The Items Further Explained
What exactly is your gross profit, when are you entitled to the deductions, what is the SME profit exemption and what about the general tax credits? You will find the answers to those questions here.
Your revenues minus your costs is the gross profit of your sole proprietorship. Costs also include depreciation. If you have little or nothing to write off, a good estimate of the gross profit is all the money that comes in minus all the money you spend.
How does the self-employed deduction work?
As a full-time entrepreneur in a sole proprietorship, you are always entitled to the self-employed deduction provided you work 1,225 hours in a year. Over an entire calendar year, this amounts to an average of 24 hours a week (3 days a week). So you get there quite easily.
If you do business part-time, it is strongly recommended that you keep track of your hours if you want to meet the criterion of the self-employed deduction. You must be able to prove to the tax authorities that you meet the hours criterion .
Are you starting your sole proprietorship later in the year? Then it may well be that you do not arrive at the 1225 hour. The hours criterion is calculated per calendar year. So if you start halfway through the year, you will have to work an average of 48 hours a week to meet this requirement.
The hours criterion is the most important part to be seen by the tax authorities as an entrepreneur. Here you will find the other criteria .
The starter’s allowance
During the first 3 years of your sole proprietorship you are entitled to an additional deductible item, the starters’ allowance. You may only apply this deductible item if you meet all the requirements set by the tax authorities to qualify as an entrepreneur.
This deduction reduces your gross taxable profit by € 2,123 and you can apply it 3 times in the first 4 years of your sole proprietorship.
The starters’ allowance is a small but nice extra that gives you more money to grow when you start your sole proprietorship.
SME profit exemption
The SME profit exemption is an additional deductible item that is calculated on the profit after deduction of the self-employed and start-up deduction. It lowers the taxable profit of your company even further. Again, the tax authorities must see you as an entrepreneur.
In recent years, the level of the SME profit exemption after deduction of the self-employed and start-up deduction has been 14% of your gross profit.
General discounts: tax and labor tax credit
After the above deductions have been applied, your income tax will be calculated. Since you as an entrepreneur also work normally, you are still entitled to 2 general discounts. Namely the tax credit and employed person’s tax credit. Both general corktings immediately reduce the amount you have to pay in income tax.
The tax credit is a discount that every Dutch person receives on his income tax. So it lowers the amount of income tax you have to pay. This amount is different every year, but in recent years it has been between 2200 and 2400 euros.
Because you have a number of deductible items with a sole proprietorship, this means that you will derive maximum benefit from the employed person’s tax credit that applies to income tax. This discount is an extra discount for people with a relatively low income and reduces the amount of income tax by a maximum of 3399 euros.