Tax return for prostitution
July 29, 2009 | 50,00 EUR | answered by Michael Herrmann
Hello,
my situation is as follows:
I have been on sick leave for a year and it is unlikely that I will be able to continue working in my profession. In search of an alternative, I started a side business in website administration and online retailing. A few months ago, I registered a small business as a sole proprietor with the business purpose of "internet trade and services".
Since income is slow to come in, the health insurance is pressuring me, and I need a quick solution, I recently started working as a prostitute. I am operating independently, not as an employee in a club or similar establishment, and I receive clients at my home. The income from this work is very good, but I am starting to worry about potential issues with the tax authorities.
Therefore, I have the following questions:
1. Do I need to inform the tax authorities about starting work as a prostitute or even register a separate business for this? Or can I just include it under my already registered business, which includes "services" in the description, even though it is a completely different industry?
2. Is working as a prostitute necessarily considered a commercial activity? Can the income/expenses in the tax return be reported as "freelance work" or "other income"?
3. Assuming my earnings remain low enough to still qualify as a small business owner, what are my bookkeeping obligations? I cannot easily ask my clients for receipts. Can self-made receipts suffice, and if so, what information should they contain?
4. What expenses can I deduct from my taxes as a prostitute? ... Clothing, condoms, cosmetics ... ?
5. Does the flat-rate taxation in advance, recently introduced for prostitutes in brothels, also apply to me as a "home-based worker"?
Thank you very much in advance!
Dear questioner,
First of all, thank you for your inquiry, which I would like to answer based on the information provided and in the context of your initial consultation. The response is based on the facts presented. Missing or incorrect information about the actual circumstances can affect the legal outcome.
As a prostitute, you are engaged in a commercial activity. Therefore, you must register a business with the competent municipality, regardless of whether you are already self-employed in another business.
The municipality will then inform the tax office. You will now receive the so-called questionnaire for tax registration, in which all tax-relevant questions will be discussed. You will be affected by income taxes (income tax and trade tax) as well as value-added tax. If this has already been done at the time of the initial business registration, the questionnaire will not be sent again.
The basis for income taxation is the calculated taxable profit. Therefore, records of income generated and expenses incurred must be kept. For business expenses, private use must be excluded. The determination of profits is done through an income-expenditure account separated by business operations. This is not related to a possible small business status, which is purely a VAT aspect. If the threshold of €24,500 is exceeded, trade tax must also be paid.
Those who are self-employed must generally subject income from this activity to value-added tax and can deduct the invoiced value-added tax as input tax. However, value-added tax is not levied if the income in the previous year was less than €17,500 and is expected to not exceed €50,000 in the current year. All activities are combined to calculate turnover. Consequently, it is possible that a trade previously operated as a small business will become liable for value-added tax.
The tax office will set income tax prepayments based on expected or actual profits. These prepayments must be made every three months. For the purpose of turnover taxation, you may need to submit value-added tax prepayments – for example, if you exceed the above-mentioned turnover limits for small businesses.
At the end of the year, in addition to the income tax return, a value-added tax return may need to be submitted. Based on these returns, the tax office will then issue tax assessments. If a tax return is not submitted, the tax office will estimate the profit and turnover.
In North Rhine-Westphalia, you have the option to participate in the so-called Düsseldorf procedure regarding prostitution and pay a lump sum amount of taxes. The exact procedure in other states is not known to me, but it applies regardless of the place of activity. The lump sum is to be agreed upon between the tax office and the participating service provider. It should take into account local conditions and may include income tax as well as value-added tax. Therefore, there is no uniform "lump sum" in all cities. In Cologne, the rate for income and value-added tax is approximately €15.00 per day of activity. The days must be reported to the tax office.
The payment of the lump sum is only intended to prevent the tax office from conducting intensive audits, which are complicated for both sides due to the difficult accounting situation. This lump sum is only an advance payment. Participation in this procedure does not exempt you from submitting a tax return or from paying the actual taxes incurred. The paid lump sum taxes will be credited towards the later determined tax amounts.
Finally, there may be a municipal amusement tax to pay. It is regulated differently from municipality to municipality.
I hope that these details have given you an initial overview of the situation and remain
Yours sincerely,
Michael Herrmann
Dipl.-Finanzwirt (FH)
Tax consultant
