The deadline for filing your 2011 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 a 2011 tax declaration (Einkommensteuererklärung) to the Finanzamt – although if you get a tax accountant to file for you, you can get that deadline extended until December 31.
Do I have to file?
Most salaried employees (Arbeitnehmer) who have no other income are not legally required to file taxes, since Lohnsteuer (tax on wages) are automatically withheld from their pay. However if you’re a salaried employee and you’re able to make deductions (see below), you stand a good chance of getting some cash back from the Finanzamt. Freelancers and the self-employed must file but also have many opportunities to minimise their taxable income. The bottom line: almost everyone should do it.
Do I need professional help?
If you’re freelance, run a business or have income from more than one country, get a Steuerberater (tax accountant) or tax lawyer. Salaried employees with no other major sources of income can join a local Lohnsteuerhilfeverein, a self-help association which will help them fill out their forms, or just do it themselves.
German-speaking employees can do everything themselves with the help of German tax software: both WISO Sparbuch and Lexware’s Taxman offer similar semi-automated electronic forms that 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 it in by post or transmit it to the Finanzamt electronically via the ELSTER system.
Everyone is entitled to a minimum tax-free income (Grundfreibetrag) of €8004. If you want to save on taxes, you should keep your taxable income as close as possible to this amount.
Tax accountant Ingeborg Hofer, who specialises in helping foreigners with their taxes, says it’s essential that you save every document on costs incurred, such as insurance invoices and bank statements for proof of payment. You never know how it might end up saving you taxes.
What’s the deal with deductions?
Here are the main deductions you can claim to reduce your tax bill.
Kinderbetreuung (expenses for childcare): Kindergarten, after-school care (Hort) and au pairs are all largely tax-deductible. Submit copies of contracts, monthly bank transfers, etc.
Vorsorgeaufwand (insurance): Life insurance, accident insurance, liability insurance, private pension schemes can all be written off to some degree. Health insurance contributions, whether private or gesetzlich, are also tax deductible. Hold on to your annual Beitragsnachweis (proof of contributions)!
Werbungskosten (income-related expenses): Using your private phone and internet for work, special work clothes, job application costs, using a room at home as an Arbeitszimmer all fall under this umbrella, for which you’re automatically given a €1000 annual allowance. Expenses beyond this need to be documented.
Entfernungspauschale (commuter tax allowance): You can claim 30 cents in expenses per kilometre (one-way) 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:
All income from self-employed sources must be declared – though the “Finanzamt isn’t going to rip your head off if you forgot to do it and you make less than the €8000 Existenzminimum,” says Hofer.
Remember to declare your health insurance costs (whether gesetzlich or private) and take advantage of the higher €2800 allowance for the self-employed.
Germany is quite generous when it comes to deductions for the self-employed. Save every receipt: phone bill (landline and mobile), every restaurant bill (make sure it’s a Bewirtungsbeleg with the proper form on it, then write the names of the people at the meal and for what business reason you entertained them on the back. Don’t bother submitting that €300 dinner exactly on your birthday – “the classic”, according to Hofer – which will always attract the Finanzamt’s attention), your bike or car repair bills, your U-Bahn receipts, taxi receipts, plane tickets, invoices for “work-related” books and magazines, 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 30% of revenue up to a max of €2455.
Beware: once your self-employed revenue goes above €17,500 per year, you’ll have to start charging VAT (value-added tax, or here, Mehrwertsteuer) in the next tax year. According to Hofer, there are benefits from voluntarily signing up for VAT even if your income is less than €17,500, because then you will be able to get back VAT on your business-related purchases – like computers. VAT has to be declared and paid monthly or quarterly. Talk to a tax accountant about how this works – it can get quite complicated.
For American expats, things can be truly complicated. US law requires you file a US tax return by June 15 every year if your income exceeds the standard deduction (about $6000 for singles). It doesn’t matter if all income was earned in Germany, or if a German return was filed and German taxes paid.
Thankfully, unless you are really highly paid, it’s unlikely you’ll have to pay taxes to the IRS, thanks to the “foreign earned income exclusion”. But filing German and US taxes can be very complicated. Several accountants in Berlin specialise in US expat filings and can save you a lot of time and hassle.
The IRS has an office in the US Consulate in Frankfurt, which accepts tax returns and answers questions. They can be reached at: U.S. Consulate General Frankfurt, Internal Revenue Service, Gießener Str. 30, 60435 Frankfurt/Main. Tel 069 7535 3834. Or send an email to [email protected].
Show me the money
You will receive your Steuerbescheid (tax assessment) in four to eight weeks and, if you’re lucky, some 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 – so it’s good to set aside some money for this every month.
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 – or else hire a tax accountant and spare yourself the hassle.