Tax Prepayments

A tax prepayment is a payment toward the tax for the current year that the tax office sets before the year has been assessed. For self-employed people, it replaces the wage tax withholding that employees experience each month through their employer: Instead of becoming due all at once afterward, the tax is paid in installments throughout the year.

How the tax office determines the amount

The basis is generally the most recent income tax assessment. The tax office assumes that the current year will develop similarly and distributes the expected tax across quarterly due dates. In the first year after registration, it relies on the estimate you provided in the questionnaire for tax registration. If you enter very low figures there, you initially pay little and correspondingly more later.

In addition to income tax, trade tax also involves prepayments, set by the municipality. For VAT, the regular VAT advance return serves this purpose; if you apply for an extension of the deadline for filing the advance return, you may also have to make a special prepayment.

The effect in the second year

For many performers, the first tax assessment comes as an unexpectedly expensive surprise. A typical sequence is this: In the first year, shooting days and platform revenue begin, while no prepayments or only small prepayments have been set. The following year, the assessment arrives with a back payment for the entire first year. At the same time, based on this profit, the tax office sets prepayments for the current year, sometimes retroactively for quarters that have already elapsed.

Within a few weeks, amounts become due that exceed the tax for a single year. If you have not built up a tax reserve, you will have to apply for payment by installments or a deferral at this point, which is not always granted.

Adjustments upward and downward

Prepayments are not set in stone. If your income drops, for example because shoots do not take place or you take a break, you can apply to the tax office for a reduction. The application needs a comprehensible justification, such as a current comparison of income and expenses based on the format of the income surplus calculation.

If the year is going significantly better than the previous year, a voluntary increase makes sense. It prevents another large back payment from becoming due the following year together with increased prepayments. The tax office can also adjust prepayments on its own initiative if it learns of higher income.

What to pay attention to in practice

• Enter the due dates from the assessment in your calendar. Late payments trigger late-payment surcharges.
• If necessary, give the tax office a SEPA direct debit mandate so that no installment is forgotten. Your account must then have sufficient funds on the due date.
• Provide realistic estimates in the questionnaire for tax registration, not the lowest figure you can imagine.
• Calculate your reserve so that it can cover the back payment and prepayments at the same time.

The article Self-employed as a performer explains how taxes and business registration work together in everyday life.

This entry explains the procedure and does not replace tax advice.