In this blog I will show you how to increase your spending power by 2.4 times as a freelancer. Note that this only applies to goods that you need for your business, like a phone, laptop etc. Or you can be creative; a friend of mine wanted a camera drone and bought it on his business. He makes one video per year for a customer besides using it for all his vacations. Or someone using his vacation home for ocassional painting workshops/retreats, making it a business cost.
Calculation
Let’s image you have an income of 100.000EU per year as a freelancer, the top of your income falls in the upper tax bracket. Let’s separate 10.000 of the initial income and calculate with that.
If we spend this money the regular way, we would first transfer this to our private account. If we ignore pension costs etc., we would first pay income tax (49.5%).
10.000 * (1 - 0.495) = 5.050
If we now want to buy a regular good, we pay sales tax (21%). A good that costs 100eu will costs 121 with sales tax. Thus a consumer advertised price of 121eu will cost 100eu to a business.
So instead of using this 10.000eu the normal route and be able to buy 5050eu of consumer goods, you can spend it as a business and buy
10.000 * 1.21 = 12.100eu
of consumer goods. The difference is 12100⁄5050 = 2.4 times the spending power!
Other tax authorities
To calculate it for different tax amounts, use:
1 / (1 - 0.495) * 1.21 = 2.4
income tax sales tax
NOTE: I used the tax amount of NL, to lower this, use EE.