How does one determine income from self-employment?
The income of self-employed individuals is based on the net profit of their business, which includes ordinary and extraordinary gains and is adjusted for tax purposes.
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Income from self-employment consists of the net profit of the business (Art. 18 para. 1 DBG). This business profit is derived from the annual financial statements. It comprises ordinary and extraordinary business income.
Income from self-employment is subject to income tax (Art. 18 DBG). Taxable income from self-employment consists of the net profit of the business as shown in the annual financial statements. Net profit comprises ordinary and extraordinary business income. Extraordinary income includes all capital gains from current and fixed assets.
The tax authorities base their calculation of net profit on the results of the accounts kept in accordance with commercial law. They may adjust this figure if it does not comply with tax law principles. This deviation from the commercially correct result by the tax authorities arises because commercial law and tax law pursue conflicting interests. Commercial law defines maximum values for the valuation of assets (Art. 960 OR) in order to protect creditors from an overly optimistic presentation of the financial position. Tax law, on the other hand, aims to determine the tax base for the period in question. To this end, minimum value requirements are established to prevent excessive write-offs and provisions on assets.
The effective taxable net profit of the company is determined in accordance with accounting principles and tax regulations on the basis of four factors: