Set costs despite zero revenue?
March 5, 2013 | 30,00 EUR | answered by Dr. Yanqiong Bolik
After transitioning into retirement, I worked as a freelancer and generated revenues of 49,000 euros in 2007, decreasing to 1,800 euros in 2011. With the exception of 2010, I always ended up with a profit after expenses. In 2012, I had no revenues and I am wondering if it would still be sensible and promising to declare the costs of my home office (around 1,200 euros) as a loss, or if this could potentially cause problems with the tax authorities if I continue to report losses in the future due to lack of revenue (lack of intent to generate profits).
Dear inquirer,
Thank you for your inquiry, which I will answer carefully considering your input and the rules of this platform.
Please note that my explanation is based on the situation presented, and that adding, omitting, changing information, or the ambiguity of information can change the tax result. It should also be noted that this does not replace individual comprehensive advice.
Expenses incurred by the operation are generally deductible as operating expenses. The deductibility is generally not related to the amount of revenue, but to the economic circumstances. If the expenses (including costs for the home office) arose from operating your freelance activity, you can generally deduct them as operating expenses.
If losses continue to occur, the tax authorities may doubt your intention to make a profit. According to the tax authorities, there are indications of a lack of profit intent if the following are observed:
- The taxpayer continued the operation despite ongoing losses in the same manner;
- The taxpayer did not take any internal structural measures to achieve positive results;
- The taxpayer also did not demonstrate that they made promising efforts to increase revenue.
If the taxpayer cannot prove or credibly demonstrate in such a case that they made efforts to identify the causes of the losses and address them with suitable measures, it is understandable if the tax authorities conclude that personal reasons, rather than the pursuit of total profit, were the cause for continuing the loss-making activity.
If the tax authorities classify your freelance activity as a hobby, the related expenses will no longer be considered for income tax purposes.
If you wish to continue your freelance activity, then the expenses can still be deducted as operating expenses. However, it is strongly recommended to take measures to increase revenue in order to move out of the loss zone.
I hope I was able to assist you.
If there is still uncertainty, please feel free to use the follow-up function.
Best regards,
Dr. Yanqiong Bolik
Tax consultant
Bildstöckle 6, 70567 Stuttgart
Tel: +49 (0)711 / 2132 1815
Email: steuer@zdbz.de
www.steuerberatung.zdbz.de
