Make use of all those tax deductions Germany has to offer
If you are reading those lines, you probably preparing your tax return (full guide here on tax return in Germany in English) or starting as a freelancer in Germany. It’s really like a game, isn’ it? Just how much can i optimize my profile as a tax-payer and maximize my tax deductions in Germany?
While you might need the assistance of a tax advisor with custom advice for your situation, this post aims at giving an broad overview on what tax deductibles Germany can offer. Here it goes, due to popular demand.
Before we start: documenting those expenses for your tax return properly
All expenses that qualify as tax deductions in Germany will need to be properly documented via the different forms made available by the tax authorities:
- Anlage Sonderausgaben.
- Anlage Außergewöhnliche Belastung.
- Anlage Haushaltsnahe Aufwendungen.
- Anlage N (for employees).
- Anlage S (freelancers only)
- Anlage G (Gewerbetreibende only)
- Anlage Kind
I can easily recommend the different how-to guides from Finanztip to fill them in. They are all up to date and written in easy German.
If you want an easy to use, English-speaking tool to help you with that, you can turn to platforms like SteuerGo. Use a nice interface to guide you through the maximum possible optimization/return you can get, make use of all possible tax deductions in Germany. It’s an affordable option that everybody can use and simply removes any complexity.
If your situation is really complex and you need more advice, finding a tax advisor is also an option. If you are freelancer, that can achieved easily on demand via the bookkeeping software Sorted. There are more alternatives for freelancers and everybody else on this page.
Tax deductions Germany: expenses related to work life
Expenses that might occur to preserve, pursue or gain work are eligible to deduction, as income tax law states in Germany.
All professional expenses are part of income-related costs and can be deducted from taxes. The following categories apply for both employees and freelancers, unless stated otherwise.
The employee Pauschbetrag
Tax authorities will automatically deduct a lump sum of 1000€ from your yearly taxable income, with no proof to submit to take advantage from it. This is called the Arbeitnehmer-Pauschbetrag. This is basically the Finanzamt recognizing that there are some expenses dedicated to keeping a job, even if the tax-payer doesn’t advantage of other tax deductions Germany can offer.
Naturally, if your expenses total more than 1000€, you have every right too include them as well. Anything above this number will require to be, in case the Finanzamt wants to see some proof.
As you guessed, this does not apply to freelancers.
Expenses related to job search and applications:
Searching and applying for jobs is quite time consuming. Those CVs and cover letters aren’t going to write themselves. You can deduct 2,50€ per application submitted digitally, and 9€ per application submitted by post. Only valid for employees.
If you need to travel to attend an interview, all costs incurred there qualify as tax deductible in Germany too, as explained further on.
Work related tools & literature
Starting a new job often mean investing in some pieces of equipment, books or clothing:
- hard hat, gloves, apron, work shoes.
- bags, briefcases.
- laptop, smartphone, tablet, gps, headphones.
- office chair, ergonomic mouse, keyboard, lamp.
- training or technical literature
- any item that might be house primarily for work, it can be creative.
A lump sum of 110€ is also granted here but you can deduct a lot more. If a single item costs less than 487,90€, it can be put off over a single year. Past that threshold, you will need to depreciate the expense overall year (eg: 3 years for a printer).
Commute, business trips, home office & food allowance
A tax deduction Germany is very generous for is anything related to transportation to work and other places to conduct business. The rule is to be able to get 0,35€/km between your home and your work address, regardless of your mean of transportation (one way). This can amount to 4500€ as part of the lump sum for this type of expense. Beyond that, you will need to keep record of each and any expense in the form of receipts.
If you are left to work away from home for a longer time, you can receive a daily allowance from your employer to cover food expenses. If that is not the case, you can claim back 12€ for periods of less than 8 hours away from your normal work place, and 24€ for each 24 hour trip.
This number goes up when travelling abroad, you can check this table for detailed information depending on the country.
It’s a sign of the times: home office is becoming more of the norm. This is why a new tax rebate is now available at a rate of 5€ per full working day, up to 600€ per year.
Secondary residence taken for work
When starting a new job, you might need to rent another place in order to take on the job. That situation is usually temporary, to give you some time to move your main residence closer.
Costs incurred here can also be deducted on some conditions. It must for example be at least half as close as your main residence, be used for work reasons only, and you should not make this new flat your new permanent living space. In case you qualify, deductions are pretty generous:
- Rent & any other Nebenkosten
- Radio/TV tax costs.
- Parking spot
- Renovation, gardening & cleaning services
- Tax on secondary residence (if applicable)
Contributions to trade unions, business networks & professional insurances
Depending on your field and your professional lifestyle, you might chose to join a trade union or some other professional organisation. It might even be required by law to be able to work in your industry.
Those yearly expenses can also be put off in taxes, as donations can be too.
You can also deduct any expenses related to professional insurances. These would typically be a professional liability, an accident insurance or insurances meant to cover legal costs.
Tax deductions Germany freelancers
All the categories mentioned above is also relevant for freelancers, unless stated otherwise. Freelancers have naturally a lot more possibilities to reduce their taxable income. Any incoming invoices related to services and goods purchased for their business count as deductible expenses. I have mentioned a few more below as a reminder.
Health insurance contributions
Health insurance in Germany is costly, and as a freelancer, it may make quite a big dent in your budget. Thankfully, your Krankenkasse costs are deductible as expenses.
Coworking spaces, workshops & home office
Coworking spaces have very much become the norm these days for digital workers. Keep those bills as they are deductible expenses in Germany. Same applies for a workshop/atelier/fablabs you might rent when working on physical products.
A room at home can also considered a professional expense, as stated above. However, the room must be physically separate from the rest of your home by a door & walls. The room must be arranged as an office and cannot contain other unrelated furniture (like a bed for example). Separating your desk from the rest of your living room with a curtain would not work for example. If this workspace at home is the central place of your occupation, you can put off rental costs pro-rata of the size of the space, with no upper limit.
Licenses & paid software
If like me you are using a book keeping software like Debitoor, Sorted, Lexware or Fastbill (highly recommend it), those costs are definitely deductible in Germany. But it does not stop there, you might need to renew your Adobe, Sketch, Traktor or Cubase license too. Any time you pay a software to support your business, it counts as a tax deductible in Germany too.
Hosting & web representation costs
As a freelancer, there is a good chance you have an online presence as well. You are using a hosting provider for this, and you might even have hired a dev to set you up, or bought WordPress themes/plugins. Everything counts as representation costs and can be put off in taxes.
If you have a Gewerbe, then you are obligated to pay fee to your local IHK (Industrie- und Handelskammer), don’t forget to deduct this expense as well.
Tax deductibles Germany: expenses related to private life
In case you have changed your main residence address in order to be able to start a new job somewhere, you can also put expenses off in taxes:
- Moving company services.
- Estate agent services.
- Additional rent you may have payed while moving.
You can also make use of lump sums as well, for any other moving related expenses. Single people and registered partners can deduct 820€ and 1639€ respectively, without the need to prove anything. Each additional household member: 361€. This is almost ways used by expats for their first year in Germany, as they all moved there.
Cleaning, gardening and private care services
We are leading busy lives and need help at home too sometimes. You can deduct up to 4000€ in services related to the home when hiring a cleaning professional, a gardener or nurses. Even a dog grooming service at home is eligible. As always, make sure to keep all receipts and invoices, in case the Finanzamt asks for them.
Some “Nebenkosten” expenses that you pay through your rent can also qualify here too, if your landlord hires companies for those tasks.
All events of a tax-payer’s life is taken into account, also when it’s the end of it. Costs included in a funeral such as a gravesite, transportation, preservation casket, cremation, burial can be subject to tax deductions in Germany. This is only applicable if the person that passed away doesn’t leave enough money behind to cover all costs, in form of inheritance.
For expats, it might be wise to sign up for a life insurance that cover those costs though, especially if the body should be transported back home.
If you have enough rooms at home to be able to use one exclusively as an office, you can take the square footage of that room and deduct rent corresponding to that space. Be aware that this must be a closed room. You can deduct up to 1250€ off in taxes thanks to that scheme.
It’s usually a good idea to top up your public statutory pension scheme with a private one. You would not be going very far without. Just a friendly advice, but i’m sure you have heard this before. Private pensions plan contributions can now be deducted too. You deduct 84% of those contributions (private + public plans), limited to 23 362€ per year.
In case your company is also offering a corporate pension plan, a further 1 800€ can be deductible.
Having represent a financial burden. That is especially true for expats who don’t have grandparents at hand to get a weekend or evening free once in a while. In this case, we turn to babysitters and kinder gardens. 2/3 of childcare costs can be tax deductible in Germany, for children up to 14 years old. If your children is considered disabled, there is no age limit.
Construction and renovation works around the home
Working around the home is inevitable to keep it from falling apart with time. Now and then, some maintenance or renovation work is due. If you bare those costs, up to 6000€ can be deducted. Note that you don’t need to do those works yourselves. You can also hire companies to do the work for you.
Training, personal development & education
Many of us expats will take a language class to improve on their German. You might also decide change careers or do some training to boost your chances to get a job. Should that be management, coding or graphic design. All those costs are deductible.
If you are for some reason paying Church tax in Germany, you can deduct it from taxes.
Tax deductions Germany students:
Even if you are still a student, you can still do a tax declaration and get some money back in your tax return. The categories below only apply to students, but the categories mentioned above can apply too, if you have been working next your studies.
University, school, college tuition fees
Even though tuition fees are relatively low in Germany, it can amount to a few hundreds or thousands of euros per year.
Those costs are considered tax deductible in Germany, limited to a maximum of 6000€ per year, when this is your first degree/undergraduate degree.
Additional classes & tests fees
You main curriculum may not be the only studies occurring costs. Tests and other private classes, like language courses can be deductible too.
This is often the case for foreign students who had to take language classes and a language test in order to get into university.
Academic literature and other learning material
Depending on your studies, you will probably need to buy some books or other technical learning material throughout. It doesn’t matter if they were in digital or physical form, you can deduct those costs too.
Sure, you may be using your computer a lot more than paper nowadays. So computer science students won’t care, but art students will. Keep the receipts for those items:
- Printer ink cartridge
- Costs for copying documents
- Paint, brushes
- & more, you get the idea. Whatever you need for learning 🙂
Computer & other electronics
Going to university often means investing in a new laptop, sometimes a second screen and a printer too. For good measure, throw in a mouse and a keyboard too for a nice work station at home.
Art students might need a Wacom tablet too at some point.
Those costs also qualify as tax deductible in Germany. However, since those devices are almost always used for private purposes too, a 50% rule applies there.
Commuting & research trips
Not everybody will get a dorm on campus. For this reason, you can deduct commuting costs at a rate of 0,30€ per kilometer between home and your place of study (one way only).
In case you need to travel far away or for multiple days for research purpose for example, some of the food, accommodation expenses are deductible as well.
Do i need to send proof for each expense to the Finanzamt when doing a tax return in Germany?
Crazily enough, it use to be the case. Now, the Finanzamt will only request proof on a case by case basis. So you still need to able to produce a document that makes sense with what was in your tax declaration.
How long do i need to keep invoices, bills in case the Finanzamt asks me for some?
Self-employed people must keep all incoming and outgoing bills for a period of 6 to 10 years, depending on the nature of the service/expense.
There is no legal requirement set for private individuals by tax authorities in Germany. Common sense would dictate to keep those documents until you have received their tax return statement (Steuerbescheid) at least.
I hope this overview helped you maximize your tax deductions in Germany. Feel to leave tips, questions and other comments in the comments section how to lower German income tax rate.