Perhaps you have heard other self-employed people tell you that they have updated their wages? If so, chances are they have a partnership. This company then pays a salary to the private person, with an accompanying payslip.
For sole proprietors, this works differently: after all, you cannot pay yourself a salary!
With sole proprietors, your profit is equal to your taxable income
A sole proprietor is not a separate legal entity, which means that you and your business are seen as 1 person. So at the end of the year, the taxman will look at your profit, or in other words, your taxable profit.
This profit is then taxed according to income tax. This means you will have to pay social security contributions and personal income tax on this amount.
Did you know?
With sole proprietors, you cannot optimise your wages, but with a company you can.
With sole proprietors, there is therefore no difference between your private account and your business account, and you can also freely transfer between the two. You don’t have to do anything accounting-wise for this either.
So what is my net salary in my sole proprietor?
Everything you earn as a self-employed person with a sole proprietorship is already immediately yours privately. So you don’t need a pay slip for that. So you may compare the profits from your sole proprietors with the gross salary on your pay slip as an employee.
Tip from an accountant:
Your profit is determined through your income and expenses, not based on how much is stated in your account
You can compare the net wage in the case of employees and the self-employed as follows:
Net pay as an employee
When you signed your contract, you only knew your gross salary. But your net pay is paid into your account . Your employer estimates how much personal income tax and social security contributions you have to pay and deducts this from your gross pay.
This is the withholding tax, but as the name suggests, this is a ‘withholding tax’. The final settlement follows via the yearly tax return.
Yearly, therefore, you still have to file your tax return, after which the government will calculate whether you have paid too much or too little withholding tax.
Net salary in a sole proprietors’ business
By now you already know that you can compare your profit with gross wages. You pay taxes on your gross pay to keep your net pay. So on your profit you will have to pay your personal income tax and social security contributions every year. What remains is your net wage.
As a self-employed person with a sole proprietor, you have to arrange payments of taxes yourself. What exactly do you practically have to do?
With sole proprietors , your returns are also done via your tax letter. When you file your yearly personal income tax, you write in Part II how many expenses and incomes you had. To avoid paying a large amount at the end of the year, you can do advance payments for your personal income tax.
You pay social security contributions quarterly to your social insurance fund. The government only lets you know after three years how much social security contributions you have to pay definitively. Fortunately, Dexxtercalculates everything for you, so there are no surprises!
Tip from an accountant:
To avoid interest, it’s best to pay an advance on your personal income tax every quarter.
Summary
If you transfer money from your sole proprietors to your private life, this has no accounting consequences and you should therefore not enter it as expenses in your accounts.
Do you have employees as sole proprietors?
You may (or rather, must) pay these employees wages. These wages are a cost for your company and you can simply add them as purchase invoices in Dexxter.
For more info on personnel in a sole proprietor, click here!
