The Finanzamt needs to see who you invoiced, who paid you, what you paid for, what the correct taxes paid or received were on these amounts, and exactly when these transactions occurred. Even if you have a Steuerberater, you will need an Excel control file that summarises your business activities: one for incomings and one for outgoings. This should be organized in chronological order as per your bank statement. For incomings and outgoings you will need to include the follow data for each entry: unique invoice number (chronological), client/payee, date paid, payment channel, a breakdown by taxable unit clearly display individual and compounded netto (net) and brutto (gross) amounts (summarised at the end of the logs as well) and a final netto amount. This is a bare-bones overview of the basics, ensure you consult with a tax professional to confirm exactly what you are required to log, in your field.
An accounting system for issuing invoices is also very handy. In addition to automatically generated invoices and payment reminders, many will allow you to export .CSV summaries of your incomings, so you can simply copy and paste the appropriate data into your control file. A freelancer bank like Kontist is working to provide the same .CSV export service to their customers, meaning you can also just export your statement. Regardless, you will need to input your data into a control file that summarises everything to standard.
When it comes to receipts, it’s always important to leave clear notations on what the expense is for, how it was paid, when it was paid and any additional information. For example, a lunch expense will require notes on who you met with, and why. Similarly, transport claims such as hire cars or drivers must include the start and end location, alongside the purpose. While it can be helpful to have an electronic receipt tracker, jotting alongside the paper receipt, attached to plain paper, can be just as painless considering everything has to go into a control system.
Most importantly, it is important to file regularly both receipts and incomings to avoid the end-of-month mess. While technology that automates our lives is often appealing, it can create complications for small-time freelancers. A good bank, a good invoicing system and a good monthly control document alongside regular logging can often be the most efficient method. Lastly, set up a master file ‘Finance’ and sub-files for every month. Each month should include: ‘Receipts’, ‘Invoices & Income’, ‘Bank Statements’, ‘Finanzamt Correspondence’, and ‘Control File’. Using the same system every month keeps everything clean and tidy for those times you have to look back.
Keep it simple: ensure the communication of expenses and income by having a dedicated bank account for your business. When selecting an account for your business, be sure to check their policies on Privacy, Data, their protection limit and regulations of the Federal Laws.
This bank account should be easy to access online, have a good reputation for customer support and give you an option for online purchases. Bonus points for banks: automated accounting or sorting, automatic taxation estimates or storage and syncs with an accounting system. Thankfully, after years of horror stories from freelancers and their banking issues - Kontist came into the game, providing these services and more, and making the separation of business and real life for freelancers easy to manage.
The last step is reporting to the Finanzamt, be it submitting your summary numbers to a Steuerberater or you choose self-submission have learned the ELSTER-portal system. You will have agreed on your reporting frequency and method with the Finanzamt already, so it’s simply a case of staying on top of these deadlines. By putting in regular work and attention to managing your records, by the end of the month/quarter/year, this can be quite painless and you can set up your Excel sheet to do all the heavy math on your behalf.
If you use a handy tool like Kontist, you can also correlate the taxes set aside in your sub-account with your control document and be prepared to pay the amount the Finanzamt will request for payment without stress. You can read more about this and how Kontist can help you, here . Essentially, you should just have to triple check your incomings and outgoings against your bank statements and receipts, which should be filed chronologically. Save all of your summaries that were submitted, including the correspondence in return from the Finanzamt in the same corresponding folder as it comes available - and not only were you ready for reporting, you are ready to look back if need be!
Of course, all of the above can seem overwhelming to have to go be diligent of so many tax-related responsibilities, especially for expats or people with very small-time or owner-operator managed business not used to the German system. However, for most, it’s actually not so daunting once you have a good bank, good record keeping system and the knowledge. Once you get into the routine with your set-up, keeping the Finanzamt happy just means following the rules and being prepared for payments. And, hopefully, you stay focused on your work with all your taxes and records in order.
Guest author: Kate Bailey
Thankfully, in the last 10 years, technology and innovators have come through and made some sweeping changes that have automated the harder, more lonely parts of self-employment and freelancing - finances, paperwork, and taxes! Here are five ways Kontist can help you (and your tax advisor) keep on top of all things admin in your business...
Kate Bailey
Freelance Editor
This is an article for those who fall under the trade obligations of self employment. On our blog, you will find many articles about how to understand these distinctions and the implications each of those distinctions come with. What we are aiming to do here is to lay out what is required when it comes to trade tax, and specifically, the declarations you are required to make. Some of you may have hired a tax agent to handle this for you, but, the fact remains, you need to be properly informed and aware of all of the obligations that you must adhere to to keep your business successful, and also sustainable. So, we are going to explore this topic, and perhaps it is not the topic you want to fill you mindspace with, but it will inevitably take your mindspace and some point, so let’s come to good terms with it!
Kate Bailey
Freelance Editor
