Cash Basis Taxation (Ist-Versteuerung)

Cash basis taxation (Ist-Versteuerung) is a tax system in which tax is calculated based on the actual income or assets earned during the tax year. In contrast, accrual basis taxation (Soll-Versteuerung) calculates tax based on estimates of the taxpayer's expected income or assets.

An example of cash basis taxation would be if a person earns an income of 50,000 euros over the course of a year and must pay taxes on that income. The tax liability is calculated based on the income actually earned, making it cash basis taxation.

In contrast, with accrual basis taxation, the tax would be calculated based on estimates of the person's expected income. For example, a person who expects to earn an income of 50,000 euros during the year might pay taxes on this expected income, even if they actually earn less than 50,000 euros by the end of the year. In this case, the tax would be accrual basis taxation.