Taxes for authors

Self-employed as an author - and how does it work with taxes and insurances?

Being your own boss, arranging your own working hours, making a living from writing - that's what many authors wish for. Combined with other freelance activities such as journalism or coaching, this is possible. But what bureaucratic challenges do you face if you want to become self-employed? We clarify all questions about taxes for authors.

Authors are freelancers

If you're a Book published you receive income from a freelance activity. Authors are freelancers according to the Income Tax Actjust like artists, lecturers, lawyers, doctors, translators or consultants. It is important to distinguish between the terms freelancer and self-employed. Freelancers are not tradesmen, for example, and IHK membership is not necessary. Also, the tax obligations are simplified and for the insurance you can become a member of the Künstlersozialkasse as an author. 

Can I be self-employed as a part-time writer?

Very few authors can make a living writing. One more reason to start out as a part-time author and thus not take any financial risk. If your main job outweighs your main job in terms of working hours and income, you do not have to insure your work as an author independently. It's best to check with your health insurance provider. And don't forget to check your part-time work as an author with your employer. Before we take a look at taxes for authors, we'll briefly explain how a business registration is necessary.

Do I have to register a business as an author?

In principle, authors do not have to register a business. However, there are some exceptions. For example, if you want to sell your books via your own online shop, you need to register a business. However, you do not have to register if you offer a few books for sale at a reading. It's best to check this with your tax advisor or the tax office. Even if you sell promotional articles or have your own Founding a publishing housethis is subject to trade tax.

When you register a trade, you are obliged to pay trade tax, become a member of the Chamber of Industry and Commerce, be entered in the commercial register and keep double-entry accounts. Which rights and obligations regarding taxes for authors do you actually have to observe?

Registration of activity and tax obligations

There are a few steps you need to take in order to become an author. You should contact the tax office and organize your tax return.

How do I register as a freelance writer?

An informal letter is sufficient for the tax office to register your writing activity. You will then receive a questionnaire for tax registration, which you must complete and return. You will then receive a tax number. The first step for the proper handling of taxes for authors is done.

Taxes for Authors: The Tax Return

In your first year as a freelancer, you usually pay your taxes in the following year, after you have filed your tax return and received a tax assessment. To be on the safe side, calculate 25 to 30 percent of your income. The tax office may ask for a projection of your turnover and set an advance payment. However, you will get back any tax you have paid too much.

As a freelancer, you are obliged to prepare a tax return and submit it electronically by 31 July of the following year. If you are unable to meet the deadline, apply for an extension in good time - otherwise you could face a fine.

As a freelancer, you are not obliged to keep double-entry bookkeeping or a balance sheet. However, you have to prepare an income statement (EÜR) and fill out Annex S for income from self-employment. Tax software can help you here. 

There are inexpensive and easy-to-use programs for electronic tax returns. Popular are for example the WISO software, Quicktax or Smartsteuer. These programs request relevant data by means of an interview and guide you through the tax return. A tax advisor also offers competent advice and help. You can deduct his fee, as well as the cost of tax software, from your taxes.

What is the small business regulation?

As a part-time writer or if your earnings are low, you can use the Small business regulation in the year in which you are entitled to it. This means that you may not earn more than 22,000 euros in the current year and probably not more than 50,000 euros in the following year. For example, you do not have to show sales tax on your invoices, but conversely you can also refund input tax for expenses. For authors, the expenses are usually kept within reasonable limits. A quarterly advance VAT return is also not required for small entrepreneurs.

Taxes for Authors: What can I deduct from my taxes?

As a freelance writer, you can deduct all the expenses that come with the job from your taxes. This starts with the pencil sharpener and ends with the laptop. This includes office and writing materials such as pens, pads and postage, the furnishing of the study from desk to printer and laptop to reading lamp and also the proportionate rent for a separate study. Also further education costs for specialist books or courses on Writing Schools including travel expenses and meal allowance can be claimed against tax. Likewise, your visit to the Book Fair fall under these expenses. Internet and telephone charges and a mobile phone are usually recognised by the tax office on a pro rata basis because it can be assumed that these are also used privately. Pension and health insurance are also tax-deductible, but there are limits here for part-time self-employed persons. What you can deduct as a freelancer, you can also find on the blog of Billomat.

Very important for all part-time writers: You claim the expenses for your main job as income-related expenses on your tax return, and for your work as a writer you enter them as expenses.

And what about the business tax?

If you're a trade registered you have to pay trade tax in addition to income tax and, if applicable, sales tax. You submit the application to the trade office, which then forwards your trade licence to the responsible tax office. However, you only have to pay trade tax if your annual turnover exceeds 24,500 euros. At the end of the year, you have to submit a trade tax return.

Social insurances as a freelance author

As a full-time self-employed person, you have to pay both the employee and the employer's social security contributions. After all, you no longer have an employer who pays half. Your gross fee is therefore not quite comparable to the gross salary of an employee. Pension insurance is voluntary for the self-employed, so think about whether you want to make private provision or pay voluntary contributions to the statutory pension scheme. You should also consider taking out additional unemployment insurance, legal protection and professional liability or accident insurance. As a general rule, as a self-employed person you cannot take paid leave or go on sick leave. You only earn what you earn.

What is the Künstlersozialkasse?

For many self-employed people, health insurance is a significant cost item, because depending on the tariff, around 800 euros can be due each month. Many freelancers completely neglect pension insurance, as they can hardly bear the monthly costs. For artists and many freelancers there are therefore the Artists' Social Insurance Fund (KSK) for financial security and the avoidance of poverty in old age.

The advantages of the Künstlersozialkasse

Normally, self-employed persons have to pay the social insurance completely on their own, since the employer's contribution is omitted. Here, the KSK steps in and takes over this share, so that insured persons only have to pay half of the contributions. The other half is paid by the federal government (40 percent) and by companies that commission artistic and journalistic services (10 percent). The contributions of the insured are linked to income, while self-employed persons who are voluntarily insured have to pay a minimum contribution of currently about 160 euros. Incidentally, the KSK is not a health insurance fund, but only helps with the payment of contributions. You can choose a statutory or private health insurance independently of the KSK. 

The disadvantages of the Künstlersozialkasse

Of course, as the fee increases, the absolute amount that you have to pay into the pension scheme also increases. In addition, the application process is somewhat tedious, as you have to submit numerous documents. But: Once you are insured via the KSK, you won't get out again so quickly as long as you work as a journalist. 

Requirements for admission to the KSK

Anyone who works full-time as a writer and has an income above the low-income limit of 3,900 euros per year has good chances, to be admitted to the KSK. An exception applies to newcomers. In the first three years after taking up the job, it is possible to earn less. But: The writing or publishing work must be the main occupation. Also, one may not employ more than one employee subject to social security contributions, since the activity is then mainly no longer journalistic, but entrepreneurial. 

How do the contributions come about?

At the end of the year, the KSK will ask you to estimate your income for the following year. If changes occur during the course of the year, these should be reported subsequently. The contributions will then be adjusted upwards or downwards. However, a retroactive increase or decrease is not possible. Every year, the KSK checks about five percent of the insured whether the income was estimated correctly or whether changes were reported. However, minor deviations are permitted. 

Currently, the rates are 18.6 percent for pension insurance and 14.6 percent for health insurance. Here, 3.05 percent nursing care insurance is added, and 3.3 percent for childless persons. As a member of the KSK, you pay half of these percentages in relation to your annual income, i.e. business income minus business expenses.

Conclusion

If you start out as a part-time writer, you can take a step-by-step approach to registration and tax returns. However, as soon as it becomes your main job, you should also deal with the membership at the KSK in order not to have to pay the complete social security costs. Whether your book sales skyrocket from day one or you only sell a few copies, don't forget to register your freelance work with the tax office.

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