Income tax calculator for the self-employed
The taxator is an easy-to-use tax calculator for the self-employed, which allows you to calculate your estimated income tax rate within minutes.
Info: The taxator gives you an orientation for your tax rate. However, it does not replace a detailed tax return or the advice of a tax advisor.
Calculating your income tax rate when you’re self-employed
The income tax is one of the most important sources of income of most countries. In 2014, the German state collected 200 billion Euros through income tax, which corresponds to around one third of the total revenue of the German state. As a self-employed person, you have to pay income tax to your respective tax office once you exceed the tax-free allowance of currently 10.347 €, just as every legally defined "natural person". For self-employed persons, the whole process is however much more complicated than for employees. This is because as an employee, you will simply get a tax class attributed to you by the tax office and taxes are already deducted from your pay slip before the money will be transferred to your account at the end of each month. As a self-employed person, you don’t automatically fall into different tax classes. The income tax is calculated on the basis of your annual profits. This often leads to confusion and self-employed people having to pay extra horrendous sums, which sometimes even jeopardizes their self-employment. As a freelancer, it can also sometimes be hard to know exactly how many contracts you will win per year and how much profit they will generate in advance - how can you calculate your income tax in advance like this? And then there is a bunch of factors that make the whole process of knowing how much exactly you need to pay for income tax even more complicated. Even tax accountants sometimes encounter problems when trying to stay up to date of all the provisions and new laws. How then can you ensure that you handle the calculation of your income tax correctly? What factors do you need to take into account? And do you necessarily have to go the long and expensive way to a tax accountant to get a first estimation?
The income tax calculator - the ultimate taxator!
That’s why we developed a special tool for you, with which you can calculate an estimate for your income tax rate by simply answering a couple of questions. Even though our calculation can of course not replace the exact estimation of a tax accountant, you can use the taxator rate to get an approximation for the money you have to put aside for your tax savings - it’s a relatively fair indicator for your income tax rate. Of course, it will get even more precise once you adapt it with time, which will allow you to get a clear picture of how much of your earnings are safe for you to spend. We estimate that the taxator can calculate an accurate benchmark for income tax rates of around 80% of the self-employed in Germany.
What kind of questions will we ask?
The taxator needs to be filled out with a couple of personal information in order for it to be able to calculate your personal income tax rate, which we will list here for you.
How much revenue will you generate this year?
The first question concerns your estimated annual revenue for this tax year. Germany has a progressive tax system, which means your tax rate varies according to the amount of your revenues. As soon as you exceed the relevant tax allowance (10.347 € in 2022), you will owe income tax on the remainder of your revenue, which you will then have to pay the tax office. Currently, the minimum tax rate in Germany is 14%, while the maximum tax rate is 45%. That’s why it is important to first define how much you will approximately earn this year. If you cannot predict with certainty your revenues, it’s best to orient yourself at the revenues from last year and to add a certain amount to them to make sure you will have saved enough for the current tax payment.
What are your monthly business expenses?
We’d also like to know how high your monthly business expenses are. What you spend on your business lowers your profit and this has an impact on your income tax rate. Your business expenses are all expenses that result out of your business activity, such as: rent for an office or coworking space, expenses for leasing, purchase of a new computer or other machines you might need, telephone and internet costs, advertising expenses, car expenses, goods and commodities, fees, charges, or insurances (excluding health insurance), external services and employees, dinner/lunch/after-hour meetings, travel expenses, business outfits. If you’re uncertain about your expenses, try to put a number next to each of the above mentioned expenses. Some expenses obviously also depend on the specifics of your job and sometimes it’s up to the tax office to decide whether to accept something as a business expense or not. With time you fortunately get more routine in calculating those numbers. Especially when you’re at the beginning of your self-employment, you should research all the things you can set off against tax liability.
How much additional income (pre-tax) will you make this year?
There are more and more people that work only part-time self-employed and have another employment on top of that, both of which make up their annual income. But there are other income streams that can potentially increase your annual income, such as getting rent paid if you’re the owner of a house or an apartment that you don’t use for yourself. Or getting income through other capital assets. We’re asking you to sum up these income streams because they will also have an impact on your income tax rate.
Do you belong to a religious organization?
We don’t care about who you’re preaching to, however the taxator needs to know if you belong to a church in Germany. Why? By being a member of a church, you usually also contribute financially to the church community. This financial support is called "church tax" in Germany and is paid to the tax office together with the income tax. The church tax is collected by the tax offices of the federal states and is calculated on the basis of the income tax and the property tax. For our taxator calculation, we take a conservative estimate of 9% to make sure that you put aside enough reserves (as some states only take 8% for church tax).
Are you married? If so, how much will your partner earn this year?
If you’re married or in a registered life partnership, you and your partner can profit from matrimonial splitting, which means both of your taxable income will be split in equal shares to each partner. Then, the tax liability will be calculated for one half and multiplied by two. It’s one way of saving when it comes to your tax burden, especially when everyone's incomes differ significantly from each other. That’s why we’re asking you to also tell us the annual income of your partner.
How much do you and your partner save for your pension annually?
You can also set off your expenses for your pension plan against your tax liability. From 2022, you can set off up to 25.639 Euro. 94% of the paid contributions are tax-deductible.
How many children do you have?
This question obviously also counts into the repertoire of basic questions for the calculation of your income tax rate. Because if you have kids, you’re doing good for the state and the society and this gets rewarded. So, the more kids you have, the lower your income tax rate will be. The way it is calculated is based on the child tax allowance or the child benefits and it has a certain effect on your income tax rate.
When you’ve answered all of these questions, you’ve set the cornerstones for a good estimation of your income tax rate and you can listen to the purr of the taxator while it’s calculating the indicator for your income tax rate.
What else can I do with the taxator?
Because the German tax system is built on the inflow method of accounting, tax is only calculated on the basis of the amount of money that’s actually been paid to you. So if a pending bill would increase your revenues so much that the taxator will tell you a higher tax rate because of it, you can play around with the numbers and see if it isn’t worthwhile to postpone the bill until next year to keep the lower tax rate.