If you run a sole proprietorship, you are personally responsible for reporting and paying taxes on the business’s profits. The rules are straightforward, but there are small details that can be costly if overlooked. At Accountview, we help self-employed individuals with sole proprietorships and taxes, so you pay the correct amount to the tax authorities, take full advantage of deductions, and avoid surprises when your annual tax statement arrives.
How a Sole Proprietorship Is Taxed
As the owner of a sole proprietorship, your entire profit is taxed as personal income. This means that the business’s profits are added to any salary income, and that your total income is subject to the marginal tax rate applicable to your combined income. Taxation occurs regardless of whether you withdraw money from the business or not.
In addition to regular income tax, you pay an 8 percent AM contribution on your profit, and you must file a VAT return if your revenue exceeds the threshold of 50,000 kroner per year.
Estimated Tax Return and B-Tax
While A-tax is automatically withheld from employees’ paychecks, self-employed individuals must ensure that they pay enough tax throughout the year. This is done through the estimated tax return, where you report your expected profit. The tax authority divides the amount into ten B-tax installments, which you pay in the first and second halves of the year.
If your profit turns out to be higher than expected, you can adjust your estimated tax payment yourself and pay voluntary estimated tax. This is a good idea because it allows you to avoid both late-payment interest and a tax penalty when your annual tax return is issued.
The Corporate Tax System
For many self-employed individuals, the business tax scheme is the smartest option. This scheme allows you to deduct interest on business debt at its full tax value, and you can roll over profits that aren’t withdrawn into retained earnings, which aren’t taxed until the money is withdrawn. This is particularly beneficial if your income fluctuates significantly from year to year. We’ll find the scheme that best fits your financial situation and monitor whether your circumstances change over time.
Furthermore, a holding company is not a shield against all forms of liability. Personal guarantees and direct illegal conduct can still affect you as the owner. We therefore always review both the advantages and disadvantages before recommending a structure.
Tax Filing for a Sole Proprietorship
Every year, no later than July 1, you must report your business’s financial results on the expanded tax return, also known as the information form. The report is submitted via Skat.dk, and you fill out fields such as revenue, cost of goods sold, wages, interest, and net income. We prepare the entire report for you, so all you need to do is approve it using MitID.
We ensure that:
- The figures match your accounting records down to the last krone
- Deductions for travel, phone, office expenses, and insurance have been included
- Any personal use of a car, phone, or office space has been calculated correctly
- Withdrawals under the corporate tax scheme are reconciled against the withdrawal account
- The report will be submitted on time, and you will receive a copy for your records
How to Avoid Common Mistakes
Many self-employed individuals forget that personal expenses are not tax-deductible, or that voluntary estimated tax payments must be made by December 31 to avoid a late-payment penalty. Another common pitfall is overlooking the mixed use of a car and a home, where a private portion must be calculated. Through ongoing consultation, we catch these issues as the year progresses, rather than when it’s too late.
Self-employed individuals with sole proprietorships are also considering this model. In this case, it is first necessary to convert the sole proprietorship into an ApS and then establish the holding company above the operating company. We handle the entire process as a single, comprehensive package.
Frequently Asked Questions
What should I do if my sole proprietorship reports a loss for a given year?
Yes, if you both work for the company, you can take advantage of the rules for working spouses or enter into a salary agreement with your spouse. This allows you to claim two basic deductions and two lower tax brackets. The right model depends on your working hours and responsibilities, and we can help you with the calculations.
Can I transfer the company's profits to my spouse?
Yes, if you both work for the company, you can take advantage of the rules for working spouses or enter into a salary agreement with your spouse. This allows you to claim two basic deductions and two lower tax brackets. The right model depends on your working hours and responsibilities, and we can help you with the calculations.
How can I save for retirement as a self-employed person?
As a self-employed person, you can use a retirement pension, an installment pension, or a standard annuity plan and claim a tax deduction for your contributions. This reduces your taxable income while also helping you build a financial cushion for life after work. We include your pension contributions in your preliminary tax assessment.
What happens if I have both earned income and a sole proprietorship at the same time?
Both sources of income are combined on your annual tax return, which means you’ll reach the top of the tax bracket more quickly. This makes it important to report the correct estimated tax from your business and actively take advantage of deductions. We coordinate your taxes so that you avoid both underpayments and overpayments of tax in unnecessarily large amounts.
Do you want peace of mind when it comes to taxes for your sole proprietorship? Let’s talk and go over your numbers together.
