Many self-employed people wonder about this, and the question comes up regularly in our Dexxter community:
“I made a loss last year as a self-employed person. Do I still have to pay taxes? And what about my advance payments?”
For many start-ups, making a loss in the first year (and even beyond) is not unusual. But what does this mean for your tax situation? In this article, we clearly explain how losses as a self-employed person affect your tax return and what happens to your advance payments.
Do you have to pay tax if you make a loss as a self-employed person?
No, if you make a (tax) loss, you pay no taxes on your self-employed activity. However, that loss does have an impact on your overall tax return. In Belgium, your tax is calculated on your total taxable income, so this includes any other income (such as a salary as an employee).
Example:
- You are an employee and earn a gross salary of €50,000.
- You make a loss of €5,000 as a self-employed person.
- Your taxable income then becomes: €50,000 – €5,000 = €45,000.
This means you pay less tax thanks to your loss as a self-employed person. The loss therefore reduces your total tax burden.
Tip from an accountant
‘Be aware that if you make a loss for more than 3 years, the likelihood of a tax auditincreases.’
What if you made advance payments?
If, as a self-employed person, you made advance payments but ultimately made a loss, those advance payments will be paid back via your tax return.
Example:
- Normally, you’d get €1,000 back via your personal income tax return. So your salary as an employee, the loss as a self-employed person, mortgage payments, pension savings – you name it. All added together, these amount to an amount of €1,000 to be returned.
- You’ve also made €2,000 in advance payments through your self-employed activity.
- In that case, you will receive a total of €3,000 back from the tax authorities.
💡 Important: you don’t need to do anything; the tax authorities process this automatically based on your personal income tax return.
What is the difference between an accounting loss and a tax loss?
These two terms are very similar, but they mean slightly different things. It is important to distinguish between them, especially if you want to fill in your taxes correctly.
- Accounting loss: This is the difference between all your income and your expenses. If your expenses exceed your income, you make an accounting loss. Here, everything is viewed without any tax adjustments.
- Tax loss: This is the loss that remains after the tax authorities have limited or disallowed certain costs. Take car expenses, for example: you are not always allowed to deduct these in full. The tax loss may therefore be smaller than your accounting loss.
The tax authorities do not accept all the costs you include in your accounts. Some expenses are fully or partially excluded or limited in the tax calculation.
👉 Examples of costs that are (partially) disallowed for tax purposes:
- Car expenses: often only 50% to 75% deductible.
- Entertainment expenses (such as restaurant visits): often only partially deductible.
- Non-verifiable costs: expenses without a valid invoice or supporting document.
➡️ In a nutshell
Accounting loss = income – expenses
Tax loss = updated accounts in accordance with tax rules
A quick example:
- You make an accounting loss of €5,000.
- However, €1,000 of your expenses are not accepted by the tax authorities (for example, because they are only partially deductible).
➡️ In that case, your tax loss is only €4,000.
View the video: taxes on losses in your first year
In the videobelow, we also provide an explanation of what happens if you make a loss as a self-employed person, how this affects your tax, and what advance payments mean in this context.
Conclusion
Making a loss as a self-employed person affects your tax return, but you do not pay any taxes on a negative result as a self-employed person. What’s more, you’ll get any advance payments back, and your loss can reduce your total tax liability when combined with other income.
Making a loss in your start-up year is normal, and sometimes even tax-efficient. Just make sure your accounts are in order!
Do you have any questions? Ask them in our community or contact our support team.
