There are applicable tax deductions to every type of income you make as a business owner in Germany. In this article, we are going to go through the most important ones for self-employed entrepreneurs to keep in mind.

Taxes can be put into two categories depending on whether it is related to your business or you personally. First off, you need to open a bank account for your business besides your personal one. This is just to keep things transparent and to separate the two types of transactions.

Keeping track of your due taxes is important because there are late fees and fines down the road if you miss them. Now let’s go through the tax deductions you need to keep in mind in Germany one-by-one.

Personal Allowances

This type of deduction is available for children who study abroad, low-income individuals or families or handicapped individuals in families. These burdens are the prerequisites for such deductions and they can be applied to personal income.

Childcare Expenses

For this deduction, there is a range of requirements that need to be met. It comes into effect if you have a child that is below 14 years old or handicapped. The country supports individuals who want to work by making them able to put their children in childcare.

For a whole year, you are allowed to deduct 4,000 Euros times the number of children you have.

Alimony Payments

Going through a divorce can be extremely hard on you and your business. This is why you are allowed to deduct up to 13,805 Euros in Germany each year as you go through it.

Contributions to Charity

There are international and German charities that fall into this category. These charities allow you to deduct 20% from your gross income Also, church tax has to be paid for everyone but it can be deducted. If you are interested in all the eligible charities, you can consult with your accountant.

Deduction from Mortgage Interest

This is for those who have mortgage on a property of their own. You can take your mortgage interest and deduct it from your rental income. However, the stipulation here is that you cannot deduct it in case you are living in that particular property.

Income Related Expenses

There are certain income related expenses that can be reimbursed by the employer to the employee. These expenses all have to be documented.

The employee can benefit from this type of tax deduction in the following cases:

• Paying for transfer from home to work and vice versa
• Membership cost of bodies related to the profession
• Tools and equipment that are essential during work
• Literature such as textbooks related to the profession

There is an upper limit of 1,000 Euros that is automatically deducted by the tax office. It can also be exceeded, in which case a tax declaration is required in order to get the extra deduction.

Expenses for Business Owners

By owning a business, you are eligible for additional deductions. The following are all related to business activity:

• Materials – You can deduct the cost of raw materials required to complete your products
• Business Losses – After every tax year, you can decide to carry over up to 1 million Euros in business losses. You can either carry it to the previous year or the next one
• Equipment – You might need equipment as well to work on your products. These can only be deduced as fixed assets, taking depreciation into account
• Personnel – The staff you employ costs a certain amount which can be deducted from business profit
• Deductible Interest – If you demand a loan as a business or startup, you are eligible to deduct tax from the interest of the loan
• Fixed Assets – If you own a business that has assets such as vehicles, property or raw equipment, consult your accountant about the deduction. Amortization and depreciation are two factors that have to be considered