What if you correctly track all your professional expenses for your secondary occupation, but income is still limited (for now)? Is it bad if you make losses as a self-employed person?
What is a loss? 🔎
Let’s start at the beginning: a loss in your sole proprietors, what does it really mean?
As an entrepreneur, when you start up your self-employed activities, you will always have some start-up costs: applying for your company number, having a website made, some small expenses here and there.
These are professional expenses that naturally have a place in your accounts, but as a start-up entrepreneur it may take some time before income follows. You might end up with a negative result in your accounts and thus have made a loss.
Making a loss in secondary occupation … is that bad? 📉
No way, as an entrepreneur, that’s part of the game.
Starting up as an entrepreneur is not easy, so it is perfectly normal not to make a profit in your starting year. In fact, even in subsequent years, it is perfectly possible to end a year with a loss in your accounts.
For example, you have incurred expenses to make your company future-proof again, one of your customers has made less use of your services, or circumstances have prevented you from devoting enough time to your self-employed activity this year.
Is it useful to declare losses in my personal income tax?
Yes (but don’t let that be a motivation not to make a profit)!
As long as you are working with a sole proprietor, the profit (or loss) from your business ends up in personal income tax. This is the annual tax return that everyone has to file, which also includes, for example, your income as an employee.
You may visually imagine the personal income tax as a tower, where all your income is stacked on top of each other. Income as an employee, profits as a self-employed person, flat rentals … They are all neatly stacked on top of each other in the personal income tax to then calculate taxes on them.
Tip:
Be sure to view our blog article on personal income tax calculations so you know exactly how much you will be taxed.
The more profit, the higher the tower of income and the more taxes you have to pay. Sounds logical, but counts just as much the other way around!
If you make no profit, it has the same effect on your personal income tax. Visually, you may represent that in a sole proprietors’ business as if you were making the tower of income a bit smaller again. A loss will have the same impact as a profit on that tower.
So, in short, it will make you pay less personal income tax.
And the taxman? 👩⚖️
Fortunately, the taxman also shows understanding, as long as the expenses you enter in your accounts are actually related to your self-employed activities!
Not making a profit with your business can hide in a small corner. Fortunately, the taxman knows that too.
Declaring no profit in your personal income tax return will therefore not automatically mean that you can expect a tax inspection – and fortunately so!
Of course, the chance of a tax inspection increases if you do not declare profits from your sole proprietors’ business for years in a row. Logical too, because on paper you are then performing self-employed activities only to tear your trousers off financially.
As long as you truthfully supplement your accounts with expenses that are effectively related to your self-employed activities, you have nothing to fear, not even in the event of a tax inspection.
Still have questions?
That’s perfectly normal! It will remain so throughout your entire entrepreneurial journey, which is why we created the community in Dexxter !
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