Save on Taxes – 8 Legal Tax Strategies

Whether you’re an employee or a business owner, no one “enjoys” paying taxes. The lower the amount paid to the tax office, the better. For example, in a tax return, income-related expenses can be deducted to reduce the tax burden. However, in some cases, people venture into gray areas or even use clearly illegal schemes to avoid taxes. Tax evasion and fraud are, of course, never advisable, as prominent examples consistently demonstrate. Anyone who uses illegal tax tricks must expect heavy penalties. However, there are also tax tricks that are completely legal and harmless. In this article, we’ll explain 8 lesser-known tricks you can use to save on taxes.

1. Medical Expenses – Save on Taxes with Eyeglasses and Medications

Normally, you pay health insurance premiums so you don’t have to cover medical expenses yourself. However, there are various costs and services that health insurance plans do not reimburse or only partially cover. Medical expenses that were not covered can often be claimed as so-called extraordinary expenses on your tax return. The costs of treatment or medical aids can only be claimed for tax purposes if a doctor’s prescription is provided. Only medical treatments are deductible. These include, for example, dental care, physical therapy, eyeglasses, speech therapy, and prescription medications. Preventive measures are generally not deductible.

Furthermore, it should be noted that not all medical expenses are automatically tax-deductible. A prerequisite is that the total cost must exceed the reasonable out-of-pocket expenses. The amount of this out-of-pocket expense depends on your income and family situation. It is advisable to consult a tax advisor to determine the out-of-pocket expense. If the reasonable out-of-pocket expense is exceeded, the costs can be used to save on taxes.

2. Report in-kind donations on your tax return

Donating to a good cause is, of course, a wonderful thing regardless of tax benefits. In addition to the social benefits, however, you can save on taxes with a donation. Not only monetary donations but also in-kind donations can be listed as special expenses on your tax return.

When making a donation, please ensure that the in-kind donation is used for a purpose in accordance with the organization’s bylaws. For an animal welfare organization, for example, you could donate food for rescued animals. Upon request, the organization will provide you with a donation receipt as proof of the donation. It is also possible to donate used items and claim them for tax purposes. In these cases, however, the value must be estimated. Of course, this may lead to disputes with the tax office if the value is assessed differently. It is therefore advisable to have “evidence” or guidelines ready in case of inquiries from the tax authorities.

3. The Quick Detour to Work

Many taxpayers know that the costs of commuting to work can be deducted from taxes using the commuting allowance. The commuting allowance is set at a flat rate of 30 cents per kilometer. The tax office stipulates that the commute may only be tax-deductible if the most direct route is taken. Many mistakenly assume this means the shortest distance. However, there is often an alternative route that, while covering more kilometers, is clearly faster and more efficient. For example, if you regularly take the longer route via a highway or avoid a traffic jam, this can be considered the most direct route to work.

Such a detour can add a few kilometers to your commute and thus save you more on taxes. The extent to which the longer commute is actually recognized as more reasonable must be assessed on a case-by-case basis. This may lead to discussions with the relevant tax office. Nevertheless, it may be worth defending your position to convince the tax authorities.

4. Have work clothes professionally cleaned and save on taxes

In some professions, the clothing worn is recognized by the tax office as work attire. This includes, for example, police officers, doctors, or nurses. Of course, the respective work clothes must be cleaned regularly. The costs of cleaning can be claimed as income-related expenses. It makes the most sense to have the clothes cleaned at a dry cleaner’s, because this allows the total costs to be easily entered on the tax return. It also makes sense for the individual items of clothing to be listed on the invoice. In theory, it is also possible to deduct the costs of washing work clothes at home. However, in this case, you must demonstrate to the tax office what proportion of the total laundry consists of work clothes. An estimate is sufficient here. Nevertheless, in practice, this is naturally somewhat more cumbersome.

5. Personal Receipt vs. Invoice

The tax office requires proof for all expenses listed on the tax return. Normally, this proof is provided in the form of an invoice or receipt. However, there are situations where no receipt was issued or where it has been lost. With a self-generated receipt, the expenses can still be documented. The self-generated receipt is created by the taxpayer themselves and should include the following details:

• Name of the payee
• Address of the payee
• Type of expense
• Amount of the expense
• Date of the expense
• Taxpayer’s signature

To curb the excessive use of self-issued receipts, these are accepted only as an exception. After all, simply issuing such a receipt raises the suspicion that, in some cases, non-existent expenses might be claimed. This tactic should therefore only be used in exceptional cases and submitted to the tax authorities with a valid reason. However, if a receipt is lost or forgotten, this tax strategy can be very helpful.

6. Deducting Pet Care

Many taxpayers know that household-related services are tax-deductible. However, most people only list tradespeople or cleaning staff on their tax returns. Yet household-related services also include other, more unusual services. For example, pet care can be claimed as a deduction. If you go on vacation and your pet has to stay at home, you can claim the travel and labor costs of a person who looks after the animal. It doesn’t matter who is looking after the pet; even a neighbor would qualify. It is important to note, however, that the costs are only considered household-related services if the animal is cared for in the apartment or house.

7. Planning Payments

For income tax purposes, expenses are generally taken into account in the year they were incurred. This gives rise to a wide variety of situations regarding how payments can be better accounted for tax-wise. Planning payments can sometimes determine whether a tax benefit is utilized or missed. The relevant areas where planning can be useful are listed below.

• Expenses claimed as income-related expenses are subject to a flat-rate deduction of 1,000 euros per year. This amount is automatically deducted. Therefore, expenses only provide a tax benefit once this threshold is exceeded. It may not be possible to exceed the 1,000 euro limit in a single year. In that case, an expense would not generate any benefit. At this point, it may make sense, if possible, to postpone the purchase until the following year to take advantage of the tax benefits there.
• We have previously discussed the tax aspects of medical expenses. For these expenses to be tax-deductible, the reasonable out-of-pocket limit must be exceeded. Therefore, expenses for medical treatments should be consolidated as much as possible within a single year to exceed the limit and save on taxes.
• Services provided by tradespeople are tax-deductible annually up to a maximum of 20 percent of 6,000 euros. It therefore makes sense to plan these services so that the invoices can be spread out over several years whenever possible.

8. Use a tax advisor

The final and arguably most sensible tip for saving on taxes is to hire a good tax advisor. With the help of a tax expert, you can be sure that all possible tax benefits are utilized and correctly applied. You’ll also save time and reduce stress when preparing your tax return. Unfortunately, we often see that new clients have overlooked many potential savings in recent years and thus failed to take advantage of them. With a qualified tax advisor, you’re always on the safe side.

Still looking for the right tax advisor? With our offices in Düsseldorf and Oberhausen, we are your first port of call for high-quality tax advice. Our team helps you maximize tax benefits on your return and answers any questions you may have. Contact us to schedule an initial consultation.