Self-employed deduction: tax advantage for entrepreneurs

The self-employed deduction… as an entrepreneur in the Netherlands, you are probably familiar with this. It is a fixed amount that you may deduct from your profit annually. The self-employed deduction is one of the deductible items of the entrepreneurs’ deduction. But the tax benefit has been reduced since 2020. The reason? To reduce tax differences between self-employed entrepreneurs and employees. The reduction in the self-employed deduction has consequences for the tax advantage as an entrepreneur.

Gradually reducing the self-employed deduction

The amount of the self-employed deduction is gradually reduced annually. For the income tax return for 2021 (which you can submit from March 1, 2022), you may deduct €6,670 from your profit, which means you pay less tax. But in 2022, the self-employed deduction will also decrease by € 360 to € 6,310. The reduction of the self-employed deduction will continue in several annual steps until it amounts to € 3,240 in 2036.

Are you entitled to the self-employed deduction?

As we mentioned at the beginning of this article, the self-employed deduction is an important deduction from the entrepreneurs’ deduction. As a self-employed person, you may use the entrepreneurs’ deduction if you are qualified as an entrepreneur for income tax. In addition, you need to meet the hour criterion, which means you have o spend more than 1,225 hours in your company per calendar year. Due to the corona crisis, the Dutch tax authorities do comply with entrepreneurs in the hours’ criterion. In the period between 1 January and 1 July 2021, you may assume that you have invested at least 24 hours a week in your company, even if you have not done so.

How do you apply the self-employed deduction?

The self-employed deduction may be reduced, but if you meet the conditions, you are still entitled to it. You may deduct this annual amount (€6,670 in 2021) from your profit, so you have to pay less tax. From the 1st of March 2022, you will file your income tax return for the year 2021. From your revenue, you deduct the business costs and the deductible items (which include the self-employed deduction, starters deduction, etc.). What is left is your taxable income in box 1, which is used to calculate how much tax you have to pay.

Settle the unrealized self-employed deduction

It could be the case that your profit is too low to use the full self-employed deduction. For example, your profit for 2021 was €5,500, and you are entitled to a €6,670 self-employed deduction. This means that you have not been able to use €1,170 from the deduction. You may settle this amount in the next 9 years, provided your profit in those years is higher than the self-employed deduction. You will find the amount of the unrealized self-employed deduction on your assessment notice.

Help with your income tax return

As an entrepreneur, filing your income tax return is considerably more complicated than for people in paid employment. You have to keep track of your administration because you don’t have an employer who does this for you. Would you rather outsource your tax return to a specialist? Don’t worry! We’ll take care of it for you. Contact us using the details below.

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