What exactly are business expenses?

The income tax law regulates in § 4 quite clearly what is meant by the term business expenses: It is all expenses that are necessary to make your business functional and to keep it. In other words, all purchases and expenses that are caused by your entrepreneurial activities and without which you would not be able to run your business. You can enter these necessary expenses in your tax return, they reduce your profit and therefore your tax burden. However, tax law does not accept all business expenses equally, immediately or even in full.

What types of business expenses are distinguished?

The legislature has sorted all conceivable business expenses into four different categories which are mandatory and decide the respective tax reduction status. These are as follows:

Anticipated operating expenses

The most important rule for all solo self-employed people: Carefully collect all receipts – and start doing so before you even get started with your business. All costs incurred in the preparation phase, i.e. before you are officially registered, can be claimed later as anticipated business expenses. This includes, for example, travel and financing costs, expenses for seminars and the like.

Immediately deductible business expenses

This drawer includes all the bills you need to pay in order to run your business at all. Classically, these include:

• Occupancy costs (rent, electricity, water and heating, cleaning and maintenance),
• Telephone, fax, Internet connection,
• Office supplies (paper, postage, pens) and office equipment (printer, copier, scanner),
• Insurance and car expenses, costs of travel by public transport,
• Training costs,
• Bank Charges.

The acquisition of an asset, such as a company car, is an immediately deductible business expense, but the costs are split over the expected useful life. Here, the so-called depreciation for wear and tear (Afa) applies.

Limited deductible business expenses

Not all costs that you incur in principle but not exclusively in connection with your business are recognised by the legislator as tax-reducing. This is especially true if there is no clear dividing line between private living and business. Thus, in the case of a study in one’s own living quarters, small details often make the difference. The same applies, for example, to the cost of meals while travelling (additional expense) or the expenses for coffee and biscuits that you offer your business partner.

Non-deductible operating expenses

Anything under this heading doesn’t reduce your tax payment. The catalogue is long, here are the most important points:

• Gifts over 35 euros (if 35.01 euros is on the invoice, the whole amount is void!),
• Travel expenses between home and work,
• Entertainment expenses “for business reasons” are accepted at 70 percent, the remaining 30 percent are not,
• Penalties and warnings, reminder fees or interest for evasion.

How can I deduct my business expenses from my taxes?

You simply enter your business expenses in your tax return. They reduce your profit and thus your tax liability. But be careful: In order for the tax office to recognize your costs, you have to prove them meticulously. You should therefore always and consistently keep all receipts and sort them regularly. If you lose an invoice or receipt, the tax officials can estimate the item or cancel it altogether – both are usually bad for you.

If you deliberately or even accidentally declare private expenses as business expenses, then you risk not only a “hefty” penalty payment in the event of a tax audit, you can also rely on the fact that the tax officials will henceforth keep a particularly critical eye on your tax return.

Who can claim business expenses as a lump sum?

Some self-employed people are granted the right by law to have their business expenses credited at a flat rate. These include:

• Childminders (flat rate 300 euros per month),
• Self-employed midwives (25 percent, maximum 1,535 euros per year),
• Freelance journalists and writers (30 percent, maximum 2,455 euros per year).

Members of these professions can, of course, still choose to itemise their business expenses if this is more favourable to them.

Bottom line: how can you lower your tax burden?

All costs and expenses that you incur in direct or indirect connection with your business are part of your business expenses. You should keep all receipts and invoices carefully and sort them regularly so that you can enter these expenses correctly in your tax return. There, they will then reduce your profit and thus reduce your tax liability. With smart accounting software, this is all a little easier to do. You can claim even the smallest amounts, because the proverbial little things save taxes. Just don’t forget to always separate private and business expenses – the tax office reacts very sensitively to such “inaccuracies”.

Tips for landlords: This is what you should know in advance!

How do you avoid vacancies, rent arrears and non-payers? What should be in a lease agreement and which service charges can you pass on to the tenant? You can find out all this and more here in our guide!

Finding the right property: Location, location, location

So if you are planning to rent out a property, the location of your property is crucial. Especially for yield properties you should look for very good B- and C-locations. In other words: Invest primarily in properties in popular major cities with good infrastructure and positive development. Properties in the suburbs, a little outside the hustle and bustle of the big cities, are also very suitable as yield properties. Living space here is often a bit cheaper than in the city and the workplace can still be reached quickly via the highway. So you can count on high demand here.

Tip: Make sure your property is in a good location to avoid vacancies

Find solvent tenants: Credit check & income certificate

To avoid future problems and stress, you must also check all prospective tenants in advance. If you select your tenants only by gut feeling and sympathy, it can come later finally so to a bad awakening – always late rent payments, in the worst case even Mietnormaden! This is why a credit check of prospective tenants is so important. Also income certificates or the Schufa self-disclosure should be obtained in advance.

So you should get these documents from the prospective tenants in advance:

• Schufa self-disclosure
• Creditworthiness check
• Income statements

Calculate ancillary costs before drawing up the rental agreement

The viewing was successful and the right tenant has been found? Great! Then all that remains is to draw up and sign the rental agreement. A typical beginner’s mistake is to underestimate the additional costs. Our tip: Think about your future service charge bill before you draw up the lease. What ancillary costs are and what they are not is defined in the Betriebskostenordnung (§ 2 BetrKV). Among other things, the following costs can be passed on to the tenant:

• Property tax
• Wastewater fee
• Elevator
• Garbage collection
• Chimney sweep
• Lighting costs

Thinking about making some repairs to your house at the end of the year? This is also part of the apportionable service charges:

Draw up a rental agreement: Individual agreements

Theoretically, verbally agreed contracts are also legally valid. However, a written rental agreement should never be waived. You can find plenty of templates for this on the Internet. Note, however, that these are only standard contracts. Individual details must be added separately. You should also pay attention to permissible formulations. Otherwise, the contract may later be deemed inadmissible and invalid. To be on the safe side, have the rental agreement checked by an expert – such as a lawyer – after it has been drawn up.

The following items (as required) should definitely be in the lease:

• Service charge settlement
• Animal husbandry
• Sublease
• Time limit of the contract
• Cleaning duties
• Cost absorption for minor repairs

Apartment handover: handover protocol

The rental contract is signed and the handover of the apartment can take place? To avoid any misunderstanding, a handover protocol should be prepared. Here the number of house or apartment keys are noted, as well as meter readings, condition of the property & Co. Also about the house rules and rent deposit can be discussed at the apartment handover.

Reduce tax burden: tax allowance & tax-reducing factors

Rental income must also be taxed, unless the rental income is below the annual tax allowance. The net cold rent is taken as the basis for this. While ancillary costs are not taken into account, the following factors can certainly have a tax-reducing effect on the tax burden:

• Interest charge of the real estate loan
• Loss of rental income insurance
• Repairs
• Advertising costs

Conclusion: This is how you rent out your property! – Checklist

So with our tips, you’ll be well prepared for renting out your property. Here again a short summary:

1. Find the right property: Invest in properties in B and C locations to avoid vacancies
2. Find solvent tenants: Check the creditworthiness of prospective tenants, for example, by means of a self-disclosure and income statements.
3. Include utility costs before drafting the lease: Think about future operating costs and set up in the lease on
4. Draw up a rental agreement: Record individual agreements & have them checked by a lawyer
5. Apartment handover: prepare handover protocol to prevent misunderstandings
6. Reduce tax burden: deduct repairs, advertising costs, etc. from taxes