EXPLAINED: How to save money on your taxes in Germany

In a crowded field, few things feel as bureaucratic in Germany as the tax code. But as with so many things here, there’s an advantage in planning a bit ahead of time, and keeping the right paperwork as you go along. From my own personal experience having paid tax in Canada before moving to Germany, many of the possible deductions you can get here might not be available where you’re originally from. That’s why it’s worth checking to see what you can save money on.

It's currently tax season: the 2020 tax return deadline for those who use an adviser or Steuerberater is May 31st 2022 (it was extended from December 31st 2021 due to the pandemic). Meanwhile, many residents in Germany will have to file their 2021 tax returns by the end of October, with extensions available to those who use a tax advisor.

And, while some salaried employees with very straightforward cases may be able to get away without filing one as their taxes are often simply deducted straightaway from their monthly pay, it often pays to do it. 

READ ALSO: German tax deadline extended due to Covid pandemic

Who has to complete a tax return in Germany?

Perhaps most obviously, self-employed freelancers and small business owners resident in Germany have to file a German tax return every year. But so do a host of other people. These include married partners with big differences in income, people claiming certain welfare benefits, or people with multiple sources of income - such as those who might have a salary and rental income. If you don’t fall into any of these categories, you can still file a return and get some money back.

What job-related expenses can I deduct and how can I prove them?

It’s not just the self-employed who can claim a host of tax breaks. If you’re a salaried employee, you may also be able to claim everything from job-related clothing to training courses you’ve paid for yourself and not been able to claim as expenses with your employer. If you buy a work-related book or subscribe to a trade magazine your employer doesn’t reimburse you for, you can deduct that from your tax burden as well. The costs of membership in professional organisations are also fair game.

"Any form of job-related development course is tax deductible, whether you’re a freelancer or not," says Claudia Müller, Founder of the Female Finance Forum and author of Finance, Freedom, Provision. The way to financial independence. “Also, if you had to travel to the course, you can keep the train ticket and hotel receipt. The dates on them will obviously correspond to the course date—so you can clearly prove you took the trip for professional development and claim the travel costs.”

READ ALSO: Everything you need to know about your German tax return in 2022

Müller also advises keeping the receipts for job-related clothing, although claiming that as an expense is easier for some professions than for others. For example, a chef can easily argue their uniform, if they have to pay for it themselves, is something they won’t wear outside of work. Other cases are less straightforward.

"Clothing is a bit tricky because men can theoretically wear a suit to a non-work related occasion, like a wedding. So they won’t be able to hand in those receipts. But women sometimes can deduct certain business clothing they really wouldn’t normally wear outside of work," says Müller.

With the Covid-19 pandemic having made home office more common in Germany, both employees and freelancers can deduct furniture, computer, stationary, and Internet costs, among others. 

What household-related costs can I deduct?

When I had a dishwasher technician come to my home for a repair recently, he told me I’d be getting a long receipt via email and that I should save it for my tax return. Having had no such available tax credit when I lived in Canada, I was curious about what else might qualify. It turns out plenty does - whether you rent or own the place you live in.

“As long as you’re using a cashless payment, such as a wire transfer, you can claim some of the costs of household-related services like gardeners and cleaners - or maintenance costs such as home repairs or a visit from your chimney sweeper,” says Dirk Maskow, an independent tax consultant based in both Berlin and Düsseldorf.

"If you rent your place and your landlord passes on any service costs to you, the tenant, they’re obliged to provide you with the necessary statement, which you can use as documentation."

READ ALSO: Everything you need to know about paying taxes in Germany

What family-related costs can I deduct?

Germany is a country that prides itself on its family-oriented social safety net. That’s part of what makes its tax code so complex, but there’s plenty of possible credits for different life situations. Parents can claim an allowance for each child until they turn 25, and even longer if they can prove their enrolment in higher education for adult children older than 25 - even if they’re living away from home.

Two-thirds of childcare costs are tax deductible too. “For that, again, make sure you keep all the receipts and don’t pay by cash—so you can prove exactly what you paid and when,” says Maskow. “Public schools are of course free in Germany, but even about 30 percent of private school fees - up to a maximum of €5,000 - are tax deductible too.”

It's not just institutional education or childcare you can claim either. In Germany, even certain babysitting expenses are tax deductible. "You can even get the children’s grandparents to come over and deduct travel costs," says Müller. "If they need to take the train to come look after the kids, make sure you save the receipt."

Certain out of pocket healthcare costs might also be tax deductible in certain cases. "My tax advisor always asks me for our medical expenses, right down to if we went to the dentist and got a cleaning," says Kathleen Parker, Managing Director of Red Tape Translation. "The right filing system can make a load of difference to help keep track of it all. If Excel and paper isn’t cutting it anymore, there’s lots of great cloud-based software that can help you out."

Vocabulary

Tax - (die) Steuer

Wage Tax (what employees have taken off their pay) - (die) Lohnsteuer

Tax return or tax declaration - (die) Einkommensteuererklärung

Tax consultant or advisor - (der) Steuerberater/(die) Steuerberaterin

As with all of our tax and financial summaries, this is a guide only and should not be taken to constitute specific and tailored financial advice. For tax advice which is personalised to your situation, please contact an accountant or tax specialist.