Doing your tax return may not sound like the most exciting thing in the world, but trust me, it’s totally worth it! In this guide I share Nine Ways to Pay Less Tax in Germany! How you may ask? Well, on average, people who file their tax return get back about1100 € in tax refunds. That’s some serious money coming your way!
In this guide, I’ve got you covered with some awesome ideas and tips on what you can deduct from your taxes and pay less tax in Germany.
How to Pay Less tax in Germany
How does the Tax System in Germany Work?
Alright, let’s dive into the world of taxes! Before we get into the nitty-gritty of tax deductions, let’s take a quick look at how the tax system works in a nutshell.
Income Tax in Germany
When you earn income, you have to pay something called income tax. Now, here’s the interesting part: income tax is progressive, which means that you don’t pay a fixed amount on your whole income. Which is great if you have a high salary.
Now, how is the tax calculated? Well, it’s based on your taxable income. To simplify things, think of it as your gross income minus the things you can deduct from your taxes. These deductions are like little helpers that reduce your taxable income, lightening the burden on your wallet.
Remember, having more deductions mean you pay less tax in Germany!
How do you file a tax return in Germany ?
If you want to enjoy all the benefits I just mentioned, filing a tax return is the way to go. Luckily, there are several options available to make it happen. One popular method is using the Elster platform to directly submit your tax return to the tax office. It is totally free and quite extensive.
However, it can be a bit tricky to know exactly what to enter in each field. That’s where tax software comes in handy.
Related Guide: How to Submit a Tax Return in Germany
Can Tax Software help you pay less tax in Germany?
Tax software is designed to support you in filling out the fields correctly and providing helpful tips along the way. There are quite a few options out there, you can choose from the Best Tax Return Software In Germany . These software options usually cost between 10 and 35 €, but trust me, they’re worth it. As they definitely help you pay less tax in Germany.
Using tax software also ensures that you don’t miss out on any deductions. Let’s say, for example, you had some application costs or account maintenance fees that are tax-deductible. In the software, they will guide you step by step to the correct field, so you don’t forget to include that information. Lets talk about what you can deduct in your taxes
What are Advertising Costs in Germany?
Advertising Costs are costs that you have to incur in order to do your regular job. The good news is, you can deduct these expenses from your taxes!
Let’s take a closer look at some points to consider when calculating your work-related expenses.
Deduct Travel Cost in Germany
First, let’s talk about the commuter allowance. You can claim 30 cents per kilometer for your commute to work. If your office is more than 20 kilometers away, it’s even 38 cents per kilometer. By the way, it doesn’t matter if you use your own car, public transport, or even walk.
If you have a ticket for public transportation, like the Deutschland-Ticket, you can use that as well.
Less Known Work Related Expenses in Germany
Another option is the Home office lump sum. There’s a flat rate of 5 Euros per day (maximum 600 Euros per year) for home office expenses. Additionally, if you occasionally make work-related calls from your personal cell phone, you can claim a flat rate of 20% or 20 Euros per month. This is usually accepted without any problems. And don’t forget about work equipment like your laptop.
You can also consider travel and overnight expenses for business trips. There are different costs involved here. You can claim your travel costs. And for meals, there are lump sums available. For example, on arrival and departure days, you can claim 14 Euros, and for full days of business trips, it’s 28 Euros per day. There’s no maximum distance requirement, so even if your business trip is just a few kilometers away, it can still be considered, as long as it lasts at least 8 hours.
Home Office Allowance in Germany
Since the past couple of years, people have regularly started working full time from home. The good news is, under certain conditions, you can actually get a tax deduction for your home office. But there are a few things to keep in mind to make sure it qualifies.
How is a Homeoffice in Germany Recognized?
To have your home office recognized, ideally, you should spend more than half of your professional work time there. It should also be a separate room that can be locked.
That means no passing through rooms or working in a small corner of your living room. It has to be a dedicated, lockable room to count as a home office.
How to pay less tax in Germany if you havea home office?
If you meet the home office recognition conditions. You can deduct all the costs associated with your workroom from your taxes. This includes a proportionate share of the rent based on the room’s size, as well as other expenses.
These expenses include Electricity, Water, Heating costs, Wallpaper, Carpet, Curtains, and even the furniture in your home office.
How to Calculate Home office equipment costs?
Work equipment purchases up to €800 or €952 including sales tax are fully deductible in the year of purchase. For more expensive purchases, depreciation over the years must be calculated and taken into account.
The Federal Ministry of Finance (BMF) provides information and values for work equipment in the AfA-Table (“Absetzung für Abnutzung”). For example, an expensive computer can be written off for three years.
How can the Finanzamt Reject your Home Office Claims?
It’s important to make the Home Office credible. If you only have a one-room apartment it might be challenging to claim the room for a home office.
Also, be careful not to have any personal items in your home office, like an Xbox and a cozy couch corner. The tax office might pay you a visit to check if everything is in order, but don’t worry—they’ll let you know beforehand.
So, make sure to set up your home office properly, keep track of your expenses, and pay less tax in Germany!
Claim Tax for work done in your House
You can claim tax for any work done in your house from Craft and Household-related services . These are the services we use in our homes, like hiring a cleaner or a handyman. Guess what? You can actually deduct the costs of these services directly from your tax burden.
Here’s the thing: you can deduct a maximum of 20% of the total cost of these services. But there’s a catch—you can only claim the wage costs, not the material costs. Let me break it down.
How to claim labor costs in Germany?
If, for example, you hire a painter to paint the walls, you can only deduct the actual labor costs, not the cost of the paint itself. That’s why it’s crucial to have separate itemized invoices that clearly list the labor costs and the material costs.
This rule applies to both one-time services and to permanent staff you may have, like a regular cleaner or handyman.
You can claim costs for craftsmen, like repairs, gardening services, cleaning your apartment, child care, winter services, and even the fees for a janitor or caretaker. Keep in mind that some of these services, like winter services or janitor fees, may already be included in your rent or service charges if you’re a tenant. And remember, to claim these deductions, you’ll need proper invoices for all these transactions. Cash payments won’t cut it when it comes to tax deductions.
So, if you’re getting some work done around the house or getting help with household-related services, make sure to keep track of the costs and get detailed invoices. And don’t forget to hit the like button if you are getting value from this video and consider subscribing for more videos like this one
Registered at two places in Germany? Do this to pay less tax!
If you have to maintain two apartments because you live far away from your workplace, you can actually claim the costs for that second apartment. And guess what? It doesn’t have to be an apartment specifically; it can be a hotel, a caravan, or even community accommodations or a WG.
The key is that the distance between your secondary residence and your workplace should be no more than half the distance between your main residence and your workplace.
Now, let’s talk about your main residence. It should be the center of your life, where you spend most of your time. Living with your parents, for example, wouldn’t count as your main residence because it would be too easy to claim it as such while your actual home is hundreds of kilometers away. The tax office won’t buy that. So, make sure your main residence is your true center of life, and don’t try to pull a fast one.
As for the costs of the second home, you can fully claim them. That includes rent, facilities, and the costs of traveling back home—but only once a week. So, plan your trips accordingly.
Pay Less Tax in Germany as a Student
Did you know that you can actually deduct all the costs related to your studies from your taxes? Pretty cool, right? Let’s break it down.
What expenses can Students Claim in a Tax Return?
Students can claim things like tuition fees, examination fees, and the books or materials needed for studies in a Tax Return. Even the interest paid on student loan can be deducted.
Now, here’s the catch. It depends on whether you’re pursuing your first degree, like a bachelor’s, or if you’re doing a second study, like a Master’s.
Tax Return for First Degree in Germany
For your first degree, all those expenses we just mentioned are considered special expenses. Now, the tricky part as a student is that, on one hand, you have these relatively high costs, but on the other hand, your salary is usually on the lower side.
But don’t worry, if you have a part-time job or work as a student trainee, you can use these costs to bring your tax burden close to zero. However, there is a limit—you can’t deduct more than 6,000 euros per year.
Tax Return for Higher Degree in Germany
Now, let’s talk about the second study, like a master’s program. Things work a little differently here. Your costs are no longer considered special expenses, but rather income-related expenses. This means you can count them as deductions against your future income for tax purposes.
It’s like carrying forward any losses you incurred during your master’s studies. So, if you earn money in the future and have significant costs from your master’s program, you can offset those costs against your income. It’s a great way to start your career without the burden of high taxes.
That’s why it’s important for you to learn How to File a Tax Return as a Student in Germany. By doing so, you can create this loss carryforward and use it in the following years when your income increases.
How to Claim Pension expenses to pay Less tax in Germany
This expense includes contributions to different pension plans even for contributions to a company pension plan. It’s like investing in your future while getting some tax relief along the way.
But wait, there’s more! Various insurances can also be deductible. Think about it—your liability insurance, private occupational disability insurance, supplementary health insurance, accident insurance, and even life insurance. These are all important protections, and guess what? You can actually deduct the costs of these insurances from your taxes.
However, here’s the catch—there are limits to these deductions. You can’t deduct an unlimited amount. There are maximum amounts or thresholds that you need to keep in mind. So, it’s important to be aware of these limits while calculating your deductions.
Claim Special expenses in Germany
There are many special Expenses that you can claim in Tax Return to pay less taxes in Germany.
Health Insurance Expenses
First up, we have health insurance expenses. If you’re required to have health insurance and you’re paying premiums, those expenses can be deducted from your taxes automatically. So, no need to worry about that one.
Tax Related Expenses
Next, let’s talk about tax-related expenses. If you’ve sought tax advice from a professional, like a tax consultant, or even if you’ve purchased tax software to help you with your taxes, those expenses can also count towards deductions. It’s like getting a little bonus for seeking expert help or using technology to ease your tax burden.
Interest Payments
Now, we have some interesting deductions. If you’re making alimony payments to your life partner, those can be claimed as tax deductions. So, it’s good to know that there’s some relief when it comes to supporting your loved ones.
Claim donations paid in a German Tax Return
Last but not least, we have donations. If you’ve made charitable contributions, those can also be claimed as deductions. It’s important to keep proof of your donations handy, though. So, make sure to hold onto those receipts or any other documentation that shows you’ve made a generous contribution.
Oh, and one more thing—childcare and education costs can also be considered as special expenses. Keep in mind that you’ll need proper documentation to prove these expenses, but it’s definitely worth exploring if you’ve incurred any costs in these areas.
Pay Less tax in Germany with Extraordinary Burdens
These are burdensome expenses that you can actually deduct from your taxes if they exceed a certain threshold. But here’s the catch—they need to be exceptionally burdensome to qualify for the deduction.
To determine what’s considered exceptionally burdensome, there’s a table that sets minimum percentages of your income that these expenses must reach.
It’s a bit complicated, but let me give you an example. If you earn less than 15,000 euros and don’t have children, your extraordinary burden must be at least 5% of your income to be eligible for the deduction. Unfortunately, we can’t easily see our category in the table, so we have to add up the percentages from the bottom upwards.
Let’s say you earn over 51,000 euros. First, you calculate 5% of 15,000 euros, which falls into the first category. Then, you calculate 6% of the amount between 15,000 and 51,000 euros, and finally, 7% of the amount over 51,000 euros. It may seem a bit complicated, but once you understand the mechanics, you can figure out how high your costs need to be in order to be tax deductible.
Examples of extraordinary burdens in Germany
Now, let’s take a look at some examples of these extraordinary burdens. They can include various health costs like medical expenses, dental prosthetic costs, or expenses for glasses or contact lenses.
Other examples include costs related to the birth of a child, lawyer or legal process costs, funeral costs, and care costs. there’s actually a longer list. But what you’ll notice is that they often represent unique events or circumstances that create a significant financial burden.
If you encounter a similar situation in your life, it’s definitely worth exploring whether these expenses qualify as extraordinary burdens and can be deducted from your taxes. It’s important to keep in mind that these are not everyday expenses, but rather exceptional ones that have a significant impact on your finances.
Oh, one of the MOST important things that falls under this category for Expats living in Germany is Support sent to parents or family members from Germany to your home country. Yes you can actually Claim the remittance you send back home to support your family from Germany! I have discussed this topic in detail.
Disclaimer: None of the content in this article is meant to be considered as investment advice, as I am not a financial expert and am only sharing my experience with stock investing. The information is based on my own research and is only accurate at the time of posting this article but may not be accurate at the time you are reading it.