“Whoever makes a mistake and does not correct it, commits a second” – Confucius already knew. Although the term “error” in tax law is certainly somewhat inappropriate, interim losses can certainly be part of a successful professional or entrepreneurial career. With the possibilities of offsetting losses by § 10d EStG, the legislature ensures that negative incomes are also taken into account in the tax calculation. The tenor here resonates – in addition to constitutional principles – definitely also, at first glance, something “wobbly” business ideas easier and with fewer concerns to put into practice.
1.Principles of offsetting losses in income tax law
Ambitious entrepreneurs in particular like to work on several business ideas. Already from a purely logical point of view, a statement on the occurring success is possible at the earliest in the start-up phase and after investments have been made. If an entrepreneurial project fails, it quickly leads to corresponding losses – and the legislator would also like to allow the deduction via § 10d EStG.
The possibilities of offsetting losses are therefore based – in addition to the “culture of motivation” mentioned – on constitutional norms. If the legislature wants to collect taxes on profits, it must also enable taxpayers to offset losses incurred. The Federal Finance Court (BFH) has consistently held that the term “income” is always understood to mean both positive and negative income.
The core of the loss offsetting is § 10d EStG, which also applies to corporations (e.g. GmbH and UG) via § 8 (1) KStG. A distinction shall be drawn between:
This article does not replace tax or legal advice in an individual case. Facts, current law, jurisdiction, documentation and implementation remain decisive.