The deadline for filing your 2009 income tax declaration is May 31 – so get off your butt and do something about it. It could spell cash back!
For most people, May 31 is the deadline for submitting their 2009 tax declaration (Steuererklärung) to the Finanzamt. Most salaried employees (Arbeitnehmer) are not legally required to file their taxes, since taxes are automatically withheld from their pay, but they would be stupid not to, as they’re almost guaranteed to get something back. Freelancers and the self-employed must file their taxes – or face stiff fines, sooner or later – but also have many more opportunities to minimise their taxable income.
So, everyone should do it. But do you need to bring in a professional?
Self-help or professional help?
If you’re self-employed, run a business and have complex accounts, get a Steuerberater (tax accountant) or tax lawyer. Freelancers often pay less than €100 to get their taxes done, but it costs a lot more for companies with complex bookkeeping. Salaried employees (Arbeitnehmer) with no other major sources of income can join a local Lohnsteuerverein, a non-profit association which’ll help them fill out their forms.
German-speaking employees and freelancers with low incomes can easily do everything themselves with the help of German tax software: both WISO Sparbuch and Lexware’s TAXMAN offer similar semi-automated electronic forms which automatically remind you of every possible tax deduction. You simply enter your data step by step, based on your profile; then you can either print out your Steuererklärung and send in by post, or transmit it to the Finanzamt electronically via the ELSTER system.
The bottom line: Everyone is entitled to a minimum tax-free income (Grundfreibetrag) of €7834. If you want to save on taxes, you should keep your taxable income as close as possible to this amount.
Lohnsteuer (tax on wages) has already been deducted from your paycheck every month. No matter how low your income is, you stand a good chance of getting some cash back from the Finanzamt.
Here are the main deductions you can claim to reduce your tax bill:
• Kinderbetreung (expenses for childcare): Kindergarten, after-school care (Hort) and au pairs are all largely tax-deductable. Submit copies of contracts, monthly bank transfers etc.
• Insurance: Life insurance, accident insurance, liability insurance, private pension schemes. All of these can be written off to some degree. For 2009, there is a €1500 allowance for health insurance contributions for Arbeitnehmer. Starting with the 2010 tax year, all health insurance expenses, whether private or gesetzlich, can be deducted.
• Werbungskosten (income-related expenses): using your private phone and internet for work, work clothes, job application costs, using a room at home as an Arbeitszimmer. You’re automatically given a €980 annual allowance for this. Expenses beyond this need to be documented.
• Entfernungspauschale (commuter tax allowance): you can claim €0.30 in expenses per kilometre for your commute to and from work – regardless of whether you drive, bike, walk or take the train.
For freelancers and the self-employed
Most of the above apply. Also:
• Remember to declare your health insurance costs and take advantage of the €2400 allowance for the self-employed.
• Germany is quite generous when it comes to deductions for the self-employed. Virtually everything you do or buy can be counted as a business expense. Save every receipt: phone bill (landline and mobile), every restaurant bill (make sure it’s a Bewirtungsbeleg, then write the names of the people at the meal and why they are related to your business on the back – and don’t bother submitting that €300 dinner exactly on your birthday!), your bike repair bills, your U-Bahn receipts, taxi receipts, plane tickets, invoices for work-related books and magazines, insurance, computers, software etc.
• Depending on your profession, you might be able to write your expenses off in a lump sum (i.e. no faffing around with receipts!). Journalists, for example, can write off a flat-rate Pauschalabzug of €2500.
• Beware, once your self-employed income goes above €17,500 per year, you’ll have to start charging VAT (Mehrwertsteuer) in the next tax year. This has to be declared and paid monthly or quarterly. Talk to a tax accountant about how this works.
What to expect next
You will receive your Steuerbescheid (tax assessment) in four to eight weeks and, if you’re lucky, the cash back will follow shortly. First-time freelancers watch out: if you owe tax for the previous year, the Finanzamt will ask you to start paying quarterly advance income tax in the current year based on the amount of last year’s tax.
A final word of advice: Don’t panic. Just gather all your documents together and talk to your German friends and colleagues. If you can’t get everything together by May 31, write a letter to the Finanzamt asking for a “Fristverlängerung für die Einkommensteuererklärung” – a deadline extension for your tax declaration. They should be pretty mellow about it.
P.S. US citizens often have to file in Germany and at home. Contact a specialist accountant about this.