Material Tax Liability - classes of income & income determination

Question 1

Income from business operations

Answer 1

Independence
• Actingonone’sownresponsibility(entrepreneurialinitiative) and on one’s own account and risk (entrepreneurial risk)

Sustainability
• Continuedactivityoratleastactivitywiththeintentionof repetition

Intention of realizing profits
• Intentiontoachieveeconomicbenefits(totalperiod)

Participation in general commercial traffic
• Externalappearance,participationinthemarket(participation in the exchange of goods and services)

No income from
• [farmingandforestry(§13EStG)]
• self-employment(§18EStG)
• mereassetadministration(§21EStG,§14AO)

Question 2

Accrual Accounting Method (§§ 4 I, 5 EStG)

Answer 2

• If obliged to keep books or if voluntarily keeping books

* Within the personal income tax especially applied if income from business operations (§§ 15 ff. EStG)

Question 3

Commercial balance sheet + Tax balance sheet

Answer 3

The application of the accrual accounting method is explained after the taxation of corporations has been explained (part 2 of Business Taxation)

Question 4

Additions / deductions outside of the tax balance sheet + Ending point: Taxable income

Answer 4

Explained within the context of the taxation of individuals (part 1 of Business Taxation)

Question 5

Operating income

Answer 5

is taxable if the tax law does not exempt it from taxation.
In the case of income from self-employment, for example, the following business income is tax-free:
> Start-up subsidy (§ 3 no. 2 lit. a EStG)
> Partial income procedure (§ 3 no. 40 lit. d EStG)

Question 6

Operating expenses

Answer 6

are tax deductible if the tax low does not provide for a prohibition of the deduction.
In the case of income from business operations, for example, the following prohibitions exist:
> Gifts(§4Vno.1EStG)
> Entertainment costs (§ 4 V no. 2 EStG)
> Fines/compensation payments, bribe money (§ 4 V no. 8, 10 EStG) > Cost for private living (§ 12 no. 1 EStG)
> Income taxes (§ 12 no. 3 EStG)
> Fines ordered in criminal proceedings (§ 12 no. 4 EStG)