Three income tax basics you should know
Income tax is relevant for everyone, but very few proactively deal with it. Yet, everyone wants to pay as little tax as possible and most importantly, not pay too much tax. According to the Federal Statistical Office, filing one’s income taxes makes economic sense: as an employee you will receive an average of € 935 worth of taxes back.
Option 1: Use the services of a tax advisor
If it's too much work for you or you're unsure, you can contact a tax adviser or accountant. You should leverage their expert knowledge in special situations like the ones outlined below:
You are a cross-border commuter, you live, for example Germany, but working in Switzerland or Austria
You are an employee, and you spend parts of your working time abroad
You are an investor, you have invested money abroad and you want to get a refund for the the income tax (= Swiss income tax) refunded
You are an investor and have invested money in closed-end funds, listed buildings or other tax-saving models
Your parents would like to give away some of their assets during their lifetime
You are a pilot or you are a member of another professional group whose income is subject to special regulations on the income and expenditure side
During a first interview, you should clarify whether the tax advisor possesses the required expertise. With respect to legal matters, you should consult a lawyer, not a tax advisor (example: employment contract and questions about termination, social security issues). The fees are set out in the Remuneration Rules for Accountants. The higher the income and the more expensive the tax case, the higher the amount listed in the invoice.
Option 2: Join an association that focuses on income tax assistance
If you are an employee, you can contact an income tax assistance association (“Lohnsteuerhilfeverein”). This association assists you with preparing your income tax declaration and provides you with practical tips (how to file the document to the tax office). Your overall costs will be lower if you use the services of the tax assistance association. A list of all associations can be found at www.beratungsstellenensuche.de. To become a member, you pay an admission fee of 10 to 15 euros and depending on your income and association, an annual membership fee of 50 to 390 euros. If you earn around 40,000 euros a year, you pay an annual membership fee of about 125 euros. For the services of a tax consultant you would pay at least 330 euros based on the same salary.
Option 3: File your tax declaration yourself
A female employee who wants to deduct income-related expenses, special charges and exceptional charges and who otherwise do not have a peculiar tax profile can complete her tax declaration independently via the tax online portal Elster or with the help of a tax software. On the website www.kann-man-das-absetzen.de or www.finanztip.de you can research which items you may deduct or not.
Tax software and elster
If you want to file the tax declaration yourself, but you still want to receive some form of assistance, use a tax software. This provides you with guidance on how to complete the tax return. And it also helps you figure out what expenses you can deduct. As a rule, tax software costs between 15 and 35 euros once and is completely tax deductible. Examples of a control software is the page www.wundertax.de. Free of charge is the magistrate form of the German tax administrations of the financial administration of all countries and the federation. This also offers you help with data entry. Alternatively, you can also register with Mein Elster and create your tax return directly via the Internet at www.elster.de. According to Finanztip this person with advanced tax knowledge is recommended.
If you have any questions, you can call the tax office. Do not forget that as an employee you can save an average of about 935 € by submitting the tax return - so it's worth it. In the following articles we show you which deductions, costs, allowances or lump sums you can take into account in the tax return.
Written by Clara Creitz
Finelles Founder. Coach and Consultant (UBS, Towers Watson).