Ask a tax advisor on the topic of Other questions to tax advisors

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December 20, 2019 | 30,00 EUR | answered by Steuerberater Bernd Thomas

Dear Sir or Madam,

I am registered as a freelance consultant, but have been unable to work due to illness since 08/2018. Until 07/2018, I had revenues, but afterwards only incurred costs (including a home office in my condominium). Nevertheless, in 2018 I still had overall positive income in the income statement.
Currently, I do not know if or when I will be able to resume this activity. However, I am planning to focus on freelance tutoring (tax-exempt) and also test some software (minimal, approximately 300 EUR gross per year, taxable) once I recover (hopefully in 2020). It may also make sense to pursue a subsidized further education, for example as a learning therapist (I will seek advice on this).
1. In 2019, I occasionally tested software online from home (taxable) and gave a few tutoring sessions (without VAT). On the expense side, insurance premiums (professional liability, liability) were paid, and I have suspended or canceled these insurances starting from October 2019. Additionally, there were costs for things like postage, office supplies, internet connection, phone, home office, etc. – resulting in approximately 4,000 EUR in negative income in the income statement. Can I deduct these expenses in the income tax return for 2019 despite being unable to work?
2. What do you recommend regarding my work as a consultant? Should I suspend it with the tax office (possibly retroactively to 01/01/2019 – see question 1)? Or should I expand my activities to include tutoring/software testing (retroactively)? Or should I re-register my activities? Or suspend and re-register?
3. How does the deduction of input tax work for tax-exempt and taxable revenues? For example, if I buy a folder for tutoring with 14% input tax and another folder for software testing with 14% input tax, when can I deduct the input tax and when not?

Thank you for your response.

Steuerberater Bernd Thomas

Dear inquirer,

I am happy to answer your inquiry based on the information provided in a initial consultation on frag-einen.com. The response is based on the facts you have provided. Missing or incorrect information can affect the legal outcome.

Regarding point 1:

Even if you incur losses, business expenses remain deductible. It depends on the intention to make a profit over the entire period of self-employment, not on the profit in individual years. However, for a home office, it is necessary to use it; if this is not done, a home office cannot be recognized.

Regarding point 2:

Consultants and tutors are usually self-employed activities, while software testers are typically classified as commercial activities, so the commercial activity of a software tester should be reported to the tax office. In practice, it is usually sufficient to declare the income in the tax return.

Regarding point 3:

If you generate both tax-exempt and taxable sales, each input tax amount must first be assigned to determine whether it belongs to a taxable output service or not, and accordingly, it can be deducted or not. If input tax amounts cannot be assigned, then the input tax is deductible proportionally, in relation to the output sales.

Best regards,

Bernd Thomas
Tax consultant

Dipl.-Kaufmann (FH) Bernd Thomas, Tax Consultant, Neustadtswall 85, 28199 Bremen, bernd.thomas@yahoo.de, VAT ID No. DE316948369, Member of the Hanseatic Chamber of Tax Consultants Bremen, Registration Number 111705, Professional liability insurance with R+V Allgemeine Versicherung AG, Mittlerer Pfad 24, 70499 Stuttgart, Insurance sum: 250,000 euros for each individual claim; annual maximum benefit: 1,000,000 euros (for all damages in an insurance year), the professional regulations of the StBerG apply https://www.gesetze-im-internet.de/stberg/