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Intention to make a profit in small businesses - Provisional note

April 27, 2016 | 25,00 EUR | answered by Grit Weidauer

I offer hosting services on a part-time basis. There are 4-5 customers who pay a total of approximately 1000 euros annually; I also occasionally assist them with IT questions, but there are no additional costs. I do not advertise much, but rather acquire customers through a partner.

In my 2014 tax return, I reported these earnings and deducted the home office (which was only partially recognized, as it was part-time), as well as my expenses for these services.

However, the tax assessment contained a provisional note - the profit-making intention was doubted / hobbyism was suggested. Invoices for 2015 have not yet been issued.

How should I best handle this issue in my 2015 tax return to avoid being accused of lacking profit-making intentions? I will now only issue the invoices in 2016. I am currently working on making the services more profitable.

Grit Weidauer

Dear inquirer,

In the case of income from a business operation, the intention to make a profit is an indicator for recognition. A total profit analysis is carried out over a period of 5 to 8 years. If only losses accumulate during this time, the intention to make a profit is denied and the decisions are retroactively changed. This means that an assessment is carried out without accounting for the losses.

To avoid this, it is advisable to generate a profit. To receive a precise answer for your case, it is recommended to consult a tax advisor.

Best regards,

Grit Weidauer
Tax Advisor