Tax Advisor Explains: Special Depreciation

Most business owners are likely familiar with what is known as depreciation (AfA). The tax-deductible depreciation of business assets is an important strategy for many companies looking to save on taxes. For companies of a certain size, another form of depreciation becomes relevant. So-called special depreciation allowances provide a specific tax benefit that should be utilized whenever possible. As tax advisors in Düsseldorf

and Oberhausen

, we aim to help business owners take advantage of tax benefits without providing incorrect information. In this article, we will therefore explore the basics of special depreciation allowances.

What are special depreciation allowances?

A special depreciation is a manipulation of the tax base, i.e., profit. Although the term “manipulation” may initially sound like tax fraud, this tax benefit is granted and prescribed by law. Special depreciation is defined in Section 7g of the German Income Tax Act (EStG). Special depreciation generally has the character of a subsidy. It is unrelated to impairment and is granted in addition to regular depreciation. The deduction for wear and tear is therefore not displaced by special depreciation. Rather, special depreciation should be viewed as an additional tax benefit.

Which companies are eligible for a special depreciation?

Unfortunately, not all business owners can benefit from a special depreciation. The Income Tax Act provides some guidance on which companies are eligible to claim special depreciation. In particular, the size of the respective company is a decisive factor. Only companies that do not exceed the size criteria specified in § 7g(1) sentence 2 no. 1 of the Income Tax Act (EstG) can benefit from a special depreciation. To be eligible for a special depreciation, a company must not exceed the following thresholds:

• Business owners and self-employed individuals: no more than €235,000 in business assets
• Profit determination using the net income method: no more than €100,000 in profit
• Agriculture and forestry: no more than €125,000 in income

Provided that the aforementioned asset thresholds are not exceeded, business owners should further explore the possibility of a special depreciation.

How is a special depreciation deduction applied?

Special depreciation can be claimed for depreciable movable fixed assets in the year of acquisition or production and in the following four years. In addition to the depreciation allowance, special depreciation totaling 20% can be claimed during these first years. As an entrepreneur, you must note that special depreciation amounts are annual amounts. Depreciation, on the other hand, is granted on a pro-rata basis.

The Income Tax Act specifies the special depreciation at up to 20%. The taxpayer is free to allocate this maximum amount; they may claim the full amount as early as the year of acquisition or production.

Tax Base for Special Depreciation

Either acquisition or production costs are used as the basis for calculating special depreciation. These costs are composed of various components. Acquisition costs consist of:

• Purchase price (purchase price, invoice amount)
• Incidental acquisition costs
• Subsequent acquisition costs
• Reductions in purchase price (price reductions, discounts, or cash discounts)
• Expenses incurred to bring the asset into working condition
• Non-deductible input tax

However, the aforementioned components of acquisition costs are not present in every purchase. For example, there is obviously not always a price reduction. Nevertheless, one should take this into account when it is present. Now let’s look at the composition of production costs:

• Material costs
• Manufacturing costs
• Special manufacturing costs
• Depreciation of fixed assets (used in production)

Based on these values, the special depreciation can be calculated using the percentages mentioned above.

Questions about special depreciation for a tax advisor

Special depreciation, like most other tax matters, should be claimed properly and without errors. After reading this article, you, as a business owner, now have a solid foundation of knowledge regarding special depreciation. However, the law contains various exceptions and special provisions for individual cases. These cannot be fully covered in this blog post. Furthermore, in the vast majority of cases, the time required to thoroughly familiarize oneself with this topic is so significant that companies prefer to rely directly on the expertise of a tax advisor.

To ensure that companies can reap all the benefits without making any tax errors, a specialized tax advisor should assist them. As tax advisors in Düsseldorf and Oberhausen, we provide tax consulting services to companies across various industries. Our team of experienced tax advisors and certified public accountants answers questions and handles tax-related tasks. As a client of Trimborn . Partner in Düsseldorf and Oberhausen, you can benefit from tax advantages such as special depreciation. You also avoid mistakes and the resulting unnecessary penalties from the tax authorities.

Schedule an appointment today at our offices in Düsseldorf and Oberhausen. We look forward to hearing from you. Contact us now.