Sole proprietorship tax return - 5 things entrepreneurs need to pay attention to

Sole proprietors need to be especially careful when filling out their tax return, as they are liable to pay taxes on all of their income and assets from business and personal sources. Do you own a sole proprietorship? Inform yourself now about the things you need to pay particular attention to when completing your sole proprietorship tax return.

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Sole proprietorship tax return summed up

Sole proprietorships, like general partnerships and limited partnerships, are not taxed as companies because they are not legal entities. Rather, the owner of a sole proprietorship must pay taxes on his or her personal and business income as well as personal and business assets as a whole. When filling out their tax return, owners of sole proprietorships therefore need to keep a few things in mind.

1. No property tax at the federal level

Income: The taxable income of sole proprietors is made up of all payments from the business (e.g. salary, profit, interest) as well as any other income. As a natural person, the company owner must pay taxes on the total income to the federal government as well as to the cantons and municipalities.

Assets: The private and business assets of sole proprietors are taxed at cantonal and communal level. On the federal level, however, no wealth tax is levied.

2. Be careful when it comes to deductions

Sole proprietors must be particularly carful when declaring deductions. It is important for self-employed people to clearly separate private from business expenses. In principle, only expenses incurred for business purposes may be deducted. While a flight to visit a factory abroad may under certain circumstances be deductible as a business-related expense, the costs of a birthday party on a private jet certainly do not qualify for a reduction. All deductible expenses must be substantiated by receipts.

Sole proprietors have the right to offset profit costs and losses against business earnings and thereby reduce their taxable income. Losses from up to seven previous tax periods may be deducted. However, unlike corporations, sole proprietors cannot deduct taxes paid from net income. Furthermore, special rules apply to certain categories of deductions.

Depreciation: Business-related expenses such as the purchase of a vehicle are eligible to reduce the tax burden, but cannot be claimed in full in the year of purchase. Rather, depreciation expenses may only be deducted over several years.

Accruals: Accruals, for example for legal costs or guarantees, can reduce the tax burden under certain circumstandes. The deductibility depends on the type of claim and is usually limited in percentage terms.

3. Sole proprietorship in the tax return

How and where the sole proprietorship is recorded and visible in the tax return varies from canton to canton. Usually, the tax return contains an auxiliary sheet or column entitled "Income from self-employment", where turnover, expenses and profits can be entered. Depending on the canton, the tax return contains a more or less detailed list of business income and expenses. In this case, the taxable entrepreneur only has to transfer the figures from bookkeeping into the corresponding fields in the tax return.

4. Separate value added tax (VAT)

In addition to the income and wealth tax, sole proprietors may also have to pay VAT. The latter must be registered separately with the Federal Tax Administration. A VAT obligation usually exists if the annual turnover exceeds CHF 100,000. However, it is also possible to voluntarily subject oneself to VAT when said turnover requirement is not met.

5. Optimize sole proprietorship tax return

Entrepreneurs are busy people whose time is precious and scarce. These circumstances make the task of completing the tax return all the more tedious for them. Due to the various sources of income as well as the numerous possible deductions, filling out the tax return is a complex and time-consuming affair. Entrepreneurs should therefore think carefully about whether or not they want to complete the tax return themselves or outsorce said task to a specialist. A good tax specialist not only saves time and nerves, but ideally even money, because he maximizes the permissible deductions in the tax return.

Are you an entrepreneur and need help with your sole proprietorship tax return? The specialists at taxea are happy to assist you with their comprehensive expertise.

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