Tax Tips for Retirees

People who reach retirement age have paid taxes for most of their lives. In theory, pensioners—whose incomes are already limited—should not be burdened with additional taxes. In everyday life, however, we often see that the tax office contacts retirees and requests a tax return. Often, relevant tax-free limits are exceeded only minimally, or the tax office considers additional income earned by retirees to be relevant. As tax advisors based in Düsseldorf
and Oberhausen
, we know that many retirees do not have to pay taxes if their tax return is filled out correctly. In this article, we will present the most important tax tips for retirees, thereby laying the groundwork for a tax-free retirement.

Taxable Retirees

Even in retirement, very few people are left unnoticed by the tax office. Many retirees are liable for taxes and, in some cases, are even required to file a tax return. Of course, a tax return can also be filed voluntarily to potentially receive a tax refund. Many of our clients of retirement age eventually receive a letter from the tax authorities requesting that they file a tax return. The reasons are varied. Often, investment income or income from renting and leasing is used as a basis for examining the retiree’s financial situation more closely. For most retirees, however, being liable for taxes does not mean that taxes must be paid. In the following paragraphs, we will provide tips on how to effectively reduce the tax burden.

1. Donations to a good cause

We often see that clients of retirement age wish to continue contributing to society and therefore make donations. Any contributions to organizations, associations, political parties, or the church may be tax-deductible. Donations not exceeding 200 euros can be submitted with a copy of the bank statement as proof. Larger donations must be accompanied by the original copy of a special donation receipt. So, by making a donation, you can do good and effectively reduce your tax burden.

2. Income-related expenses for retirees

Pensioners can also have income-related expenses. The tax office automatically grants retirees a flat-rate allowance of 102 euros. This amount is automatically deducted from your taxes. In addition, there are specific income-related expenses that pensioners can claim if the flat-rate allowance is exceeded. The following expenses are eligible:

• Union dues
• Tax advisory fees
• Account maintenance fees (flat rate of 16 euros per year)
• Interest on a loan, if it is used for contributions to the pension insurance
• Legal consultation and litigation costs for applying for a pension
• Pension and insurance advisors

Deductible expenses are apparently not as broadly defined for retirees as they are for employees. Nevertheless, it’s worth taking a look at potentially relevant expenses. If you’re unsure, a tax advisor can help.

3. Medical expenses

Unfortunately, as we age, illnesses—and consequently healthcare expenses—become more common. These costs are not always covered by health insurance and must be paid out of pocket. Healthcare expenses can be claimed as extraordinary expenses if they exceed the reasonable out-of-pocket limit. For many retirees, the reasonable out-of-pocket limit is set at a relatively low amount. Therefore, many medical expenses can be claimed early on. For example, expenses for medications, dental work, or medical aids such as prosthetics or walking aids can be deducted. Please note that only the portions you actually paid yourself may be claimed for tax purposes. We wish you the best of health and hope that your expenses remain low. Nevertheless, in the event of illness, you should at least save on taxes!

4. Costs for a Housekeeper

Pensioners often rely on a housekeeper to help manage daily life. The costs for a housekeeper or a care service that cleans the home can be included in your tax return. You may claim 20 percent of the salary payments (up to 4,000 euros). If the housekeeper is hired as a part-time worker, 20 percent may also be claimed. However, the maximum amount is 510 euros.

5. Promoting health and claiming spa treatment expenses

A health retreat can be particularly helpful in retirement to overcome illnesses or prevent serious diseases. Those who take a health retreat for health reasons may be able to deduct the costs. For the costs of a health retreat to be recognized by the tax office as tax-deductible, the majority of the expenses must be paid out of pocket, and a medical certificate must be provided. It is therefore essential that your doctor certifies before the stay that the retreat is medically necessary.

6. Tax considerations for nursing homes

As a resident of a nursing or retirement home, you can claim these expenses for tax purposes. Please note that expenses for accommodation are only tax-deductible if you are in the nursing home for health-related reasons. To prove this to the tax authorities, you must have a care need classified as Care Level I, II, or III. Since the costs for a nursing or retirement home are often very high, retirees can almost always secure tax exemption through this provision.

7. Insurance Premiums

Even as a retiree, you must continue to pay insurance premiums. If you receive a statutory pension, all insurance expenses must be reported on your tax return. Premiums for health and long-term care insurance are deductible as special expenses. All other insurance premiums, such as auto liability or personal liability insurance, can only be claimed if payments for health and long-term care insurance do not exceed a total of 1,900 euros per year. Insurance payments are thus a simple way to reduce your tax burden.

8. Tax Savings for People with Disabilities

As you age, the degree of disability may increase due to an accident or illness. Often, simply getting older is enough to qualify you for legal recognition as having a disability. Severe visual impairment, for example, may be sufficient to qualify for a certain level of disability status. People with a disability can claim a lump-sum amount as a tax deduction. The amount of the lump sum is based on the degree of disability as a percentage. Depending on their physical limitations, people with disabilities may need to rely on a special transportation service. Retirees with a disability rating of at least 80 percent can claim a flat rate of 900 euros for transportation services.

Note:
To benefit from these tax advantages, you must have the degree of disability medically certified. The tax office only accepts applications with an official certificate.

9. Do you provide financial support to your child?

In some cases, parents may wish to continue supporting their children financially even after reaching retirement age. For this “maintenance payment,” retirees may claim up to 8,472 euros as a tax deduction. Please note that the child must not receive child benefit and must not have assets exceeding 15,500 euros. Additionally, the child’s income is deducted from the maximum deductible amount if the income exceeded 624 euros in the year. The maintenance payments made must be documented with a bank statement. Considering the requirements, it is clear that only a few retirees can benefit from this tax option. Whether and to what extent you can deduct maintenance payments should be clarified in a consultation with a tax advisor.

10. Application for the More Favorable Tax Treatment

Finally, we would like to present a specific tax scenario that frequently applies to retirees. One reason the tax office may require you to file a tax return is investment income. The tax authorities assume that retirees with high capital gains also have other sources of income. Although this is often the case, there are many retirees who have simply saved for a long time. If pensioners have only capital gains subject to withholding tax in addition to their pension, filing a tax return often even allows for a refund. To do this, pensioners simply need to fill out Schedule KAP in the tax return and check the box for “favourable tax treatment.”

Tax Expert in Düsseldorf and Oberhausen

As you can see from the points mentioned, there are many ways for retirees to save on taxes or even avoid paying them entirely. To ensure you don’t have to deal with the tax office during your retirement, we offer our professional services. As tax advisors in Düsseldorf and Oberhausen, we handle your tax matters and prepare your tax return to maximize your benefits. Our team answers your questions and is always available to assist you as experts. Contact us to schedule an initial consultation.