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When working for money as a private person, the first question is are you earning as an employee. An employee labors for a wage and has a relationship of authority with the employer. It is also possible that you provide services or sell goods independently and there is not a relationship of authority.
Usually, you have a number of clients and you are paid for a result. For example; build a wall, or write a paper. When it is not immediately clear if the work is carried out for an employer or as an independent worker, it is important to consult an expert.
A hobby is considered to cost more than the hobby brings up and is untaxed. When you provide services to family and a few friends, then this income is also untaxed.
When the income is independent it is important to judge if the independent income results in a business for income tax purposes. This is important, because the first three years of having a business for income tax purposes you receive a special starters deduction.
Special deductions for business:
14% MKB Exemption (for every business) (must have spent 1.225 hours on the business or 800 if partially labor impaired(1)
Starters deduction:(1)
In 2023: € 2.123 In 2022: € 2.123 In 2021: € 2.123 In 2020: € 2.123
For labor impaired the starters deduction is:
€ 12.000 if in the past 5 years you did not use the deduction.
€ 8.000 if in the past 5 years you used the deduction once.
€ 4.000 if you used the deduction twice in the past 5 years.
Independent deduction(1) - € 5.030 (for every business)
However, just because you spend 1.225 (800) hours in a calendar year on your side-hustle or business, this does not mean it is considered a business for income tax purposes. It is also important to have enough capital, risk and clients to be considered a business.
When starting a “business” there might be more costs than turn-over. However, the costs go before the income. So, one could say you are already a business in these years. In this respect the tax authorities also look at profit. Are you aiming for a profit and is this objectively feasible?
In the event that your side-hustle does not qualify as a business for income tax purposes, then the plus is taxed and the minus deductible. Side-hustle expenses are generally deductible.
The income in Box 1 of the income tax, where labor, business and independent income is taxed for private persons at a progressive rate as shown below.
For those that have not reached the pension age - the rates are as follows:
INCOME TAX RATE:
up to € 73.031 36,93% from € 73.031 49,50%
Should you have any questions, please do not hesitate to contact me. No rights may be obtained from this article.