If you own a sole proprietorship, there are a few different tax-related matters you should address during your financial year. One example is the tax return form for your sole proprietorship.

It is important to know and understand this, as there can be tax consequences if you do not report your company's finances correctly to the Danish Tax Agency (Skattestyrelsen).  

Preliminary income assessment

The first tax-related matter you should address is your preliminary income assessment.

When the financial year begins, you must enter your expected profit or loss and any interest expenses into your preliminary income assessment. This information is used to tax your company throughout the year, ensuring you don't end up having to pay everything back at once when the year is over.

Tax return form

Once the year has ended and you know your company's actual profit or loss—that is, the company's final result—these figures must be entered into your tax return form. It is based on the figures from this form that the Danish Tax Agency calculates your annual tax statement.
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In other words, it determines whether the tax you have paid throughout the year based on your preliminary income assessment was correct, or whether you owe additional tax or are entitled to a tax refund.

We therefore recommend that you keep your books updated on an ongoing basis. First and foremost, because the annual accounts you prepare based on your bookkeeping allow you to enter the company's final result into the tax return form. Furthermore, it gives you an overview of whether the figures prepared for the tax return form need to be adjusted.

But what exactly needs to be reported in the tax return form? We will now go through what should be included in the form.

What should a tax return form for a sole proprietorship contain?

The following shows which figures and information must be included in your tax return form for your sole proprietorship.

• Your company's profit or loss before interest (result)
• Your company's interest income or interest expenses
• Your company's financial information
• Other information about your income outside of your business (e.g., stocks and travel deductions)

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Read more about annual accounts for the self-employed

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How do I find this information?

It can be a mouthful to make sense of what the various details cover and how they should actually be reported in the sole proprietorship's tax return.

Therefore, we will now go through the information that needs to be provided in your tax return.

Income statement

An income statement, also known as a profit and loss account, is an overview of your company's income and expenses during the financial year. Once you have an overview of your income and expenses, you can use them to determine your sole proprietorship's profit for the year.

But what exactly do income and expenses cover?

Income

For your income statement to be accurate, as the owner of a sole proprietorship, you must report your total sales of goods minus your cost of goods sold during the financial year. The cost of goods sold is the value of the purchased goods that you have sold or used during the year.

Expenses

Likewise, you must also report your sole proprietorship's total expenses for the year. This includes, among other things, expenses related to rent, minor acquisitions, or an accountant.

Profit for the year before interest

The amount you enter as your profit for the year before interest is the result you will be taxed on. You calculate this result by subtracting your total expenses from your total income. When doing so, it is important to include private shares and make adjustments for items such as depreciation of operating equipment or other tax-related corrections.

If you have had more income than expenses, the result will be a profit. If, on the other hand, you have had more expenses than income, the result will be a loss.

Accounting information

You must also provide your accounting information on the sole proprietorship's tax return.
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If your sole proprietorship has an annual turnover of less than DKK 300,000, the following information about your accounts must be added:

• Company CVR number.
• VAT payable or receivable, if you are VAT registered - you can find this amount in your company's balance sheet.
• Whether your company is exempt from providing financial information.
• Information about auditor assistance

If your revenue has exceeded DKK 300,000, you must provide additional financial information, such as net revenue and cost of goods sold. You can find this information in your income statement.

Balance sheet

Your sole proprietorship's balance sheet must also be included in your tax return.
When you prepare your balance sheet, you state the value of your sole proprietorship (assets), such as inventory and equipment, and what it owes (liabilities). Liabilities consist of the capital you as the owner have invested in the company, as well as any debt you may have.

It is important to remember that your liabilities and assets must always balance. 

As a sole proprietor, what is the best way to complete your tax return?

We understand if you find the annual report and tax return to be an overwhelming and tedious source of stress, and with good reason. Incorrectly completing your tax return can have tax-related consequences.  

Therefore, it can be a good idea to get some outside help. Below, we have outlined three possible ways to complete your annual report and tax return for your sole proprietorship.

   1. Do it yourself via The Danish Tax Agency

   2. Have an accountant prepare and submit your financial statements

   3. Do it yourself with Reportability's online tool

You can, of course, always prepare your own financial statements, review your tax return, and subsequently submit it to the Danish Tax Agency. This is the cheapest, but also the most time-consuming solution. If you are not very familiar with the rules and calculations, it can be time-consuming to learn, and you risk making mistakes.

You can also have an accountant prepare your annual report and review your tax return, in which case you don't have to worry about a thing.

An accountant will handle your bookkeeping and submit it to the tax authorities. However, this is clearly the most expensive solution.

You can also use Reportability's online tool to prepare your own accounts and submit them to the tax authorities quickly and easily. Legislation, rules, and requirements are built into the tool, so you simply need to follow the steps, and we will ensure that you generate an annual report that meets all tax requirements. Along with a complete annual report, you also get a guide that tells you exactly what to enter in the tax authority's fields.

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