From your initial income, deduct VAT, expenses, social security contributions and taxes. The tax authorities only calculate this after a year, but this article gives you clarity now.
If you have an income of €2,420 in a month, how much of this will you keep?
Please note that this article provides general guidance only. Tax rules may vary depending on your individual situation. When in doubt, ask your Tax Coach.
This article walks you through each deduction in turn: VAT, deductible professional expenses, social contributions and personal income tax.
VAT
Turnover including VAT: | €2,420 |
VAT 21%* | €420 |
Turnover exclusive of VAT: | €2,000 |
VAT comes off your income first. Do you have a lot of VAT to pay? This is actually positive, because it means you had more income than expenses. You will, however, soon see a significant amount leave your account.
Remember that you also recover VAT on your professional purchases. How much exactly depends on the type of expenses. For simplicity, we will leave this amount out of the calculation.
Deductible professional expenses
Turnover excluding VAT: | €2,000 |
Deductible professional expenses: | €500 |
Net taxable income: | €1,500 |
Deductible professional expenses are deducted from your turnover before calculating social security contributions and taxes. This is why self-employed people aim to record as many expenses as possible: it reduces their tax bill and lets them recover the VAT paid.
Deductible professional expenses are of course different for everyone. This €500 is a completely fictitious amount and can vary from month to month.
Social contribution: 20.5% of your taxable income
Taxable income: | €1,500 |
Social contribution 20.5%: | €307.50 |
Net before tax: | €1,192.50 |
The social contribution amounts to 20.5% of your taxable income. It lets you build up a pension and helps 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 regardless: €751.25 per quarter in 2022 for self-employed people in main occupation. For starters, this minimum is often chosen as the quarterly contribution.
Personal income tax
Net taxable income: €1,192.50
Taxes (converted to 1 month): €307.75
Net income: €884.75
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 you had the same turnover and expenses for 12 months.
Net taxable income: €1,192.50 X 12 = €14,310/Year
Personal income tax works with income brackets. Low earners pay less, and high earners pay more. We apply these tax brackets to the annual net taxable income, then divide by 12 again to get the tax for 1 month.
€14,310 = €13,870 (Bracket 1) + €440 (Bracket 2)
25% on €13,870 = €3,467.50
40% on €440 = €176
Total taxes 1 year: €3,467.50 + €176 = €3,643.50/Year
Total taxes 1 month: €3,643.50 / 12 = €303.63
This brings us to €303.63 in taxes for 1 month, leaving you with a net income of €888.87.
The amount you pay in taxes each year is also affected by other factors, such as dependent children, spending on service vouchers or donations. This calculation is therefore an approximation.
From the gross turnover of €2,420, you will be left with about €888.87 after VAT, expenses, social contribution and taxes. A good reason to always keep sufficient working funds in your professional account.
The impact of professional expenses
This example shows the impact of your professional expenses on your net profit. If you do not record these expenses, you may keep more initially, but you will also pay more taxes.
Any expenses you attribute to your business will not come off your net income afterwards. So there is every reason to keep careful records of all your expenses.
Did you know that Accountable gives you a tip with every expense you log? This way, you can handle your own accounting quickly and easily, without overlooking any expenses.
Key takeaways
From a monthly income of €2,420, you keep roughly €888 after VAT, expenses, social contributions and income tax.
VAT (21%) is deducted first, but you also recover VAT on your professional purchases.
Deductible professional expenses reduce your taxable income and therefore lower both your social contributions and your income tax.
Social contributions amount to 20.5% of your taxable income, with a minimum of €751.25 per quarter (2022, main occupation).
Personal income tax is calculated annually using income brackets; this calculation is an approximation and individual circumstances may vary.
Need help? Chat with us or email support@accountable.eu, we're happy to help.