Self-employed and income tax
Are you just starting as a self-employed person? Then, you will probably wonder how much income tax you actually have to pay as a self-employed person. In addition, you should also know how much you approximately have to pay: you are responsible for it yourself, so it is wise to put some money aside every month. In this article, we explain how income tax works as a self-employed person.
How much income tax do you pay as self-employed person?
If you are self-employed, the same brackets and rates apply as those for personal income tax. The higher your profit, the more tax you have to pay due to our progressive tax system. This means, in 2021, self-employed people have to pay 37.10% tax on profits up to € 65,508 and 49.50% tax on their profits from € 65,508. You can therefore compare your profit with net wages.
Let’s say your annual profit was € 75,000. According to the brackets, you would have to pay €28,629 in tax. This sounds like a very high amount, right? Luckily, this calculation does not take into account the other factors that reduce your taxable income. Read on for more information.
We already mentioned that you pay more tax if you have a higher profit due to the progressive tax system. A second reason is that tax credits become lower the higher your profit. But what are these tax credits? Well, you are entitled to the same tax credits as those of people in paid employment. The general tax credit will be lower when your profit is higher than € 20,384; the labour rebate will decrease if your profit exceeds € 34,060.
As a self-employed person, you are entitled to various deductible items if you meet the criteria. You do have to invest at least 1,225 hours in your company for most deductible items. Examples of deductions are the self-employed deduction and the start-up deduction: we have devoted a separate page to this. It is good to know that these deductible items reduce your taxable income, including the income on which the tax credits are based. The result: less tax to pay!
When do you pay income tax as self-employed?
You pay the income tax afterward between 1 March and 1 May: this makes it even more important to put money aside for the tax authorities. Are you not such a good saver? Then, there is always the option to pay a monthly amount to the tax authorities. The income tax return as a self-employed person is a bit more difficult than for someone in paid employment. The reason for this is that a lot has not yet been filled in. Therefore, keep your administration up to date and deduct all business costs from your profit besides the deductible items!
VAT vs. income tax
Every now and then, it happens that a self-employed person thinks that filing the VAT return is sufficient. But nothing could be further from the truth: the VAT return and income tax return are completely separate from each other, so you have to pay both!
We are happy to help!
Are you self-employed and do you have questions about your income tax? Or do you want our help filing your taxes? We are happy to help! Please, contact us using the details mentioned below.