Working as a self-employed small business owner brings many freedoms, but also some tax obligations. The good news: You need no prior knowledge to understand and successfully master your tax obligations. In this post, you will learn compactly, understandably and practically which taxes are relevant for you, how to file your first tax return and what tips you can use to save cold hard cash.
What is a small business owner anyway?
As a small business owner, you benefit from the so-called Small Business Regulation (§ 19 UStG). This exempts you from the VAT obligation – which saves you time, bureaucracy and often money.
Requirements (from 2025):
- Revenue in the previous year: maximum 25,000 euros
- Estimated revenue in the current year: maximum 100,000 euros
If you stay below these limits and chose the regulation during registration, you do not have to show or pay VAT. This makes your accounting significantly easier and your prices more attractive for private customers.
Which taxes affect small business owners?
Even without a VAT obligation, you have to deal with other types of tax:
1. Income tax
You submit an income tax return once a year. The decisive factor is your profit:
Income – Expenses = Profit
If your profit remains below the basic tax-free allowance (2025: 12,084 euros, 2026: approx. 12,348 euros), you do not have to pay income tax, but you still have to submit a tax return.
2. Trade tax
Only relevant for tradespeople and service providers, not for freelancers (i.e. doctors, lawyers, journalists, designers, IT consultants, …) who primarily market their intellectual performance. The tax-free allowance is 24,500 euros profit per year. Only above this is trade tax due.
Your tax return – explained step by step
Even if it sounds complicated: With the right preparation, you can manage your tax return even as a beginner.
What you need:
- Tax number (obtained from the tax office)
- Access to ELSTER (elster.de) or simple tax software
- An overview of your income and expenses
This is how the return process works:
- Document income and expenses
List all business income and expenses – e.g. in Excel or with software like easybill. - Register online with the tax office
Either via ELSTER (official, but somewhat technical) or via user-friendly software. - Complete the following forms:
- Income tax return
- Annex S (for freelancers) or G (for business trade)
- Annex EÜR (income-surplus calculation)
- Submit and wait for the assessment
After a few weeks, you will receive your tax assessment – digitally or by mail.
Tip: In the first year, it is worth planning a little more time or asking a tax advisor. Since the costs depend on turnover or profit, this is often a worthwhile investment for small business owners.
Creating invoices with the small business regulation
As a small business owner, you also have to write proper, legally compliant invoices – even if you do not charge VAT.
Mandatory on every invoice:
“In accordance with Section 19 UStG, no VAT is charged.”
To save you from having to constantly search for templates and mandatory information, invoicing software like easybill will help you:
✅ Create invoices automatically and securely
✅ Manage all income and receipts centrally
✅ Prepare income-surplus calculation
✅ Export data for the tax return
Important from 2025: Even as a small business owner, you must be able to receive and process e-invoices in B2B business. A PDF invoice via email is no longer sufficient if clients demand an e-invoice. From 2028, sending e-invoices for all B2B invoices (invoices to companies) will be mandatory.
The simple invoicing program for small business owners
easybill is a cloud-based invoicing program with which you can manage your invoices professionally,
legally securely and in a time-saving manner.
- Creating e-invoices made easy: Legally secure, fast and without technical hurdles.
- Seamless integration into your online shop: Automatically bill orders and save time.
- Work paperlessly with your tax advisor: All documents digital, always at hand.
Tax tips for small businesses: How to save real money
In addition to your obligations, there are also many opportunities to save on taxes – completely legally. Here are the most important tips:
1. Document business expenses clearly
You can deduct everything you need for your business: office supplies, software, travel costs, specialist literature, telephone, hosting etc. Pay attention to receipts and keep your vouchers safe.
2. Record trips and travel expenses
Do you travel to client meetings, training courses, or professional events? Then you can claim 30 cents per kilometer as a business expense – even with your private car.
3. Deduct home office (if requirements are met)
If you use a self-contained room exclusively for professional purposes, you can claim a portion of the rent and utility costs for tax purposes.
4. Check investment deduction amount (IAB)
Are you planning to invest in the future (e.g., laptop, camera, work materials)? Then, under certain conditions, you can deduct up to 50 % of the costs in advance. This reduces your tax burden in the current year. If in doubt, ask a tax advisor.
5. Use tax-free grants and non-cash benefits
Do you have employees or are you planning to hire? Non-cash benefits up to 50 euros per month are possible tax-free – an interesting model for more net salary.
6. Distribute income wisely
If you receive several orders in December, it can make sense to only write invoices in January – in order to stay below the turnover limit for small businesses. This works only if your client agrees.
7. Use a tax advisor as a sparring partner
Especially in the first year, a one-off consultation can help to avoid mistakes. You only get many tips in a personal conversation – and you can deduct the consultation costs.
Deducting insurance correctly
Besides taxes, insurance also plays an important role for you as a small business owner. Many of them are mandatory or at least strongly recommended – and some of them can also be deducted for tax purposes.
Health and long-term care insurance
As a self-employed person, you are obliged to have health and long-term care insurance – either statutory or private.
- In statutory health insurance, your contribution is based on your income. There is a minimum contribution, which is also incurred for very low profits (approx. 180–200 euros per month).
- In private health insurance, you pay an individual rate, usually depending on age, state of health, and benefits – not on income.
Long-term care insurance is automatically covered in both cases.
Tip: With a low income, statutory insurance is often cheaper. With a higher income, private insurance can be worthwhile – but keep the long-term costs in mind.
Pension insurance
Compulsory pension insurance exists for certain professional groups, for example:
- Teachers and educators
- Caregivers
- Midwives
- Craftspeople with a master craftsman requirement
- Artists and publicists (via the Künstlersozialkasse)
All other self-employed individuals can opt for voluntary statutory pension insurance or make private provisions.
Unemployment insurance
As a self-employed person, you can voluntarily insure yourself against unemployment with the Federal Employment Agency – but only within the first 3 months after founding.
The contributions are relatively low, but the benefits are based on your last income from permanent employment.
Deducting insurance from taxes
You can claim many insurance contributions for tax purposes, either as special expenses or as business-related expenses:
- Health and long-term care insurance: deductible as special expenses
- Pension insurance: as special expenses (partially)
- Professional liability, general liability, legal protection: fully as business expenses
- Unemployment insurance (voluntary): also as special expenses
Important: You cannot claim private insurance (e.g., household contents, life insurance) as a business expense – at most as a special expense with limited impact.
Taxes for small business owners are no problem with the right support
As a small business owner, you have to deal with taxes – but you don’t have to be a tax expert. If you keep an eye on your income and expenses, file your tax return annually, and use clever tips, you are on the safe side.
And with a digital solution like easybill, you can have many processes taken care of for you – from invoicing to preparing your EÜR.
Tip: Test easybill now and simplify your accounting!
Frequently Asked Questions about Taxes for Small Business Owners
Yes. Even if you had little or no income, you are required to file an income tax return as soon as you are self-employed. As long as your profit is below the basic tax-free allowance, you will not pay any income tax, but you must still declare your activity to the tax office.
Yes. You can voluntarily opt for so-called standard taxation. In this case, you show VAT on your invoices and must pay it to the tax office, but you can also claim input tax. This decision is binding for at least five years.
If you exceed the threshold of 25,000 euros in the previous year or 100,000 euros in the current year, you lose your small business status. In exceptional cases, the tax office can also make you liable for VAT retroactively. Therefore, keep a close eye on your turnover.
Yes. For example, you can also be employed, receive rental income, or have investment income. This income must also be declared in your income tax return. The small business regulation only affects your self-employed turnover in connection with VAT.
No. You are not legally required to maintain a separate business account. However, for practical reasons, it is recommended to strictly separate business and private payments – especially for accounting and tax returns.
You must keep all tax-relevant documents, i.e., invoices, receipts, bank statements, and other records, for ten years. This also applies to small business owners – regardless of VAT liability.
Revenue (turnover) is the total amount of your income before expenses are deducted. Profit is what remains when you deduct your business expenses from your revenue. Only the profit is relevant for income tax. The small business threshold refers to revenue.
As a sole trader or freelancer, you do not form tax-effective reserves in the traditional sense. However, you can use certain structuring options, such as the investment deduction (IAB), to claim planned investments for tax purposes in advance. You should coordinate this with a tax advisor beforehand.
You can use tax software that provides you with the appropriate forms and checks for common errors. Alternatively, it is particularly worthwhile in the first year to seek advice from a tax advisor. Many mistakes can be avoided from the start this way.
