It is attractive for private individuals to plan expenses cleverly in order to receive the largest possible tax refund through their tax return. In addition to extraordinary expenses, expenses for work equipment or a home can also have a tax-advantageous effect. Business owners are also interested in tax optimization in order to be able to reinvest as much profit as possible in the company. Here, a clever choice of legal form and company headquarters can lead to large differences in the tax burden.
What does tax planning mean?
If you live and work in Germany, you have to pay taxes here. The tax money that the state receives each year is used to finance investments in infrastructure and public facilities, but also a portion of social benefits, such as child and parental allowances. Even though you make a significant contribution to our society with your tax money, it is of course unpleasant from a personal point of view to have to give back a large portion of the gross salary you have earned straight away. A reduction in the individual tax burden is therefore an understandable wish of many citizens.
The term tax planning covers all measures designed to keep more net from gross. On a small scale, this can mean making full use of allowances in the tax return as evenly as possible. In addition to preparing your tax return correctly, you can, for example, make special expenses in a specific calendar year. Depending on the type of allowance, it can make sense to postpone or bring forward larger expenses in order to save as much tax as possible overall.
How every citizen can avoid taxes
You can also claim larger special expenses as extraordinary expenses in your tax return. If these special expenses exceed a certain amount (the so-called reasonable burden), your taxable income is reduced by this extraordinary burden and you have to pay less tax. The amount of the reasonable burden depends on your family situation and your income. The crucial point, however, is that special expenses can only be claimed as extraordinary expenses if they exceed this reasonable burden. It is therefore advantageous if you make all your special expenses in the same calendar year instead of spreading them over several years.
Typically, costs due to illness or medical treatment are accepted as extraordinary expenses, for example for dental implants. If you have to pay for these out of your own pocket anyway, it makes sense from a tax optimization perspective to buy new glasses in the same calendar year instead of waiting until the following year. To avoid taxes, it is also helpful to pay larger bills in one-off payments instead of paying them in installments.
Tax optimization through clever spending on pensions and insurance
You can claim expenses for insurance and pension benefits as special expenses in your tax return, which reduces your tax burden. Especially with a view to future pension payments, it makes sense to calculate how you can save taxes this way: payments into private pension funds are tax-advantaged compared to paying the same amount into a private savings account. However, you must also take into account in your calculations that taxes and social security contributions must be paid again on a later pension when it is paid out. Interest on the savings account must also be taxed, but without the obligation to pay social security contributions. The best thing to do is to find a competent tax advisor who can discuss with you what you want as retirement provision and how you can save the most taxes in the process.
Tax planning for domestic services
You can achieve another type of tax reduction in household-related activities. You can outsource work such as cleaning windows or stairs to external service providers. You can subsequently get a large part of the costs incurred through your tax return. This type of tax saving is not directly a cost reduction, after all, you have to pay the window cleaner first and only get a portion of the costs back later. On the other hand, you save your own working time, which you can use for other, potentially profitable things. This type of tax structure effectively results in a significant reduction in the price of a household-related service. Similar considerations are also possible for expenses for manual work on the house and in the apartment.
Tax optimization for long-term investments
Admittedly, with low incomes and low tax burdens, the maximum tax savings that can be achieved are comparatively low. For high earners, it is all the more significant, especially in the long term. If, for example, you want to invest part of your income to build up assets over the long term, you have various options. In addition to a classic bank account or savings account, stocks and other securities are also available, which differ in the way profits are taxed. A tax advisor can help you find an investment strategy that suits you and that will allow you to pay as little tax as possible over your investment horizon.
As a basic alternative, it may also be sensible to set up a corporation, for example a GmbH or Limited. Here, too, the taxation is significantly different from the classic capital gains tax. However, because the capital is initially tied up in the company, wealth can be built up more quickly by reinvesting earnings.
Save taxes as an entrepreneur
Depending on the legal form of the company and the amount of sales and profits, taxes can also be saved by making more clever use of tax allowances. If your work can be divided into freelance and commercial activities, separate accounting and separate taxation can be worthwhile.
Otherwise, you can also consult a tax advisor to find out whether a change in legal form could potentially lead to tax benefits. If you have previously worked in a GbR or partnership, setting up a corporation can sometimes be more tax-efficient. Depending on the individual case, two companies can also exist side by side in order to achieve the best possible tax reduction. However, this also involves more work in terms of bookkeeping.
A final step in tax planning is to relocate your company headquarters abroad. A location in a country with lower tax rates can be advantageous in the long term. However, be aware that there is an exit tax that applies in the year in which you relocate your company headquarters.
Tax avoidance in the case of gifts and inheritance
Similar amounts of money as those saved through tax optimization for companies can be saved by cleverly arranging gifts, inheritances or sales and purchases. A tax advisor can best help you with this. If possible, look for a specialist in succession or inheritance law to get competent advice.
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