Tax Tips at the End of the Year

• Tax law provides entrepreneurs—with variations depending on industry and annual turnover—with various options for flat-rate profit determination. It therefore makes sense to assess, by means of a comparative benefit analysis, whether exercising such an option is tax-efficient. In addition to income tax considerations, the VAT aspect should not be overlooked, such as options for flat-rate input VAT deduction or, where appropriate, switching from the small business exemption to standard VAT taxation, for example if major investments have been made for which input VAT deduction may be possible under certain conditions.
• Entrepreneurs who generate income from a trade or business must switch from cash-basis accounting to accrual accounting (balance sheet accounting) if they exceed annual turnover of €700,000 (exceeded twice, a “buffer year”) or €1,000,000 (exceeded once, no “buffer year”).
• For the cash register, a signed annual receipt (the December monthly receipt) must be printed, checked and retained at the end of the year.
• For shareholder-managing directors, tax optimisation opportunities may arise in the areas of income tax, social security, ancillary wage costs in connection with income from a standard employment or free service relationship, as well as dividend income, and VAT.
• For newly acquired or manufactured assets (with exceptions), depreciation of up to 30% of the remaining book value may be applied. The higher depreciation at the beginning of the useful life generally leads to liquidity advantages for long-lived assets, as approximately 66% will have been depreciated for tax purposes after three years. Switching from declining-balance to straight-line depreciation is advisable when the straight-line amount exceeds the declining-balance amount. Accelerated depreciation applies to buildings newly acquired or constructed after 30 June 2020.
• The income tax burden can be influenced, under certain conditions, by bringing forward expenses for accrual-basis taxpayers or by bringing forward expenses and deferring income for cash-basis taxpayers. For example, expenses/payments for maintenance or repairs of business buildings or machinery, etc., can be fully deducted as business expenses if made within the current year. However, cash-basis taxpayers may immediately deduct prepayments for certain expenses (e.g. consulting, rent, distribution, administrative, interest costs, etc.) only for the current and at most the following year; beyond that, allocation is required. Furthermore, regularly recurring income or expenses are to be attributed to the calendar year to which they relate economically if they are received or paid within 15 days before or after 31 December.
• In connection with the investment allowance and the investment-related profit allowance, it should be noted that the same assets may not be used simultaneously to claim both incentives. It is therefore advisable to perform a comparative benefit analysis for each asset to determine to which incentive the asset should be allocated.
• Donations from business assets to certain eligible institutions are tax-deductible up to a maximum of 10% of the profit of the current financial year. To be deductible in 2025, such donations must be made by 31 December 2025 at the latest.

Note
A careful review of the respective tax situation at year-end can be worthwhile. Many measures are only effective if implemented in good time before 31 December 2025. We therefore recommend reviewing planned investments and measures at an early stage and adjusting them if necessary. We will be pleased to support you in identifying individual optimisation opportunities.