Most taxpayers who are employed should be aware that so-called “income-related expenses” allow them to deduct expenses related to their professional activities from their taxes. People who are aware of this option often take advantage of it when filing their tax returns. However, very often this information is not provided in full. Sometimes something is simply overlooked; in other cases, the person in question was unaware of the options. Ultimately, one could have saved oneself the trouble of specifically searching for “expenses.” Why do we ask? If the so-called income-related expense allowance is not exceeded, the reported expenses do not result in any tax benefit. In this article, we therefore want to clarify when it is worth reporting income-related expenses and when it is not. However, we wouldn’t be good tax advisors if we didn’t also show you how to make the best possible use of your income-related expenses. That’s why, in this article, we explain in detail how you can easily exceed the flat-rate allowance for income-related expenses.
The flat-rate allowance for income-related expenses: a blessing and a curse
Of course, it must be said that the flat-rate allowance for income-related expenses is generally a good thing and offers tax advantages. Under the flat-rate allowance for employment-related expenses, 1,000 euros is automatically included for every employee and deducted for tax purposes. Especially for employees who have little to no employment-related expenses, the allowance thus becomes a clear tax advantage.
Taxpayers who have expenses related to their professional activities can list these as income-related expenses on their tax return. In general, it is advisable to include all possible items on the tax return. However, regarding income-related expenses, it is important to note that the reported expenses only reduce your tax liability once the flat-rate amount of 1,000 euros has been exceeded. So, if you have reported higher income-related expenses, every euro that exceeds the flat-rate amount reduces your tax liability. If the threshold is not exceeded, however, you will not receive any additional tax savings beyond the flat rate. Since the flat rate is applied regardless, it is not always worth listing the various expenses.
To actually benefit from income-related expenses, you should calculate whether the flat rate is exceeded. We often see that taxpayers only enter a few obvious income-related expenses and thus do not exceed the limit, even though there are other income-related expenses that can quickly lead to tax savings. In the following paragraphs, we will therefore list three areas of income-related expenses that quickly exceed the flat rate.
Mileage allowance for the commute
Unless you plan to sleep at your workplace, you must travel a certain distance to get to work. Income-related expenses can be claimed for this very daily commute. The so-called mileage allowance is applied for this purpose. For every kilometer of the fastest route to work, 30 cents can be claimed. This allows every employee to make significant progress toward the income-related expenses allowance. For a commute of 15 kilometers or more and 230 working days per year, the income-related expense allowance is exceeded solely based on the mileage allowance. This is calculated as follows:
Mileage allowance = Number of working days × 0.30 EUR × Commute distance in km
Our example:
Professional Development + Tax Benefits
Continuing education and training in the professional sphere are important and are being utilized regularly by an increasing number of employees. However, the employer does not always cover all expenses. If continuing education or training is financed out of pocket, various related expenses can be claimed as tax deductions. The following costs can be claimed as income-related expenses:
- Fees for continuing education or training
- Exam fees
- Travel expenses
- Incidental travel expenses
- Accommodation and meal costs (if necessary)
- Professional literature and learning materials
Since many continuing education courses are not inexpensive, you can quickly exceed the standard deduction for professional expenses.
Consideration:
For example, if you have already exceeded the limit for the mileage allowance and now add the training course, the costs of the training will be additionally deducted for tax purposes. As a result, you will receive a partial refund of these expenses through your tax return. So one could say: Training, co-financed by the IRS.
Second residence as an income-related expense
In some cases, it can be worthwhile for employees with a long commute to rent a second home. In tax law, this is referred to as maintaining two households. We’ve explained exactly how maintaining two households works in this article: “Maintaining Two Households: What You Should Keep in Mind.” At this point, we can say that taxpayers with dual household arrangements can very easily and quickly exceed the income-related expense allowance. Accommodation costs alone usually exceed the limit. You can find out which expenses you can claim in detail in the blog post mentioned above. In this context, however, we would like to revisit the issue of travel expenses: The costs of regular trips home to visit family are also considered income-related expenses. In the following example, we assume that you travel to visit your family regularly (once a week). This results in the following calculation:
Summary: Income-related expenses can be worth it!
The income-related expenses mentioned in this post are only a portion of the possible income-related expenses. Various other costs may be added, which are also eligible for deduction. If you are able to claim any of the listed income-related expenses, the important flat-rate threshold is quickly exceeded. Taxpayers who can claim several of the listed items can thus achieve very significant tax benefits.
Tax consulting offers important assistance
We hope you enjoyed this post and that you’ll be better equipped to handle your income-related expenses in the future. Finally, however, we’d like to point out that many taxpayers lack the necessary expertise to prepare the best possible tax return. If you do not wish to delve deeply into the subject or simply lack the necessary time, a tax advisor can help. As tax advisors in Düsseldorf and Oberhausen, we can take the time-consuming and complex work of preparing your tax return off your hands. In addition, you’ll benefit from our many years of experience and thus be able to take full advantage of all tax benefits. Have we piqued your interest? Schedule a consultation at our office in Düsseldorf or Oberhausen. We look forward to meeting you.
