When you sell or end your business, all kinds of legal and tax rules come into play. One of them is the cessation deduction. In this article, we tell you everything you need to know about cessation profits and deductions because it can save you a lot of money.
What is cessation deduction?
As soon as you cease your business, because you entrust the helm to someone else, you retire or, for example, start working as an employee, the business (under your leadership) ceases to exist. To formally terminate your enterprise, you must, among other things, make this known to the Chamber of Commerce and this has important consequences for your tax situation.
When you cease your business, hidden reserves, goodwill and other income often result in a so-called cessation profit; profit from the cessation of your business. You are allowed a one-off cessation deduction on this cessation profit, which means you do not have to pay tax on an amount of up to EUR 3,630.
After ending your business, are you left with no money at all or are you even turning a loss? Unfortunately, you cannot use the cessation deduction of 3,630 euros to get a refund from the tax authorities.
For whom is cessation deduction relevant?
The cessation deduction is not relevant for everyone. For example, you cannot apply a cessation deduction if you have a limited liability company (BV), if you are a joint owner or creditor, or if you only discontinue part of your business. So for whom is this tax benefit relevant? You may be eligible for the cessation deduction if you:
- Going into paid employment;
- Starting another business;
- revenue from converting a sole proprietorship into a limited liability company;
- becomes incapacitated for work ;
- retiring;
- dies.
Deferral of payment
Entrepreneurs are often wary of the tax authorities' settlement when they end their businesses. With the cessation deduction, the Inland Revenue actually wants to encourage entrepreneurs to settle their affairs neatly.
Do you want to postpone possible repayments to the tax authorities a little longer? Then you can reduce the amount of the cessation profit and retirement reserve by depositing it in annuity premiums. These premiums are tax-deductible up to a certain amount, but you pay tax on the eventual payment of the premium. It is wise to seek financial advice for such constructions.
