Look at your initial income and deduct VAT, expenses, social security contributions and taxes from this. The taxman only calculates this after a year, but we give you clarity now.
If you have an income of €2,420 in a month, how much of this will you keep?
Turnover including VAT: | €2.420 |
VAT 21%* | €420 |
Turnover exclusive of VAT: | €2000 |
VAT comes off your income first. Do you have a lot of VAT to pay? Actually, this is positive because you had more income than you incurred expenses. But you will indeed soon see a decent amount disappear from your account.
Remember that you also recover VAT on your professional purchases. How much exactly depends very much on the type of expenses. For simplicity, we will make an abstraction of this amount.
Turnover excluding VAT: | €2000 |
Deductible professional expenses: | €500 |
Net taxable income: | €1500 |
Deductible professional expenses are deducted from your turnover before calculating social security contributions and taxes. This is why self-employed people want to bring in as many expenses as possible. This way, they reduce taxes, and recover the VAT paid.
Deductible professional expenses are of course different for everyone. This €500 is therefore a completely fictitious amount, and can vary monthly.
Taxable income: | €1500 |
Social contribution 20.5%; | €307,5 |
Net before tax | €1.192,5 |
The social contribution amounts to 20.5% of your taxable income. This allows you to build up a pension and to help finance the social safety net for when you need it yourself.
You pay an advance every quarter, and this is settled afterwards on the basis of your actual income. You pay a minimum social contribution anyway, €751.25 per quarter in 2022 for self-employed people in main occupation. For starters, this minimum is often chosen as a quarterly contribution.
Net taxable income: €1.192,5
Taxes (converted to 1 month): €307,75
Net income: €884,75
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Interlude: how did we calculate this tax?
Personal income tax is annualised, so multiply the net taxable income of this one month by 12. For simplicity, let's assume for a moment that you had the same turnover and expenses for 12 months.
Net taxable income: €1.192,5 X 12 = €14.310/Year
Personal income tax works with 'income brackets'. So low earners pay less, and high earners pay just more taxes. We apply these tax brackets to our annual net taxable income. Then we divide by 12 again, and know the tax for 1 month.
€14.310 = €13.870 (Bracket 1) + 440 (Bracket 2)
25% on €13.870 = €3467,5
40% on €440 = €176
Total taxes 1 year: €3467 + €176 = €3,643/Year
Total taxes 1 month: €3,643 / 12 = €303.58
This brings us to €303.58 taxes for 1 month, leaving you net €888.92.
The amount you pay in taxes each year is also affected by other things, such as dependent children, spending on service vouchers or donations. So this remains an approximation.
From the gross turnover of €2,420, you will be left with about €888.92 after VAT, expenses, social contribution and taxes. A good motivation to always keep sufficient working funds in your professional account.
This example shows the impact of your professional expenses on your net profit. If you do not bring in these expenses, you may keep more initially, but you will also pay more taxes.
And most importantly, any expenses you attribute to your business will not go off your net income afterwards. So a good reason to keep good records of all your expenses.
Did you know that Accountable gives you tips with every expense? This way, you can quickly and easily arrange your accounting yourself, and not overlook any expenses.
Author - Valesca Wilms
As content marketing lead at Accountable Belgium, Valesca writes about freelancing, self-employment, and taxes based on her own experience as a freelancer.
Who is Valesca ?Thank you for your feedback!
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