Tax law: What can I claim as a tax deduction?
Tax law is complicated and often hard to understand. Yet there are significant benefits to be gained, particularly for businesses. We explain what’s possible and how it works.
German tax law is complicated and often incomprehensible to the uninitiated layperson. Yet, particularly as a freelancer or business owner, you can benefit tax-wise by claiming certain work-related expenses as tax deductions. We have navigated the tax maze on your behalf and researched what you can claim as tax deductions and what you need to bear in mind when doing so.
What can be claimed as a tax deduction?
As a general rule, all equipment required to carry out a particular activity is tax-deductible. Do you run a business that prints T-shirts? In that case, you can, for example, claim a newly purchased heat transfer press as a tax deduction. Certain tools and office supplies can also be claimed on your annual tax return. It is important to ensure that all purchase receipts are kept on file and can be produced immediately in the event of an audit. It is also worth keeping receipts for business expenses for your own records.
Naturally, only items that are necessary for the pursuit of one’s profession can be claimed as tax deductions. For example, a music teacher cannot claim a sledgehammer as a tax deduction, nor can a building contractor claim a double bass. Another criterion to bear in mind when completing your tax return is the distinction between low-value assets (GWG) and work equipment whose purchase cost exceeds the €410 threshold. The latter must be claimed as a tax deduction spread over several years.
Changes from 2018 onwards
Low-value assets can be fully written off in the year of acquisition, even if they have a useful life of several years. Until now, the value limit was €410 net. In future, the limit will be €800 net.
Example: An entrepreneur buys a laptop for their business for €700 net. They can claim the full purchase price as a business expense directly in the year of purchase and do not have to spread the acquisition costs over the laptop’s useful life (e.g. three years).
If the value of the low-value asset is more than €250 and up to €1,000, instead of immediate depreciation, it may be included in a collective item which is depreciated over five years, i.e. at a rate of 20 per cent annually. Previously, the lower limit was €150.
Notes: The new rules apply to all low-value assets acquired, manufactured or added to business assets on or after 1 January 2018. The depreciation threshold generally has no effect on intangible assets.
Once all these aspects have been taken into account, there is nothing to prevent the work equipment from being deducted for tax purposes.
