7 handy tax deductions for freelancers in Germany
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Self-employed workers in Germany are entitled to deduct a range of business expenses when it comes time to filing income tax returns. Learn about the key deductions and what you can get away with.
Just like in many other countries, as a freelancer in Germany you can deduct a number of expenses when calculating your annual income, in order to reduce your tax burden. The more business costs you can deduct, the smaller your income tax bill.
So what can you reasonably deduct as an expense? Read on for our recommendations.
🔖 Receipts and auditing
Just before we launch into the list of deductions, a note about receipts:
In order to claim an expense, you must have a receipt for the purchase. This is also sufficient for making a VAT claim. The German tax authorities can decide to audit your business a number of years after a financial year has passed. To be on the safe side, save all financial records, including receipts, for at least five years.
You can deduct the cost of renting an office or coworking space from your tax liability, as well as any associated costs, like electricity and internet.
But things get a little more complicated when it comes to the home office.
🏠 Deducting home office costs
If you work from home, you are allowed to deduct a portion of your at-home costs, including telephone, internet, heating, electricity and rent. The amount you can deduct is relative to the size of your office. For example, if your office takes up one quarter of the total space of your apartment, you can claim one quarter of your costs as business expenses.
Up till now, it has only been possible to do this if your office is in a separate room – not, for example, in one corner of your bedroom. In Germany, a separate room is defined as being a space surrounded by walls, with its own door. The Finanzamt has been known to ask for proof of freelancers’ home office setups, so it’s best not to fudge it.
📌 Home office deductions and the Corona crisis
Due to the Corona crisis, many more people are working from home, both as freelancers and employees. This has prompted a discussion about the costs of working from home, with some politicians pushing for further deductions to be permitted for those working from home.
Perhaps soon it will finally be possible to claim expenses for an office separated by a simple IKEA room divider. Watch this space!
Food and drink
Getting a bite to eat with a client, a coffee with someone you’re interviewing, or a drink with a potential business partner? These are deductible expenses, because they are a necessary part of getting your work done.
And what’s more, in Germany food and drink are charged with VAT, which means you can deduct these costs from your VAT returns, as well. Whenever you are making an income tax deduction on an item that includes VAT, you can also deduct it from your VAT bill.
📌 Just don’t fall into the trap of deducting meals that aren’t work-related: apparently German tax office auditors are all too familiar with freelancers attempting to deduct expensive meals that just happen to have taken place on their birthdays.
Be sure to ask the waiter for a Bewirtungsbeleg – this is the only form of receipt accepted by the Finanzamt. It is common practice to write the names of the people present and the reason for your meeting. That way, if you do end up being audited, you won’t need to try and remember who you had a Schnitzel with on a September evening in August 2017.
💡 Accountable Tipp: Need to quickly check an expense? Type your expense into Accountable’s nifty deductibles search tool and see if it’s tax deductible in seconds.
Learning the German language is almost guaranteed to support your working life here in Germany. For that reason, you can deduct the cost of your language lessons as an expense.
The Finanzamt’s income tax return will ask you for the total amount of health insurance you paid during the financial year, as well as any other public and private insurances you may have paid. These will all be deducted as part of calculating your taxable income.
💡 Accountable Tip: If you belong to the Künstlersozialkasse, the German social security fund for artists, they will send you a letter at the end of each financial year summing up the total amount of health and care insurance you have paid, as well as how much you have paid into your pension scheme (Rentenversicherung).
Keep a record of all insurances you have contributed to or purchased throughout the year. These may include:
- Health insurance, both public and private
- Pflegeversicherung – long-term care insurance
- Rentenversicherung – pension scheme contributions
- Haftpflichtversicherung – liability insurance
- Hausratversicherung – household insurance
- Travel insurance
- Car insurance
If you end up deciding to hire a tax accountant to help with your income tax return, you can deduct this expense as well. Make sure to ask your accountant for a receipt, and then send them a copy, along with your other deductibles receipts, come tax return time.
Any fees you pay for accounting services like the Accountable app are tax-deductible, too. Give it a try now!
Need to send a client some flowers to thank them for their business 💐 ? Feel like shouting your best customers some Christmas goodies? These are deductible expenses!
Freelancers may claim one gift per client per year, to the value of up to 40 EUR each. Anything above that you will be unable to deduct.
As long as you can prove that you use this gear to do your work, computers, phones, cameras and gadgets all have the potential to be deductible expenses.
And what’s more, as most of these big-ticket items carry hefty amounts of VAT, if you are someone charging and deducting VAT as well, then you have two opportunities to save money when you purchase one of these items.
For example, you might spend 2000 EUR on a new laptop, which includes 19% VAT of 319.33 EUR. When it’s time to submit your VAT return, you can deduct the 319.33 EUR from your VAT bill, while for your income tax return, you can deduct the 2000 EUR from your total tax-bearing revenue, meaning hundreds of euros in potential savings.
Note: If you purchase gear to be used both for work and in your personal life, such as a laptop you keep at home, you will not be able to claim the full cost of the item. Working out how much you can reasonably deduct can be tricky: we recommend speaking to a registered tax accountant, which is easily done with the Accountable app.
Renting gear for specific jobs – like special camera lenses, vehicles and even studio spaces – is a cost that can be deducted from your income tax return, too. Just remember to get a receipt!
This is by no means an exhaustive list of possible tax deductions. As with most things to do with taxes in Germany, there are always a few interpretations of the rules.
Still wondering whether that receipt in your hand is tax-deductible? Plug it into Accountable’s deductibles search tool and try your luck.