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Passive income: How to pay taxes correctly

It's probably everyone's dream: to earn moneywithout having to do anything for it. What sounds utopian at first is a reality for some people. Passive income is the keyword, which for some is a book with seven seals, for others a regular income that should not be underestimated.

What counts under the division of positive cash flow and what beneficiaries have to pay attention to is about the unpopular tax payments to the tax authorities, we show in this Guide to passive income.

The seven types of income in Germany

In this country, only the income that goes with the "Seven types of income" counting. This regulation applies to all people living in Germany who have a place of residence here according to §8 AO or who have a habitual residence according to §9 AO. Income tax is subject to Section 2 (1) EStG

  • Income from agriculture and forestry
  • Business income
  • Income from self-employment
  • Income from employment
  • Income from capital
  • Rental and leasing income
  • Other income within the meaning of Section 22

On closer inspection, you will notice that some sources of income that fall under passive income are definitely from Income Tax Act are recorded. Other income is tax-exempt.

Whether or not taxes have to be paid does not depend on the amount of income, but only depends on whether the income is recorded by one of the seven types of income.

What exactly is meant by passive income?

Any income that a without doing anything on their own flows in. So if you go to work every day and receive your salary at the end of the month, you cannot speak of passive income. Most people associate this abstract term with one thing above all else Income from their fixed assets, for example through interest or dividends.

Not everyone is an investor, however, and many people still receive passive income. The most common passive sources of income are:

  1. Gambling: e.g. sports betting, poker or winnings in game shows
  2. property: Rental income
  3. Internet: Income from the operation of websites, affiliate marketing or as a copywriter

1. Taxing gambling winnings - one division and many regulations

There is good news for those who try their luck at betting more often. Games, sports, betting and lottery winnings do not have to be taxed in Germany. So if you win a big lottery or only win a small bet in football, you can spend all of this money with a clear conscience for your own purposes without having to state it in your income tax return.

Since the entry into force of the new State Treaty on Gambling but at least remain on July 1st, 2012 Sports betting is not exempt from tax. Five percent betting tax is payable on every betting slip. The sports betting providers deduct this tax directly from the stake, so that those who like to type do not have to assume any responsibility in their tax return.

With a few betting providers, however, no betting tax is still levied on sports betting; the provider either pays this out of pocket or adjusts its odds accordingly. But this looks very different Prize money out. With the appearance of more and more game shows on television, the tax authorities also became aware of the many ancillary earnings of its citizens. Since then it has not been uncommon for taxes to be incurred on prize money awarded in the course of competitions or on the basis of meritorious achievements, for example in science. This income is to be reported under "Other Income".

However, there is still no uniform regulation for this. Basically, a Tax liability only prove if both of the following criteria are met:

  • With all profits that had nothing to do with chance, but rather Acquired based on performance taxes are payable. This applies to the receipt of a monetary science award as well as to profits from the well-known quiz show “Who Wants to Be a Millionaire?”.
  • Can the winner be shown that participation in a game was made with the intention of increasing his fortune, the income is taxable.

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2. Simple rules for passive income from real estate

Anyone who earns rental income must have this under the heading "Income from renting and leasing" specify. In principle, the calculation is very simple: Everything that is earned in the course of the rental counts towards the cash inflow. All expenses associated with renting the property will be deducted from this. The resulting profit is as taxable profit specify.

However, it should not be forgotten that also the ancillary costs that are transferred by the tenantto be counted as revenue. On the other hand, the expenses that cannot be passed on to the tenant can also be claimed. This includes, for example, property tax. Here are a few more hints and tips for landlords:

  • Reserves do not count towards expenses, as this is a capital-building measure and therefore cannot reduce rental income.
  • In the case of real estate, the "depreciation for wear and tear", better known as depreciation, be invoked. For 50 years, rental income can be reduced by two percent of the value of the property - but without the portion of the property.
  • Debt interest can also be claimed in the income tax return. They can be deducted in full from the income.

3. On-line income - taxable depending on the activity

There are numerous ways make money online. In principle, all income - except for income from games of chance - must also be taxed and accordingly listed in the income tax return.

How the income is to be taxed, however, depends on whether a Business registered or not. Income can be obtained from the Commercial enterprise (as a trader) or as a result of a self-employment (as a freelancer). As a rule, the regulatory office makes the decision whether to work as a trader or as a freelancer. If you are classified as a trader, the following are usually required four points met be:

  1. It has to be self-sufficient at your own risk and expense to be worked.
  2. The activity must be sustainable, so exercised permanently and repeatedly become.
  3. The activity must generate an income that revenue must therefore Exceed expenses.
  4. One must take part in general economic traffic, i.e. one Performance against payment to offer.

For most people who only earn a small passive income by working on the Internet, it is in principle irrelevant whether they work as a trader or as a freelancer. Benefits for freelancers are only noticeable when they exceed the business tax-Free allowance of 24,500 euros generate.

  • Who himself bureaucratic effort would like to save and earn more than 24,500 euros a year through online income, you should try to convince the tax office that you are working as a freelancer.
  • In the case of income that comes through Google Ads are achieved, it is advertising income, with which separate VAT regulations be valid. The sales tax has to be taxed where the recipient of the service is headquartered. At Google Ireland Ltd. this is Ireland. The income generated in this country is therefore not subject to sales tax in Germany.

In general it can be stated that passive online income always has to be taxed, whether you are as a Freelancer, website operator or copywriter is working. Exceptions only apply if the income is so low that one is under the Tax allowance remains, which in 2015 was 8,354 euros. However, the use of the tax-free allowance does not exempt you from the VAT liability. To what extent you are considered a trader, freelancer or private person, this should ideally be clarified with the responsible regulatory or tax office.

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Konrad Walter Schmitt has a degree in finance and after completing his studies in Nordkirchen, he now works in the cathedral city of Cologne. His main focus is on auditing and also advises companies and private individuals in the area of ​​tax law. The ambitious financial expert also writes essays in scientific journals and for online magazines.