Bavaria
We at Invest in Bavaria hope that your last year was already successful and that an even more successful one will follow. We would very much like to support you with this. Whether you are a founder, a start-up team or already a successful entrepreneur looking for a new location: Success is at home in Bavaria. Learn more about Bavaria here and find out about the many ways we can help you. For founders, we not only establish contacts with Gründerland Bayern and BayStartUP but also provide them with access to a wide range of industry networks. We help foreign companies get off to a smooth start in Bavaria with our Ois Easy Start-up Package.