How does a freelancer work
Who is a freelancer - who is a trader?
Sometimes you hear very funny formulations from the newly self-employed: They are recently Ebay power sellers on a “freelance basis”. Or they wanted to "try their hand at being a freelance journalist, but have not yet managed to register a trade". Such fundamental errors testify to widespread misunderstandings about what so-called “liberal professions” and “trades” actually are. Freelancers, like traders, are self-employed, but not every self-employed person is automatically a freelancer or has to register a business! So who is a freelancer and who is actually a trader?
- Self-employed, commercial or freelance?
- Who is a freelancer?
- Who is a trader?
- Mixed job?
- What tax advantages apply to businesspeople?
- Summary - Differences Between Freelancers and Traders
- How does the start into self-employment work?
Self-employed, commercial or freelance?
Self-employed is someone who works "on account" and receives full fees, pays income tax and mostly sales tax (if the small business regulation does not apply), has to take care of social security for old age and illness as well as insurance against accidents at work and claims for damages negotiates his fees himself and has no statutory right to protection against dismissal, paid vacation or payment in the event of illness. But who is a freelancer and who is a trader?
Who is a freelancer?
The status freelancer comprises a very specific group of so-called “catalog professions”. But who is a freelancer? This is precisely defined in Section 18 of the Income Tax Act:
“The freelance work includes independent scientific, artistic, literary, teaching or educational work, the independent work of doctors, dentists, veterinarians, lawyers, notaries, patent attorneys, surveyors, engineers, architects, commercial chemists, auditors, tax advisors, people's advisory services - and business economists, sworn accountants, tax agents, naturopaths, dentists, physiotherapists, journalists, photo reporters, interpreters, translators, pilots and similar professions. A member of a liberal profession within the meaning of sentences 1 and 2 is also active as a freelancer if he uses the help of professionally trained workers; The prerequisite is that he is on Based on own specialist knowledge, active in a managerial and responsible manner becomes."
What are the similar professions?
In the catalog professions, in addition to listing freelance activities, there is also talk of “similar professions”. The law is therefore formulated openly. State professional training or a state-recognized professional qualification is not the only way to work as a freelancer in the relevant professional field. Non-governmental training, many years of professional experience or approval also open the way to recognition as a freelancer.
For this reason, for example, in the field of health professions, the freelance professions that serve to alleviate or heal illnesses or physical impairments. This means that an activity in health care also falls under freelance work.
So who is a freelancer? - The Ebay seller is definitely not one, even if he likes to talk about himself that he works “on a freelance basis”.
Freelancer in a team
Many freelancers join together to form office, law firm or practice communities. However, this form of professional practice does not change anything Freelance status for everyone involved. Because as long as the common office or law firm does not join together to form an economic community and found a joint company, the members of the community act economically and therefore also tax-independently of one another. Every doctor in the joint practice remains, like every lawyer in the joint office, an independent freelancer.
Benefits of freelance status
Freelancers enjoy some privileges - above all, numerous regulations for traders do not apply to them (for example trade tax or IHK membership). As a freelancer, you don't have to organize double-entry bookkeeping or draw up a balance sheet. You can provide your tax information using the income surplus calculation, which is much easier to carry out compared to a balance sheet.
In addition, professional pension funds are available for many occupational groups; Artists and publicists are insured almost like employees through the Artists' Social Insurance Fund (KSK) (because the KSK pays for the portion of pension, health and long-term care insurance that the employer pays for employees). But be careful: freelancers can lose their privileged status immediately if they supplement their income with (too much) commercial income or (too high) income from salaried activities. In addition, all of this must be stated in the tax return for freelancers!
Who is a freelancer and who is a freelancer?
The term freelancer describes a freelancer in a company. Freelancers can work on behalf of several different companies. They are not necessarily integrated into the operations of their clients. In addition, freelancers are not bound by the instructions of their clients, as they work independently and bill for their services using their own invoice. Freelancers are self-employed who are not bound to an employer by an open-ended employment contract. As a rule, freelancers work on the basis of service contracts within a specified time frame. Often the remuneration takes place via a contract for work or as a lump sum. Freelancers can work in many different industries and professions.
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What are the differences to the freelancer?
In contrast, the term freelancer refers to a member of certain professions, as listed in the directory of liberal professions in the Income Tax Act § 18 EStG. Freelancers can work as freelancers as well as run a business. As a rule, freelancers do not conclude service contracts in order to be active. They invoice their services according to an individual agreement with their customers or clients. The time that freelancers work for one or more customers is also not limited in time. Freelancers cannot work independently in professions that are not listed in the register of liberal professions.
Who is a trader?
In principle, every self-employed person who does not work in a catalog or a similar profession is considered a trader. Various obligations apply to traders:
- Business registration
- Business tax
- IHK membership
- Entry in the commercial register
- double-entry bookkeeping
That includes everyone who
- Trades - regardless of whether he deals in second-hand goods on Ebay or whether he opens a flower shop
- Goods produced
- Performs advisory activities that do not require a university degree (accordingly, doctors and lawyers are not included)
- acts as a broker (for example in his own brokerage office, as operator of a car sharing agency or artist agency ...)
- or works as a recycler (e.g. as a publisher or organizer)
If you generate your income in commercial as well as in freelance form, then you should strictly separate the two activities. You can register two companies for this. For both activities, you should set up your own bookkeeping, your own account and an independent report to the tax office. In the annual accounts you have to do one for both activities separate determination of profits create.
If a separation of the two types of income is not possible because the freelance activity works directly with the business enterprise, then the income from your freelance work also belongs to the business enterprise. For example, if you also sell sports equipment as a freelance health trainer, your teaching activities also fall under the trade. Because when you sell your sports equipment, you bring in your specialist knowledge and performance as a health trainer.
What tax advantages apply to businesspeople?
The self-employed, both as a freelancer and as a trader, have more leeway for taxation than, for example, salaried employees. The following criteria are advantageous for traders:
- Business expenses
Businesspeople can claim their business expenses, which reduce profit and thus lower the tax burden.
- Input tax deduction
Businesspeople who are subject to sales tax can deduct the input tax they pay in supplier invoices from their sales tax liability and thus reduce their expenditure burden.
Traders with a profit of less than 60,000 euros and a turnover of less than 600,000 euros and without an entry in the commercial register do not have to draw up a balance sheet. You can determine your profits with the EÜR, which is based on simple bookkeeping.
- Is taxation
Businesses with a turnover of less than 600,000 euros can also choose actual taxation. Actual taxation refers to a tax system through which sales tax is only owed to the tax office when the customer pays his invoice. As a result, the sales tax does not have to be pre-financed as is usually the case. The actual taxation also applies to freelancers regardless of their turnover.
- Company vehicle
The car usually causes high costs. If traders use a vehicle exclusively for work, they can deduct the costs for this from tax. If the car is used partly for business and at the same time for private purposes, you can deduct the business part for tax purposes. To do this, they have to keep a logbook. Alternatively, you can also use the 1% method by specifying one percent of the new car value per month as a private share. Traders can then claim the rest for tax purposes.
Businesspeople can deduct their expenditures for assets via depreciation and thereby lower their profit. For low-value assets, there is the option of immediate depreciation or depreciation using collective items over several years. In this way, traders can control their profit and reduce the tax burden.
Summary - Differences Between Freelancers and Traders
|definition||about self-employment with the intention of making a profit||about type of activity, catalog occupations|
|Identification of the activity||relates to commercial activity||spiritually creative work|
|Knowledge||Apprenticeship||Higher education level required|
|Bookkeeping||Double bookkeeping when exceeding profit and turnover limits||Simple bookkeeping with no turnover limits|
|Determination of profits||Balance sheet and income statement in the annual financial statements||Income surplus calculation (EÜR)|
|Trade tax liability||when exceeding sales limits||No trade tax liability regardless of sales|
|Commercial register entry||Entry requirement for merchants, with the exception of small businesses||No|
|Law of obligations||Commercial Code||Civil Code|
|Chamber memberships||IHK or HWK||No|
|Target-actual taxation||Target taxation when the turnover limits are exceeded||Actual taxation without turnover limits|
How does the start into self-employment work?
Your start in self-employment as a freelancer will first and foremost lead you to your responsible tax office. Here you register your freelance work via a questionnaire for tax registration. You may have to provide proof of your work to the tax office so that it recognizes your status as a freelancer.
As soon as you can rule out that you can work as a freelancer, you have to register your self-employment with the trade office. With your registration you are subject to the trade regulations, about which you should inform yourself in detail. Registration at the trade office costs a fee. After your registration, the trade office informs both the responsible tax office and the trade association about your business activity.
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