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September 9, 2026
The final accounting comes at the end – including with the tax office. Anyone closing down their craft business needs to be aware of several tax implications. Here's how.
More and more small and medium-sized enterprises (SMEs) are planning to close their businesses due to the owners' retirement. According to the KfW 's SME Monitor 2025 , around 114.000 companies could close annually by the end of 2029. The main reasons are the age of the owners, a lack of successors, and bureaucratic burdens . However, closing a business also brings its own set of challenges – including financial ones. Any profit from the sale is taxable . Tax advisor Alison Siefert from Hanover explains what you should be aware of .
Deregister your business with the tax office . This can coincide with the cessation of operations, but it doesn't have to. You'll usually need several months to wind everything up: selling machinery and company vehicles, collecting outstanding debts, paying invoices, and informing the authorities. You generally have six to twelve months to do this. "The tax office only needs to know when you're finally ceasing operations," says Siefert.
If you stop working, your income will cease. "Therefore, apply to the tax office in good time to have your income tax prepayments set to zero ," advises Siefert. Otherwise, the tax office will continue to deduct payments. Although it will later offset the overpayments against the taxes on the profit from the cessation of business, you will lack liquidity until then.
Prepare a closing balance sheet that records all assets at their book value. A gain on disposal arises if the fair market value of your assets exceeds their book value.
Operations management
Operations management
Operations management
Particularly with real estate, significant increases in value can occur. "Properties that have been listed on the books for years at their original purchase price often have a considerably higher market value today," explains Siefert. These hidden reserves significantly increase the capital gain and thus the tax burden. "You should bear this in mind if you want to transfer a business property into your private assets," she warns.
What would be the alternative? "The property could be transferred tax-neutrally to a GmbH & Co. KG (limited partnership with a limited liability company as general partner), which would then rent out the property," says Siefert. "This would mean the business assets would remain in this company and no withdrawal profit would be taxed."
The gain on disposal is taxable . It results from the proceeds you receive from the sale of machinery, tools, or vehicles. The decisive factor is the difference between the sale price and the book value.
Assets transferred to your private assets also increase the capital gain. Here, the difference between the book value and the deemed withdrawal value is what matters. For example: You bought a computer in 2025 for €2.500 net and immediately depreciated it. The book value is €0. In 2026, you transfer the computer to your private assets. You determine its market value through online price research, which yields a value of €1.500 net. The taxable deemed withdrawal value is €1.500 (market value minus book value).
"For other items, the book value may exceed the market value," adds Siefert. "Then the gain on disposal decreases accordingly."
Take advantage of tax breaks The tax office levies income tax on the profit from the sale of the business. However, Section 34 of the Income Tax Act offers tax relief:
tax allowance and reduced tax rate
If you are at least 55 years old or permanently disabled when you close your business, you will benefit from a tax allowance and a reduced tax rate:
– Tax-free allowance: Up to a profit of €136.000 from the sale of a business, you are entitled to a tax-free allowance of €45.000. This allowance decreases by the amount by which the profit exceeds the €136.000 limit. It is completely eliminated for profits of €181.000 or more.
– Reduced tax rate: A reduced tax rate of 56 percent of your average tax rate applies to the capital gain from the sale of assets. However, the lower limit is the initial tax rate of currently 14 percent.
One-fifth rule
Many business owners still generate income in the year they close their business. Combined with the taxes on the profit from the sale, this can lead to an excessive tax burden. This is where the one-fifth rule comes into play: The tax office calculates the tax on the current income plus one-fifth of the profit from the sale. The difference between this and the tax on the current income is multiplied by five and added to the income tax on the current income. "This primarily benefits business owners whose income, excluding the profit from the sale, is significantly below the top tax bracket," explains Siefert.
Which increases operating profit
If you determine your profit using the income statement (EÜR), you must take some special considerations into account when closing down your business, which are not included in the profit from the closure:
– Current assetsAssets such as inventory, stock, and finished goods must be sold or capitalized before closing the business. This increases your taxable profit for the last fiscal year.
– Demands You must also activate these receivables. Accordingly, income and sales tax become due on outstanding invoices – even if you only receive the money later. "The receivables then become your private assets upon closure of the business. You no longer have to pay taxes on incoming payments," says tax advisor Alison Siefert.
– Liabilities You must treat them as liabilities in the last financial year, as if they had already been paid.
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