For many it is compulsory every year, others volunteer to get paid: the income tax return. This guidebook explains the seven types of income under the Income Tax Act (EStG). In addition, Parson Adams takes a look at the difference between revenue income and surplus income types. We give tips on the means by which employees and the self-employed can save taxes. We explain which income is tax-free and which options are available in the case of financial bottlenecks for additional claims by the tax office.
The income types in the tax
Certain revenues are subject to income tax. This is specified in 2 Abs. 1 EStG. Income from business, self-employment, employment, capital, rental and leasing, agriculture and forestry must be subject to income tax. In addition, other income falls under the income tax liability.
A distinction is made between types of income (agriculture and forestry, business enterprise, self-employment) and types of surplus income (self-employment, income from capital assets, income from letting and leasing, other income according to 22 EStG). Income types of income are associated with a gain, which is made up of the difference between operating income and operating expenses. Surplus income types mean income less expenses, resulting in a surplus.
Income that does not fall into the seven categories under the EStG is not subject to income tax. In the following, we present the types of income in the tax in detail and give tips on how to save taxes.
Income from the business enterprise
A trade is an economic activity that is recognizable as such and aims at profit. The activity must be permanent and take place on own account and responsibility. Income from trade and industry, service companies and corporations such as limited liability companies (GmbH) and public limited companies (AGs) are deemed income from the business enterprise. Gains resulting from a participation in a partnership (oHG, KG, commercial GbR), as well as income from the sale of a business or a share of it. Profits from the sale of real estate as well as the rental of holiday apartments can also be income from the business enterprise. In some cases, individuals have to pay tax trade that has made profits by selling a share in a corporation.
Income from self-employment
If you work as a freelancer, you must pay income tax. Self-employed is anyone who works independently and has a certain job, such as a lawyer, tax consultant, journalist, cameraman, architect or engineer. This is regulated in 18 para. 1 no. 1 EStG. Occupations that are not listed here may fail in this category if the work is done on their own responsibility. In addition, there are other self-employed activities that are not self-employed, but do not constitute a trade and are therefore taxed under this category. If you want to start your own business without equity, you should keep an eye on the resulting tax contributions.
Income from employment
Income from employment is defined as salary or wage. Bonuses and bonuses as well as other employment benefits are included. If you receive a widow’s orphan’s pension, you must also tax it.
Income from employment is subject to income tax. With the income tax return, employees can partially recover the payroll tax deducted, for example, by claiming advertising costs or special expenses.
Income from capital assets
Income from capital assets are those obtained in the form of interest or dividends on private assets. Examples include interest on mortgages, profit distributions, income from silent participations, profits from trading in derivatives or land charges. Income from capital assets held as business assets does not fall into this category.
If you take a maximum of 801 euros (as a couple maximum 1602 euros) per year from capital assets, it must pay no taxes on this. This saver lump sum is the maximum limit for tax-free income from capital assets. If these allowances are exceeded, final withholding tax becomes due. In order to receive investment income without tax deduction, an exemption order from the bank, building society or insurance is required. Anyone who exceeds the allowance amount in the sense of the saver’s lump sum but receives less than the basic allowance amounting to 8652 euros per year can apply for a non-assessment certificate. The bank then does not retain capital gains tax on capital gains.
Income from renting and leasing
Anyone who rents or leases apartments or houses must pay income tax on the profits. This category includes revenues derived from the transfer of licenses, copyrights and exploitation rights. Anyone who holds shares in closed-end real estate funds or real estate associations or has income from owner-builders or joint ventures must also tax the income.
If you take less than 520 euros a year through renting and leasing, you do not have to pay any income tax. Higher amounts have to be taxed. For this purpose, the amount of the cold rent and the additional costs are used. Corresponding costs can be deducted from the tax income-related expenses.
Note Anyone renting a holiday home can save taxes by deducting the associated costs from the tax. For this he has to prove to the tax office that he would like to make a profit primarily with the property. It may be useful not to use the house for a while.