Comparison between staying self-employed or becoming permanently employed.
December 8, 2010 | 50,00 EUR | answered by Oliver Burchardt
Good day,
here is the situation:
Wife, in her mid-40s, with two children, has been working in the further education sector for several years with a business registration. She completes 100 assignments per year at 500 euros each plus VAT in various companies. She travels approximately 30,000 kilometers for work with three private cars (her own, husband's, sister's); the proportion of private use is higher than 50%.
The husband is an employee and earns a gross annual salary of 100,000 euros. Both are voluntarily insured in the statutory health insurance and intend to remain so, even though the wife pays the maximum contribution of nearly 600 euros.
Both spouses are assessed together. The husband's advertising costs are a maximum of 1,500 euros, as he can walk to work. The wife has 28,000 euros in business expenses (12,000 euros in travel expenses, 12,000 euros in paid and offset VAT, 2,000 euros in office supplies and 2,000 euros in other business expenses).
Now the wife has received the following offer:
Permanent employment for seven working days per month at daily changing locations for a gross salary of 3,000 euros per month. The travel costs for approximately 1,500 kilometers per month should be deductible in the income tax return, as well as the office materials required for work, such as documents for colleagues who are being trained by her. The business will then be deregistered, and the sideline activity will no longer take place.
Which option would financially benefit the wife the most and why? She would prefer the permanent employment based on intuition. What would be the correct tax classes for both spouses in the given circumstances of the wife's permanent employment?
Kind regards
Dear inquirer,
Thank you for your inquiry, which I would like to answer as part of an initial consultation.
Please note that the tax assessment is based on the information provided. Adding, changing, or omitting information can significantly alter the assessment.
From an income tax perspective, it is irrelevant in what form the income is generated. If the underlying amounts of income and operating expenses are the same, the income tax burden remains unchanged.
Both in your wife's current activity and in the contemplated non-self-employed work, the amounts deductible as advertising costs or operating expenses remain the same in principle. There will only be minor differences in the amounts.
Based on the description of your wife's activity, I assume that she meets the requirements of self-employment within the meaning of § 18 EStG (German Income Tax Act) and is not subject to trade tax. If this is not the case, a detailed tax calculation should be carried out.
However, there are implications from a VAT perspective. As a business owner, your wife can claim the input tax included in the services received. This possibility is lost if the activity is carried out as an employee.
For example:
Purchase of office supplies at a gross value of 119 €:
As a business owner: Refund of the input tax of 19 €, deduction of the net value of 100 € as an operating expense, reduction of the tax burden by 30 € (assuming a tax rate of 30%); Total tax impact 49 €
As an employee: Deduction of 119 € as advertising costs, reduction of the tax burden by 36 €.
There should be only minor effects in the area of special expenses, as the pension contributions paid by your wife so far are likely to be deductible.
The decision on which form of activity to pursue, in my opinion, is not dependent on tax parameters (except for the VAT implications, which you must decide to what extent they are significant).
If you choose permanent employment, the combination of tax classes III/V is recommended based on the income situation, although this choice ultimately has no tax impact, as the tax burden is determined in the income tax return. The choice of tax classes only affects the amount of wage tax deductions.
However, there is currently room for tax planning in the use of the vehicle. If your wife only uses a car for business trips, it can be allocated to business assets. This can result in tax advantages. You should seek more detailed advice on this matter.
I hope I have given you an overview of the decision-making situation.
Yours sincerely,
Oliver Burchardt
Tax consultant
