Loss Carryforward for Self-Employed in Germany 2026: Use § 10d EStG to Cut Future Tax

A bad business year isn't the end, tax-wise it can actually become an asset. If you're self-employed or a freelancer in Germany and your business runs at a loss, you can carry that loss forward into future years under § 10d EStG (loss carryforward) and use it to reduce future income tax. In 2026 it pays to look closely: a higher 70 % minimum-taxation limit applies for the years 2024 to 2027, while the carryback amounts have dropped back to €1 m after the Covid-era special rules expired.

Key points at a glance

• Loss carryforward (§ 10d para. 2 EStG): unused losses move into future years and lower your profit there. No time limit.
• Loss carryback (§ 10d para. 1 EStG): losses go back up to 2 years and refund tax you already paid. 2026 cap: €1 m (single) / €2 m (joint assessment).
• Minimum taxation: fully deductible up to €1 m, above that only 70 % of the excess profit (special rule for 2024 to 2027, otherwise 60 %).
• Loss assessment notice (Verlustfeststellungsbescheid): the separate notice that records your carryforward. It is the only document binding for later years.
• Condition: you must file every tax return and have a genuine profit-making intention, otherwise the tax office may class the activity as a hobby (Liebhaberei).

What loss carryforward is and why it matters

Loss carryforward means: any loss from your self-employed activity that you can't offset against other income in the same year is carried over into future tax years. It reduces your taxable profit there and lowers your income tax. The carryforward has no time limit: you can use the loss until it is exhausted.

For freelancers and traders preparing the EÜR (income surplus calculation), this is one of the most powerful planning tools, particularly in the first business years or after major investments. Year one is rarely profitable: equipment, marketing and training eat up thin early revenue. Loss carryforward makes sure that starting loss isn't wasted but cuts your tax in the first good year.

Carryforward vs. carryback

You have two ways to use a loss. They aren't mutually exclusive, and can even be combined.

Carryback is the default, it brings liquidity back fast. But if you expect future profits to push you into a higher tax bracket, you can waive the carryback and carry everything forward. You make the choice in your tax return: in the Anlage Sonstiges you state whether and how far you want to cap the carryback.

How a loss travels through the tax office

Before any carryforward even arises, the tax office offsets your loss in a fixed order. The chart below shows the path from the loss in your EÜR to the loss assessment notice.

How loss carryforward works inside the EÜR

Step by step:

1. Prepare your EÜR. If business expenses exceed income, you have a loss.
2. Enter the loss in Anlage S (freelancers) or Anlage G (traders).
3. The tax office first offsets it against your other positive income for the same year (e.g. salary from employment or rental income). Whatever is left becomes a carryback or carryforward.
4. The carried-forward loss is fixed in a separate Verlustfeststellungsbescheid (loss assessment notice). Keep this document carefully, it is the legal basis for every following tax year.

Worked example: a loss alongside your day job

An example makes the principle concrete. Nina is employed and starts a side business as a graphic designer. In her first year she invests heavily in gear and software.

Nina's €8,000 loss is offset directly against her salary (vertical loss offset). Instead of €45,000 she is taxed on only €37,000. At a marginal rate of around 32 %, that saves roughly €2,560 in tax, usually as a refund, because wage tax was already withheld from her salary. No carryforward arises here at all, because the loss is fully absorbed in the same year. Only when the loss is larger than all other income does a remainder stay for carryback or carryforward.

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Minimum taxation: the 70 % rule above €1 m

As long as your carried-forward loss is below €1 m, you can deduct it in full (the so-called base amount). Above that threshold, the German minimum-taxation rule kicks in:

• Up to €1 m (single) or €2 m (joint assessment) → 100 % offset.
• Above → only 70 % of the excess profit can be offset with the carryforward. This raised limit applies under the Wachstumschancengesetz for tax years 2024 to 2027; from 2028 it drops back to 60 %.

Most freelancers will never hit this, anyone carrying million-euro losses should already be working with a tax advisor. Worth knowing: minimum taxation only defers the deduction, it does not destroy the loss. The unused part stays in the carryforward and is offset further the next year.

The loss assessment notice: why it's critical

The Verlustfeststellungsbescheid is a separate notice you receive every year a carryforward-eligible loss remains. It is independent of your normal tax assessment and is the only document the tax office is bound by in later years.

Practical tip: always file your tax return on time, even if you made a loss. If you don't declare the loss, you forfeit it. Check the notice carefully too, because the figure fixed there is the number the tax office uses next year. If it is too low, file an objection within one month.

Profit-making intention: the silent condition

One point many self-employed people underestimate: the tax office only recognises losses if there is a genuine profit-making intention (Gewinnerzielungsabsicht). Anyone who reports losses year after year with no visible path to profit risks being classed as Liebhaberei (hobby activity). The losses are then struck retroactively, often especially painful for hobby-adjacent activities.

How to protect yourself:

• Keep a realistic business plan or forecast showing you aim for long-term profit.
• React visibly to ongoing losses, for example with price changes or new clients.
• Keep private and business motives cleanly separated, especially with travel, vehicles or gear.

Strategy: carryback or carryforward?

Rules of thumb:

• Carryback when the prior years had high profits and you need cash now.
• Carryforward when next year will be strong and your marginal tax rate will rise.
• Partial carryback (allowed since 2022): you can specify exactly how much of the loss to carry back, the rest stays in the carryforward.

The subtle trick with a partial carryback: only offset enough to avoid wasting your basic tax-free allowance in the prior year (2026: €12,348). If you carry the full loss back, you sometimes push prior-year income below the allowance, and part of the effect evaporates. Better to carry the rest forward and use it in the next profit year.

Also important: losses are personal. If a self-employed person dies, the carryforward dies with them, it cannot be inherited (ruling of the Grand Senate of the BFH, GrS 2/04).

Loss carryforward in a GmbH: how is it different?

In a GmbH the same principles apply, but the calculation runs through the balance sheet and the corporate income tax assessment. On top of that come special rules such as the forfeiture of the carryforward on a harmful change of ownership (§ 8c KStG). For all the detail see our GmbH loss carryforward guide. Closely related is the investment deduction (Investitionsabzugsbetrag), which lets you deliberately create losses ahead of investments to reduce future tax.

Frequently asked questions

How long can I use a loss carryforward?

Indefinitely. The carryforward remains until future profits use it up completely, whether that takes 3 years or 15.

Do I have to apply for the loss carryforward?

No. The tax office assesses it automatically as soon as you report a non-offsettable loss in your tax return. You only have to file the return. Without a tax return there is no loss assessment notice and therefore no carryforward.

Can I offset self-employment losses against my salary?

Yes. Losses from self-employed work are first offset against your other positive income for the same year, which includes your gross salary from employment. This is the most common case for people who are self-employed on the side.

Is the carryforward applied automatically next year?

Yes. Once a loss assessment notice exists, the tax office deducts the carryforward in the next profit year of its own accord. You don't need to apply again, but you should check the deduction on your tax assessment.

What happens to the loss if I close my business?

The assessed loss carryforward stays with you as a person and can be offset against later positive income, including from a different activity. It just cannot be inherited.

Conclusion

Loss carryforward is one of the strongest tax tools available to self-employed people in Germany. It means a bad year is never wasted, it pays you back in future tax savings. The key is to declare the loss correctly in the EÜR, secure the loss assessment notice, document your profit-making intention and decide strategically between carryback and carryforward.

With Norman's tax tools for the self-employed you generate your EÜR, Anlage S and VAT return automatically, including the correct loss reporting for ELSTER.