The Best Saving Tips for All Taxpayers

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By Wadav Editors
Last updated: February 13, 2021

 

The following quote is attributed to the banker and founder of the Rothschild family, Meyer A. Rothschild (1744–1812): “Ignorance of the tax laws does not exempt you from paying taxes. But knowledge often. "

 

And in fact, a look at laws and implementing regulations could often help - if only they were written in an understandable way!

 

The Academic Working Group has made it its task since the 1970s to translate tax gibberish into understandable language and specific tips. And with great success. You too can benefit from our knowledge! You can find 5 × 5 tax saving tips for employees, parents, landlords, part-time self-employed and all taxpayers in the following text.

 

 

5 tax-saving tips for everyone

 

Household help and craftsman services

Almost everyone at some point makes use of the services of a company for work in the private household or even provides employed help - for example for everyday housework, renovating the apartment, cleaning the yard or looking after someone in need of care. Even if none of these aids is used: tenants or owners of an apartment pay ancillary costs or house money - and this includes costs for household-related help, e.g. caretaker, stairwell cleaning or winter service. Anyone who lives in a senior citizens' home also pays for household-related activities through the remuneration. The expenses for household-related services can be deducted from the tax at a rate of 20%, but a maximum of $4,000. This is what taxpayers do in the Annex household-related services (up to and including the tax return for 2020: in the cover sheet on page 3) the required information. These proofs are required:

 

  • an invoice in which the privileged labour, travel and machine costs are shown separately from the non-privileged material
     
  • proof that the payment has been made to an account of the recipient. This can be, for example, a transfer slip in connection with the associated account statement. A stamped transfer slip alone is not sufficient.

 

Donate

Donations and membership fees are tax-deductible if they
 

  • voluntarily and without consideration
     
  • for tax-privileged purposes
     
  • to tax-privileged organizations and
     
  • be proven with a donation receipt.

 

Donations are only deductible to a limited extent as special expenses: the tax office takes into account up to 20% of the total amount of income. Donation amounts that have not been taken into account can be carried forward to the next year and then deducted together with the donations from this year within the framework of the maximum amount (so-called donation lecture). In addition to the normal donation deduction, the following are preferred for tax purposes:

 

  • Donations to foundations and
     
  • Donations to political parties and electoral associations.

 

Medical Expenses

Medical expenses are deductible in full but only have an effect if they - together with other extraordinary burdens of a general nature - exceed the so-called reasonable burden.

 

Costs may be incurred for medical services, medication, hospital stays, aids, home accommodation, etc. Payments such as prescription fees and the "flat rate cost reduction" for civil servants as well as travel costs and, if applicable, accommodation costs and additional meals are also included.

 

In general, the following applies: The tax-privileged illness costs include expenses for measures which, according to the knowledge and experience of medicine and the principles of a conscientious doctor, serve to cure a certain illness or make an illness more bearable or alleviate its consequences.

 

Conversely, this means: general health care or measures to increase wellbeing do not count towards the deductible costs of illness (wellness). This may well be a measure - for example, a message - that is medically necessary under certain circumstances and the costs are therefore deductible. As a result, you need proof that the costs are medically necessary.

 

You should therefore always obtain the necessary evidence - in advance of the measure. The requirements for the evidence are very different: Often the prescription of the attending physician is sufficient. Sometimes it has to be a medical certificate.

 

Insurance

Contributions for the following insurances can be shown as special expenses:
 

  • Contributions to health, long-term care, accident and liability insurance, to the statutory pension insurance and to the Federal Labor Office;
     
  • Contributions to the following insurances in the event of survival or death:
     
    • Risk insurance that only provides benefits in the event of death,
       
    • Pension insurance without lump-sum option,
       
    • Pension insurances with the right to choose from lump-sum against current contribution payments, if the right to choose from lump-sum cannot be exercised within twelve years of the conclusion of the contract
       
    • Endowment insurance against regular contributions with a savings component, if the contract has been concluded for a period of at least twelve years.
       
  • Contributions to additional voluntary long-term care insurance.

 

The insurance premiums are not always fully deductible. The calculation of the deductible portion is complex: Depending on the type of pension expenses, different maximum amounts apply and certain insurance contributions are only taken into account proportionally. There are also two different methods for calculating the deductible pension expenses. You should therefore always enter the total pension expenses in the field provided in the Pension expenses annexe so that the highest deductible amount can be determined. The tax office then automatically uses the cheapest method.

 

Entertains

In certain cases, and to a certain extent are support services deductible:
 

First case: it is normal maintenance for a dependent. This includes costs for accommodation, clothing, food, etc. Expenses for the recipient's professional training, for example for tuition fees, specialist literature, correspondence courses or the semester ticket, are also eligible. The legislator has specifically defined this case in Section 33a (1) of the Income Tax Act: Normal maintenance may be claimed as extraordinary expenses of a special kind; the maximum deductible is the maximum maintenance amount of $9,408 per year (2020: $9,168). Added to this are the contributions to the basic health and compulsory long-term care insurance (basic coverage) paid for the recipient. Prerequisite: the recipient is needy.
 

Second case: the taxpayer pays special maintenance for a dependent or a person close to him. This includes costs that arise in a special situation, for example, illness. The proven costs belong to the extraordinary burdens of a general nature, as far as the recipient is needy (§ 33 EStG). However, the tax officer only takes into account the sum of the extraordinary burdens of a general nature if they exceed the reasonable burden.
 

Third case: normal and special livelihoods are paid. Then the costs have to be shared because of the different tax treatment. Special features must be taken into account in the case of illness, disability or care-related home accommodation of a relative.

 

TurboTax is a mobile device compatible tax preparation software that provides step-by-step guidance to maximize tax refund on federal and state income tax returns.

 

 

5 tax-saving tips for parents

 

Childcare costs

Childcare costs are taken into account as special expenses up to an amount of two thirds, but a maximum of $4,000 per child. It is irrelevant whether the childcare is work-related or not. Childcare costs may be claimed for biological children, adopted children and foster children, but not for stepchildren and grandchildren. Exception for stepchildren: If the taxpayer is married to a new spouse and is assessed for income tax together with this partner, the childcare costs may also have been borne by the stepparent.

 

AU Pair

If the au pair contract stipulates the proportion of the time that childcare takes and what remuneration is due, the proportionate costs may be claimed as childcare costs. Without a precise contractual agreement, the share of childcare can be estimated at 50%. Costs that are not attributable to childcare reduce the tax burden as part of household-related services.

 

Baby-sitter

The prerequisites for the deduction of babysitting costs are very strict and should only be adhered to if the same babysitter is used on a regular basis. The first hurdle: The babysitter may not be paid in cash; parents must transfer the money to the babysitter's account. In addition, despite the likely low number of hours, the parents are employers of the babysitter. Accident insurance for the babysitter with a community accident insurance association or an accident insurance company is also required. If there is a mini-job registered with the mini-job centre using the household check procedure, the contributions will be automatically collected.

 

School fees

If a child of a taxpayer for whom this person is entitled to child benefit or the allowances for children attends a subsidized private school, 30% of the school fee can be claimed as special expenses (max. $5,000 per child). The right to half a tax exemption for children is sufficient. Beneficiary schools are above all
 

  • private primary schools, secondary schools, secondary schools or special schools, private high schools or integrated comprehensive schools;
     

  • Waldorf schools;
     
  • Montessori schools;
     
  • private vocational institutions such as vocational schools, vocational schools, technical colleges, technical high schools, vocational high schools, technical schools, technical academies, schools of health and social services;

 

Leave order for children

For a child who earns income from capital assets (e.g. because they have their own savings book or a share deposit), parents can easily avoid the withholding tax deduction by issuing an exemption order for the child from the bank. Interest and capital gains, etc. can then be paid to the child tax-free up to the amount of the saver's lump sum ($801). Even without an exemption order, parents can get the money for their child back from the tax office: To do this, they must submit an income tax return for the child after the year has expired. But you can save yourself this effort: with a non-assessment certificate, interest is paid without deduction of withholding tax (exception: over-the-counter transactions). The certificate is valid for three years, the application form »NV 1A« is available from the tax office.

 

5 tips on tax savings for employees

 

Computer glasses

Computer glasses are only tax-deductible as part of the advertising expenses if the visual discomfort can be traced back to work on the screen as an occupational disease.

 

You cannot deduct the cost of glasses that only compensate for poor eyesight as advertising expenses. The same applies to screen work glasses. Even if you only wear the corresponding glasses to work and keep them there in your place, you cannot deduct the costs as advertising expenses. Contact lenses are also generally not deductible.

 

But: If your non-tax-deductible glasses are damaged during your professional activity, the repair costs are at least deductible as business expenses.

 

Move

The costs of a professional move are advertising costs. The following are deductible:
 

  • Costs for the transport of the removal goods,
     
  • Travelling expenses,
     
  • double rent payments,
     
  • Brokerage fees,
     
  • Costs for additional lessons for children,
     
  • Other moving costs (e.g. tips for movers, renovation costs).

 

Double housekeeping

Necessary additional expenses that arise because of a professional reason for double housekeeping are deductible as income-related expenses. This includes:
 

  • Ride costs,
     

  • Meal costs,
     
  • Expenses for the second home,
     
  • Moving costs.
     

Telephone and internet costs

If the private telephone and Internet connection or the private mobile phone are used to make and receive business phone calls, send e-mails and do research online, then advertising costs arise. These can be claimed in the tax return in two ways:

 

  • A flat rate of 20% per month of internet costs and telephone costs: This deduction option is limited to a maximum monthly amount of $20. In addition, it can only be used by certain professional groups (teachers, home/teleworkers, field workers).
     
  • Determination of the deductible percentage by individual proof: This deduction option is not limited in amount and can be carried out by all taxpayers.

 

Insurance

If an insurance policy covers occupational risks, the insurance premiums are income-related expenses. This is the case, for example, with accident, liability and legal expenses insurance. If no income-related expenses can be deducted, the contributions can be claimed as part of the special expenses.

 

5 tax-saving tips for landlords

 

Work equipment

The costs for telecommunications, specialist literature, office furniture, etc. are deductible as advertising expenses, provided they are related to the management of the rental apartments. A computer used for administration is written off - if necessary pro-rata. PC programs for the administration of rental apartments are full advertising costs - even if the computer is only partially recognized.

 

Financing costs

Fundraising costs are advertising costs and are immediately deductible. Prerequisite: The borrowed capital received will be used directly for the rented house or apartment. Funding/fundraising costs include:
 

  • the closing fee for a building society loan agreement,

  • the damnum,
     
  • Expenses for specialist literature that deals with financing options for house and property,
     
  • all travel costs in connection with the financing,
     
  • the costs for the creation of a computer-aided financing plan by the bank or an advisory agency,
     
  • the costs for photocopies, for example for the production of the lending documents,
     
  • all fees from banks or (building) savings banks for lending,
     
  • the fees of the land registry for the registration of the building loan,
     
  • the brokerage fees for arranging a building loan,
     
  • the notary fees for registering a mortgage or land charge,
     
  • the postage costs, for example for correspondence with the bank,
     
  • all debt interest,
     
  • all telephone costs in connection with the financing, in particular for calls to banks etc.,
     
  • the early repayment penalty that the bank charges for early loan repayment in the event of a rescheduling, provided that the property is to continue to be rented after the rescheduling.

 

Property management

If you employ a caretaker for house cleaning, garden maintenance, snow removal or carrying out minor repairs, or if you pay a property manager to settle ancillary costs, conclude rental agreements, and generally look after your rented property (s), then these costs are immediately tax-deductible as business expenses.
 

Often a relative or a tenant takes on the job of caretaker/caretaker. The caretaker is mostly not self-employed. In individual cases, the property manager can also work independently.

 

In the case of non-self-employed work, the wages are only recognized as income-related expenses if you conclude an employment contract and ensure that the wages are properly taxed (via tax card) or if the job is marginal.

 

If you are your own caretaker/caretaker, you may not claim your own work, but the expenses associated with this activity as business expenses. This includes building materials, office supplies, travel expenses, telephone costs and tools.

 

Divorce

Anyone who takes over the co-ownership share of the other spouse in a property in return for divorce (by paying a purchase price or by assuming the liabilities) can deduct the debt interest to be paid for the acquired co-ownership share as business expenses.

 

Insurance

Contributions for insurance in connection with your rented house and property are income-related expenses. The contributions are deductible
 

  • for building insurance (against fire, lightning, earthquake, landslide, explosion, broken glass, hail, avalanches, tap water, storm, flood),
     
  • for oil tank insurance,
     
  • for rent loss insurance,
     
  • for property legal protection insurance,
     
  • for building liability insurance,
     
  • for construction and builder liability insurance and
     
  • for household contents insurance (only when renting (partially) furnished apartments).

 

5 tips on tax savings for part-time self-employed

 

Contributions to chambers, associations and clubs

Payments to federations and associations are deductible as business expenses if the institutions pursue goals that almost exclusively serve the business. This includes:
 

  • Contributions to professional chambers, insofar as these do not serve for retirement provision
     

  • Contributions to an IHK, Chamber of Crafts or Guild,
     
  • Contributions to a trade association, tourist association or tourist office,
     
  • Contributions to a professional association, such as the Association of the Metal Industry, Tax Advisors Association or Hartmann bund.

 

Entertainment expenses

70% of the cost of entertainment for business reasons can be deducted as business expenses. The entertainment costs also include ancillary costs such as cloakroom fees, tips or room rental. The catering can take place almost anywhere - just not at the hostess at home. Because then the operational area can no longer be separated from the private.

 

Insurance

Insurance contributions are business expenses if the insurance covers business risks. These include, for example
 

  • Liability insurance,
     
  • Fire insurance,
     
  • Theft insurance,
     
  • Bad debt insurance,
     
  • Legal protection insurance,
     
  • Machine insurance,
     
  • Vehicle insurance for company cars.

 

Website

Ongoing domain fees are business expenses. If you buy a web address (= domain) from a third party, you are purchasing an intangible asset that is usually not subject to wear and tear and therefore must not be written off.

 

The costs of creating a website have to be written off - the literature assumes a two to three-year amortization period.

 

Newspapers and magazines

Specialist journals with a content-related relationship to independent (secondary) activity are deductible as business expenses. General education daily newspapers and weekly magazines are not deductible. Newspapers and magazines that are purchased for the waiting room always lead to business expenses - even if they have no content-related reference to self-employed (secondary) activity.

 

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