Taxes on income from sole proprietorship

If a company ends a fiscal year with a profit, taxes generally apply. Unlike corporations, sole proprietorships are not separately taxable. Profits from the business activities of sole proprietorships are declared in the personal tax return.

Since sole proprietorships are not legal entities, they are not taxable as companies. Owners of sole proprietorships tax both their private income and business income, thus salary, business profit, securities earnings, and other income, together. On the other hand, both private deductions and business expenses can be considered in calculating the taxable income. The same applies to private and business assets.

Deductibility of the Tax Burden

Unlike corporations, sole proprietorships cannot deduct tax expenses from taxable net profit. Business-related expenses as well as depreciation and provisions may be normally deducted from the profit like in other companies and are recognized for tax purposes.

Loss Offset for Self-Employed

Any losses from self-employed activity are primarily offset against income from the same tax period, thus reducing the tax burden. Unsettled loss surpluses can be offset against business income and other income over the following seven years.

Distinction between Private and Business Expenses

Since business-related expenses connected with self-employed activity can be deducted from income, it is important to cleanly separate private and business expenditures. Particular attention should be paid to the correct delineation of business trips, rent shares, business vehicles, expenses, and training costs. All deductible costs must be provable with receipts in case of an audit.