Car expenses for freelancers

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Hey,

I would like to know how does it work in terms of tax of leasing/buying a car for work related issue.

I live in Berlin and work as a freelance, I would like to buy/lease a car for work purposes only (meetings out of Berlin, Will use the car for private issues only in case of emergency).

 

If you can help me understand

a. Are all costs tax deductible (car, service, insurance, petrol)?

b. I understand I need a log book for the first 3 months? how do I prove it's for work?

c. what happens if I sell the car?

d. what happens if I stop being a freelnace?

e. are there any price limitaions on the car?

 

Thank you!

 

 

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22 hours ago, disser said:

a. Are all costs tax deductible (car, service, insurance, petrol)?

 

Yes, but only if you use it for more than 50% for your business (you prove that percentage by keeping a log book (= Fahrtenbuch) for the first 3 months).

You get back the entire VAT on petrol and repairs/maintenance, even though you don't use the car 100% for your business, but the Finanzamt will claw back some of that VAT, see below.

 

Buying a car:

 

At the start, you get back the VAT you paid for that car.

With the figures from the example below, you get back the VAT contained in the price you paid (but only if you bought it from a business):

15,625€ - 15,625€/1.19 = 2,494.75€

 

But there are 2 ways they ensure that you pay for using this car privately (you get to choose which way):

 

Way 1, according to §6 Absatz 1 Nr. 4 Satz 2 EStG:

You have to tax 1% of the gross list price (= theoretical list price for a new car of its make, including VAT. Not the price you actually paid!) every month as income, i.e. pay income tax on this "use". Plus you have to pay 19% VAT on that 1%*list_price.

 

Example:

You bought a new grey VW Golf Trendline 81kW with 4 doors and a leather steering wheel for 15,625€ (incuding VAT).

That same VW Golf has a list price of 20,700€ on the VW web site.

 

Every month, you will have to pay income tax on "pretend" income of:

0.01 * 20,700€ = 207€

--> assuming your personal income tax rate is 30%, this will cost you: 0.3 * 207€ = 62.10€ a month

 

Plus you will have to forward to the Finanzamt VAT every month:

0.19 * 207€ = 39.33€ a month

 

--> in total, the advantage of having a new car to use also privately will cost you: 62.10€ + 39.33€ = 101.43€ a month --> 1,217.16€ a year

 

 

Way 2, according to §6 Absatz 1 Nr. 4 Satz 3 EStG:

You will have to  pay income tax and VAT on your actual use, on your depreciation and real net expenses.

To be allowed to choose this way, you have to keep a log (= Fahrtenbuch, and is has to be of the kind where you can't change an entry once it has been made, i.e. the simplest would be a paper Fahrtenbuch) all the time, i.e. not only for the first 3 months.

 

Example:

First off, you will get back the entire VAT, even though, let's say, you only use the car 60% for your business, on expenses incurred for the car like petrol and repairs/maintenance.

Insurance, even though it carries a 19% tax, that tax isn't VAT but insurance tax, so you don't get that insurance tax back.

 

You bought the above car at 15,625€. 

You got back 2,494.75€ VAT on it, so the remaining net price is 13,130.25€.

This car will be depreciated over 6 years (see point 4.2.1 in the official depreciation table), so the depreciation every year is:

1/6 * 13,130.25€ = 2,188.38€ per year

 

Let's assume that:

You paid for petrol and repairs/maintenance in 2017, including VAT: 2,380€

This means that you immediately got back the VAT in the above invoices, in total, you got back: 2,380€ - 2,380€/1.19 = 380€

This leaves net (= without VAT) expenses of 2,000€.

 

Your insurance doesn't carry VAT, so the 600€ you paid for it is the net expense.

 

Now add up all these net expenses:

2,000€ + 600€ = 2,600€

 

We assumed you use the car 60% for your business (as proven by the complete log book without any gaps that you kept throughout all of 2017).

So your private use was 40%.

 

To pay for this private use, you will have to pay income tax on:

 

0.4 * (depreciation + real_net_expenses=

= 0.4 * (2,188.38€ + 2,600€)

= 1,915.35€

--> assuming your personal income tax rate is 30%, this will cost you: 0.3 * 1,915.35€ = 574.61€

 

Plus you will have to forward to the Finanzamt VAT:

0.19 * 1,915.35€ = 363.92€

 

--> in total, the advantage of having a new car to use also privately will cost you: 574.61€ + 363.92€ = 938.53 a year (but with the downside that you need to keep that log book all the time!)

 

**********************************************************************

 

In the case of leasing instead of buying outright, everything above stays the same, except you won't have any depreciation expense, but instead your real_net_expenses will be higher because of the net monthly leasing expenses (they're also net, since you get back back the VAT on the monthly leasing rates).

 

 

22 hours ago, disser said:

b. I understand I need a log book for the first 3 months? how do I prove it's for work?

 

You can buy a Fahrtenbuch in every stationery store:https://www.amazon.de/s/ref=nb_sb_noss_2?__mk_de_DE=%C3%85M%C3%85%C5%BD%C3%95%C3%91&url=search-alias%3Daps&field-keywords=Fahrtenbuch

You keep it in your car and after every drive, you simply write next to each use exactly what it was for, e.g. meeting with client X for project Y.

The Finanzamt will believe what you wrote in there.

 

But it has to be complete, i.e. without any gaps, with every km driven listed:

Auszug_Fahrtenbuch.JPG.3dafc0c822e6a5cf8

 

 

22 hours ago, disser said:

c. what happens if I sell the car?

 

You pay VAT on the selling price.

 

For example, if you sell the car after 36 months (= 3 years) for 10,000€, you will have to forward out of that selling price:

10,000€ - 10,000€/1.19 = 1,596.64€ VAT immediately to the Finanzamt.

The net price (= without VAT) that you will have sold it at is 8,403.36€ (= 10,000€ - 1,596.64€).

 

In your books, that car will have a value (after 3 years of depreciation) of:

13,130.25€ - (3 * 2,188.38€) = 6,565.11€

 

You will also have to pay income tax on the profit you made on that sale:

profit = net_selling_price - book_value = 8,403.36€ - 6,565.11€ = 1,838.25€

--> assuming your personal income tax rate is 30%, this will cost you: 0.3 * 1,838.25€ = 551.48€

 

22 hours ago, disser said:

d. what happens if I stop being a freelnace?

 

You then have to "sell" the car, either to yourself or to somebody else, and tax the profit.

And don't think you can just put in a low selling price so as to not make a profit, they will assume the real market price (which the Finanzamt can look up in the Schwacke Liste).

 

22 hours ago, disser said:

e. are there any price limitations on the car?

 

No.

But as you can see from the above calculations, buying a car for your business costs you, and costs you more the more expensive the car was.

 

The most economical way is not to buy a car for your business, but instead to use your own, used private car for your business, and enter into your Fahrtenbuch only the business trips you made with your private car and claim for these as a business expense:

km_on_business_trips * 0.30€/km

 

Example:

you drove 2,000km for your business in 2017 with your private car, as proven through your Fahrtenbuch

--> you claim:

2,000km * 0.30€/km = 600€ as a business expense

 

The alternative to claiming those flat rate 0.30€ per km driven with your private car is to directly claim the real expenses associated with those business trips, e.g. the petrol invoice when you filled up before the business trip, the parking expenses, and so on.

In that case you also get back the VAT on that petrol invoice

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22 hours ago, PandaMunich said:

 

Yes, but only if you use it for more than 50% for your business (you prove that percentage by keeping a log book (= Fahrtenbuch) for the first 3 months).

You get back the entire VAT on petrol and repairs/maintenance, even though you don't use the car 100% for your business, but the Finanzamt will claw back some of that VAT, see below.

 

Buying a car:

 

At the start, you get back the VAT you paid for that car.

With the figures from the example below, you get back the VAT contained in the price you paid (but only if you bought it from a business):

15,625€ - 15,625€/1.19 = 2,494.75€

 

But there are 2 ways they ensure that you pay for using this car privately (you get to choose which way):

 

Way 1, according to §6 Absatz 1 Nr. 4 Satz 2 EStG:

You have to tax 1% of the gross list price (= theoretical list price for a new car of its make, including VAT. Not the price you actually paid!) every month as income, i.e. pay income tax on this "use". Plus you have to pay 19% VAT on that 1%*list_price.

 

Example:

You bought a new grey VW Golf Trendline 81kW with 4 doors and a leather steering wheel for 15,625€ (incuding VAT).

That same VW Golf has a list price of 20,700€ on the VW web site.

 

Every month, you will have to pay income tax on "pretend" income of:

0.01 * 20,700€ = 207€

--> assuming your personal income tax rate is 30%, this will cost you: 0.3 * 207€ = 62.10€ a month

 

Plus you will have to forward to the Finanzamt VAT every month:

0.19 * 207€ = 39.33€ a month

 

--> in total, the advantage of having a new car to use also privately will cost you: 62.10€ + 39.33€ = 101.43€ a month --> 1,217.16€ a year

 

 

Way 2, according to §6 Absatz 1 Nr. 4 Satz 3 EStG:

You will have to  pay income tax and VAT on your actual use, on your depreciation and real net expenses.

To be allowed to choose this way, you have to keep a log (= Fahrtenbuch, and is has to be of the kind where you can't change an entry once it has been made, i.e. the simplest would be a paper Fahrtenbuch) all the time, i.e. not only for the first 3 months.

 

Example:

First off, you will get back the entire VAT, even though, let's say, you only use the car 60% for your business, on expenses incurred for the car like petrol and repairs/maintenance.

Insurance, even though it carries a 19% tax, that tax isn't VAT but insurance tax, so you don't get that insurance tax back.

 

You bought the above car at 15,625€. 

You got back 2,494.75€ VAT on it, so the remaining net price is 13,130.25€.

This car will be depreciated over 6 years (see point 4.2.1 in the official depreciation table), so the depreciation every year is:

1/6 * 13,130.25€ = 2,188.38€ per year

 

Let's assume that:

You paid for petrol and repairs/maintenance in 2017, including VAT: 2,380€

This means that you immediately got back the VAT in the above invoices, in total, you got back: 2,380€ - 2,380€/1.19 = 380€

This leaves net (= without VAT) expenses of 2,000€.

 

Your insurance doesn't carry VAT, so the 600€ you paid for it is the net expense.

 

Now add up all these net expenses:

2,000€ + 600€ = 2,600€

 

We assumed you use the car 60% for your business (as proven by the complete log book without any gaps that you kept throughout all of 2017).

So your private use was 40%.

 

To pay for this private use, you will have to pay income tax on:

 

0.4 * (depreciation + real_net_expenses=

= 0.4 * (2,188.38€ + 2,600€)

= 1,915.35€

--> assuming your personal income tax rate is 30%, this will cost you: 0.3 * 1,915.35€ = 574.61€

 

Plus you will have to forward to the Finanzamt VAT:

0.19 * 1,915.35€ = 363.92€

 

--> in total, the advantage of having a new car to use also privately will cost you: 574.61€ + 363.92€ = 938.53 a year (but with the downside that you need to keep that log book all the time!)

 

**********************************************************************

 

In the case of leasing instead of buying outright, everything above stays the same, except you won't have any depreciation expense, but instead your real_net_expenses will be higher because of the net monthly leasing expenses (they're also net, since you get back back the VAT on the monthly leasing rates).

 

 

 

You can buy a Fahrtenbuch in every stationery store:https://www.amazon.de/s/ref=nb_sb_noss_2?__mk_de_DE=%C3%85M%C3%85%C5%BD%C3%95%C3%91&url=search-alias%3Daps&field-keywords=Fahrtenbuch

You keep it in your car and after every drive, you simply write next to each use exactly what it was for, e.g. meeting with client X for project Y.

The Finanzamt will believe what you wrote in there.

 

But it has to be complete, i.e. without any gaps, with every km driven listed:

Auszug_Fahrtenbuch.JPG.3dafc0c822e6a5cf8

 

 

 

You pay VAT on the selling price.

 

For example, if you sell the car after 36 months (= 3 years) for 10,000€, you will have to forward out of that selling price:

10,000€ - 10,000€/1.19 = 1,596.64€ VAT immediately to the Finanzamt.

The net price (= without VAT) that you will have sold it at is 8,403.36€ (= 10,000€ - 1,596.64€).

 

In your books, that car will have a value (after 3 years of depreciation) of:

13,130.25€ - (3 * 2,188.38€) = 6,565.11€

 

You will also have to pay income tax on the profit you made on that sale:

profit = net_selling_price - book_value = 8,403.36€ - 6,565.11€ = 1,838.25€

--> assuming your personal income tax rate is 30%, this will cost you: 0.3 * 1,838.25€ = 551.48€

 

 

You then have to "sell" the car, either to yourself or to somebody else, and tax the profit.

And don't think you can just put in a low selling price so as to not make a profit, they will assume the real market price (which the Finanzamt can look up in the Schwacke Liste).

 

 

No.

But as you can see from the above calculations, buying a car for your business costs you, and costs you more the more expensive the car was.

 

The most economical way is not to buy a car for your business, but instead to use your own, used private car for your business, and enter into your Fahrtenbuch only the business trips you made with your private car and claim for these as a business expense:

km_on_business_trips * 0.30€/km

 

Example:

you drove 2,000km for your business in 2017 with your private car, as proven through your Fahrtenbuch

--> you claim:

2,000km * 0.30€/km = 600€ as a business expense

 

The alternative to claiming those flat rate 0.30€ per km driven with your private car is to directly claim the real expenses associated with those business trips, e.g. the petrol invoice when you filled up before the business trip, the parking expenses, and so on.

In that case you also get back the VAT on that petrol invoice

 

 

WOW Thank you very much for the detailed answer ! 

This makes a lot of sense.

 

Just one thing- 

22 hours ago, PandaMunich said:

The most economical way is not to buy a car for your business, but instead to use your own, used private car for your business, and enter into your Fahrtenbuch only the business trips you made with your private car and claim for these as a business expense:

 

But as I will use the car for work issues only I do prefer to lease a car for my business and not buy a private car and expense the trips.

Also, when I finish working as a freelancer I will not need to sell the car and report the VAT.

I will chose way 2 that you mentioned (according to §6 Absatz 1 Nr. 4 Satz 3 EStG) and keep a logbook for all activity. 

 

So Just to see that I got this correctly (my income tax is 42%).

I want to lease a car (Audi A4 for example from Sixt)- the Lease rate per month excluding VAT is 230,32 €.

I can put all expenses as real_net_expenses? do I need to pay any income tax at all?

 

Thank you!

 

 

 

 

 

 

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Example for leasing:

You use the car to 90% for your business, and 10% privately, as proven through your complete Fahrtenbuch.
 

Monthly leasing rate including 19% VAT: 326.88€ (click on "Details zur Finanzierung" under "Bleifrei" in here)

--> you get back the whole VAT on the leasing rate through your monthly Umsatzsteuer-Voranmeldung: 326.88€ - 326.88€/1.19 = 52.19€

--> monthly net leasing rate = 326.88€ - 52.19€ = 274.69€

 

You also have petrol expenses of 238€ a month (incl. VAT)

--> you get back the whole VAT on the petrol through your monthly Umsatzsteuer-Voranmeldung: 238€ - 238€/1.19 = 38€

--> monthly net petrol expenses = 238€ - 38€ = 200€

 

You will have to pay every month tax on your 10% private use:

  1. 19% VAT: 10% * (monthly net leasing rate + monthly net petrol expenses) * 19% = 0.1 * (274.69€ + 200€) * 0.19 = 47.47€ * 0.19 = 9.02€
  2. 30% for income+Soli tax (no, your average \varnothing income+Soli tax rate isn't 42%, not unless your yearly income is >300,000€. 60,000€ taxable income per year means 30% average \varnothing income+Soli tax rate): 10% * (monthly net leasing rate + monthly net petrol expenses) * 30% = 0.1 * (274.69€ + 200€) * 0.30 = 47.47€ * 0.30 = 14.24€

--> total tax due every month: 9.02€ + 14.24€ = 23.26€

 

************************************************************************

 

Just to be clear, if your Fahrtenbuch isn't filled in correctly, they will put you on the 1% regulation even for a leased car, see "Irrtum 1" in here.

The gross list price (= Bruttolistenpreis) for that Audi is 33,500€ (click on "Details zur Finanzierung" under "Bleifrei" in here)

--> 1% of that is 335€ a month, on which you would have to pay 19% VAT and your personal average income+soli tax rate, no matter how little you use the car for your private purposes:

335€ * (19% + 30%) = 164.15€ a month

 

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23 hours ago, PandaMunich said:

Example for leasing:

You use the car to 90% for your business, and 10% privately, as proven through your complete Fahrtenbuch.
 

Monthly leasing rate including 19% VAT: 326.88€ (click on "Details zur Finanzierung" under "Bleifrei" in here)

--> you get back the whole VAT on the leasing rate through your monthly Umsatzsteuer-Voranmeldung: 326.88€ - 326.88€/1.19 = 52.19€

--> monthly net leasing rate = 326.88€ - 52.19€ = 274.69€

 

You also have petrol expenses of 238€ a month (incl. VAT)

--> you get back the whole VAT on the petrol through your monthly Umsatzsteuer-Voranmeldung: 238€ - 238€/1.19 = 38€

--> monthly net petrol expenses = 238€ - 38€ = 200€

 

You will have to pay every month tax on your 10% private use:

  1. 19% VAT: 10% * (monthly net leasing rate + monthly net petrol expenses) * 19% = 0.1 * (274.69€ + 200€) * 0.19 = 47.47€ * 0.19 = 9.02€
  2. 30% for income+Soli tax (no, your average \varnothing income+Soli tax rate isn't 42%, not unless your yearly income is >300,000€. 60,000€ taxable income per year means 30% average \varnothing income+Soli tax rate): 10% * (monthly net leasing rate + monthly net petrol expenses) * 30% = 0.1 * (274.69€ + 200€) * 0.30 = 47.47€ * 0.30 = 14.24€

--> total tax due every month: 9.02€ + 14.24€ = 23.26€

 

************************************************************************

 

Just to be clear, if your Fahrtenbuch isn't filled in correctly, they will put you on the 1% regulation even for a leased car, see "Irrtum 1" in here.

The gross list price (= Bruttolistenpreis) for that Audi is 33,500€ (click on "Details zur Finanzierung" under "Bleifrei" in here)

--> 1% of that is 335€ a month, on which you would have to pay 19% VAT and your personal average income+soli tax rate, no matter how little you use the car for your private purposes:

335€ * (19% + 30%) = 164.15€ a month

 

 

 

Got it.

 

Thank you very much!

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Hello Panda Munich,

 

Thanks for detail answer. this will help lot of People.

My question : 

I am doing full time job with 38 hours a week. I want to plan for my free time to go with Freelancer activity. I register and did all other formalities.

Now, if i want to have a car which i can use for my personal (80%) as well as Business(20%).

It would be advisable to buy a car on business rather than personal?. What is the major benefit?

For example,

Monday to friday i drive 600 kms for my work and saturaday and sunday i drive 200 kms for my business (Freelance, Selb-ständing activities)

I do not expect major earning on First year of my business (Lets assume i will get loss of 6000 euro in my first year).

What are the cost i can keep in my profit and loss statement. Do i need to pay additional tax due to this car?. Would it better to go 1% rule with this car or better to buy on personal basis and claim the kms(0.30/km or what?) in tax declaration?

 

Thank you in advance!

Regards,

ndshah

 

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