Saving Tax as a Freelancer or Self-Employed Person

Which taxes do self-employed people pay?

Unlike employees, you're responsible for your own taxes. No employer withholds them automatically. These are the taxes you need to plan for:

The most important types of tax

• Income tax: Levied on your profit (income minus business expenses). Progressive rate from 14-45%.
• Solidarity surcharge: 5.5% of your income tax, but only relevant once your income tax exceeds around €18,000.
• Trade tax: Only for tradespeople, not for freelancers. Allowance: €24,500.
• VAT: 19% (or 7% reduced rate) on your services – but also deductible on your own purchases.
• Church tax: 8-9% of your income tax, if you're a member of a church.

Example: tax burden on €60,000 profit

Single freelancer, no church membership, €60,000 profit:

• Income tax: approx. €14,500
• Solidarity surcharge: €0 (below the exemption threshold)
• Trade tax: €0 (freelancer)
• Total: approx. €14,500 (24% of profit)

Optimizing income tax

Income tax is your biggest tax burden. It's also where the greatest savings potential lies.

Using the basic tax-free allowance

The first €12,348 (2026) is tax-free. By cleverly shifting income or expenses between years, you can make the most of this allowance.

Smoothing out tax progression

The tax rate rises progressively: 14% for low income, up to 42% from around €66,000. If you earn a lot in one year and little the next, you end up paying more than with an even distribution.

Tip: Bring business expenses forward into good years, and push income into weaker years (where possible).

Optimizing advance payments

The tax office estimates your advance payments based on your last tax assessment. If your income is falling: apply to have them reduced! If it's rising: build up reserves.

Trade tax: using the allowance

Trade tax only applies to tradespeople, not freelancers. It's levied by the municipality and varies depending on the local multiplier (Hebesatz).

How the calculation works

1. Determine trade income (≈ profit)
2. Deduct the €24,500 allowance
3. Tax assessment rate: 3.5% of the remainder
4. × the municipality's multiplier (e.g. 400%)

Example: €60,000 profit in Munich (multiplier 490%):

• €60,000 - €24,500 = €35,500
• €35,500 × 3.5% = €1,242.50
• €1,242.50 × 490% = €6,088 trade tax

Trade tax credit

Good news: Trade tax is credited against your income tax (up to 4 times the assessed amount). With low multipliers, the trade tax is almost completely neutralized!

Understanding VAT

VAT (commonly known as sales tax) is a pass-through item for most self-employed people – you collect it from customers and pass it on to the tax office.

The principle

• You charge customers 19% (or 7%) VAT
• You deduct the VAT on your own purchases (input tax)
• You pay the difference to the tax office

Small business regime (§19 UStG)

If your revenue was under €22,000 in the previous year (and is expected to stay under €50,000 in the current year), you can opt for the small business regime: no VAT on your invoices, no input tax deduction.

When is it not worth it? If you're making major investments. With a €3,000 laptop, you'd save €570 in input tax – that often outweighs the reduced paperwork.

VAT advance returns

• Monthly: if last year's VAT was over €7,500
• Quarterly: if it was €1,000-7,500
• Annually: if it was under €1,000

Deducting business expenses correctly

Every business expense reduces your taxable profit. At a marginal tax rate of 35%, you save 35 cents for every euro of business expense.

The most important business expenses

• Home office room: Fully deductible if used exclusively for work, otherwise a flat €1,260/year
• Home office allowance: €6 per day, up to €1,260/year (an alternative to a dedicated office room)
• Office supplies & software: computer, printer, office software, cloud services
• Training: courses, professional literature, conferences
• Phone & internet: proportional for mixed use (e.g. 50%)
• Travel costs: €0.30/km for business trips, or a proportional share of vehicle costs
• Insurance: professional liability, legal expenses insurance (professional), disability insurance

When starting your business, you should keep all costs in view. The startup costs calculator helps you compare legal structures.

Watch out: private use share

For items used for both business and personal purposes (phone, laptop, car), you need to subtract the private-use share. A common split is 50% business, 50% private – but it has to reflect reality.

Retirement provision as a tax-saving model

The Rürup pension (basic pension) is the most attractive tax-saving model for the self-employed. Contributions are 100% deductible as special expenses.

How Rürup works

• Up to €29,344 (2026) deductible per year (married couples: €58,688)
• At a 35% marginal tax rate: €9,648 in tax savings
• Paid out later as a pension, then taxed (usually at a lower rate)
• Cannot be paid out before age 62, and no lump-sum withdrawal

Example

You pay €12,000/year into Rürup with €60,000 profit:

• Taxable profit drops to €48,000
• Tax savings: approx. €4,200/year
• Effective contribution: €7,800 (instead of €12,000)

Investment deduction and depreciation

Larger purchases are normally depreciated over several years (AfA = depreciation for wear and tear). But there are ways to speed this up.

Low-value assets: immediate write-off

Low-value assets (GWG) up to €800 net (€952 gross) can be written off immediately in full. Ideal for small equipment, furniture, and inexpensive electronics.

Investment deduction amount (IAB)

You can deduct up to 50% of planned acquisition costs as a business expense already before the purchase (up to €200,000 profit). Great for years with high profit:

• You're planning to buy a €10,000 laptop next year
• This year you deduct €5,000 as an IAB
• Next year: the remaining value is then depreciated

Watch out: if you don't make the purchase within 3 years, the IAB is reversed (with interest!).

Special depreciation (§7g para. 5 EStG)

In addition to regular depreciation, you can use a 20% special depreciation allowance in the year of purchase. Combined with the IAB, this offers massive tax-saving potential.

The most common tax mistakes

Mistake 1: not building up reserves

The tax bill is coming – guaranteed. Set aside 30-40% of every payment you receive. Into a separate account, not your business account.

Mistake 2: not keeping receipts

No receipt, no business expense. Digitize all your receipts immediately (scanner app or accounting software). Retention period: 10 years.

Mistake 3: missing deadlines

Advance payments, VAT advance returns, tax returns – everything has a deadline. A missed deadline costs you late-payment surcharges and interest.

Mistake 4: claiming private expenses as business expenses

Tempting, but risky: in a tax audit, everything comes to light. In the worst case: tax evasion.

Mistake 5: registering a trade instead of freelance status

If you're actually a freelancer but register a trade, you'll pay trade tax unnecessarily. Check your status carefully!

Frequently asked questions about taxes for the self-employed