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How to save money on your taxes for pandemic year 2020 (and what to watch out for)

The unusual working conditions that were forced upon Germany by the pandemic have opened up opportunities to save money on your tax return. But there could be a nasty surprise in store too.

How to save money on your taxes for pandemic year 2020 (and what to watch out for)
Home office. Photo: DPA/Julian Stratenschulte

Filling out tax forms is obligatory for more people than usual in Germany this time around. While employees don’t normally have to fill out their tax returns, anyone who took in more than €410 in Kurzarbeit allowance last year must file a tax return.

The good news is that the pandemic has created a few opportunities to save some pennies.

Home office savings

Many of us have been sent into home office this year by our employers as the country tries to limit personal contacts.

The good news here is that you can deduct an office space in your house from your overall earnings.

If your office is a separate room in your house that you use exclusively as an office, and you worked in it for at least three of the five days of the week, then you can deduct the entire rental cost of this room, plus the heating and electricity costs, from your salary.

There is a cap here of €1,250 on the business expenses you can claim, unless you can show that your home office is the “qualitative centre” of your job. In other words, you have carry out most of the activities essential to your job there. But since most meetings now happen over Zoom or by telephone, it shouldn’t be too hard to prove this applies to you!

If you’ve just been using the kitchen table or you’ve set up a desk in the corner of your bedroom, don’t worry.

For the first time, in the 2020 tax year there is also a savings to be made here. This year, the tax authorities recognize any type of home office as a €5 per day work expense up to a maximum of €600.

READ MORE: What you need to know about tax changes in Germany in 2021

According to a report in Spiegel though, this €600 tax gift for 2020 isn’t as shiny as it seems. The tax office will not count it as an additional expense on top of the block €1,000 every taxpayer is given as an automatic earnings deduction for work expenses. That means that you have to prove more than an additional €400 in work expenses in order to jump over that €1,000 hurdle.

Office materials are key

The good news is that you can also deduct the money you spent on office materials for your new home office from your tax bill. A new monitor for your computer, an office chair, or a printer will all be approved as business expenses.

According to the consumer watchdog Stiftung Warentest, you can only deduct a percentage of a notebook computer from your tax bill, as the Finanzamt considers computers to be used as much for private entertainment as for business purposes.

There is also an important change on computers this year. The normal rule is that, if the purchase price before VAT is under €800, you can deduct it from tax in a single year. If it’s above €800 you have to deduct it over three years.

But an exception has been made for 2020 – regardless of how expensive you computer is, you can deduct the entire price from your income.

Possible arrears payments

Some six million people in Germany were put on Kurzarbeit (reduced work) at the height of the crisis last year. While that programme saved many people from unemployment, the slight downside is that it has had an impact on one’s tax declaration.

This is due to something called the Progressionsvorbehalt (progression caveat). The tax code states that money that you receive as benefits from the state, such as unemployment benefits, parental support, or short-time working benefits, are tax free.

READ ALSO: Why people on ‘Kurzarbeit’ in Germany need to prepare for a tax surprise

But that is not the end of the story. Thanks to the Progressionsvorbehalt, the money you receive in benefits is taken into account when the tax office considers how much tax you should be paying on the rest of your earnings.

Basically, the amount that you receive in benefits is added to the amount you received as income, and the state calculates your tax rate based on this total.

In many cases, the result is that people have to pay an additional sum in tax on top of what has been taken from their salary throughout the year. In other words, the Kurzarbeit benefits push you into a higher tax bracket.

Experts say that the difference could be around €1,600 for a gross income (salary plus benefits) above €40,000.

SEE ALSO: Everything you need to know about paying taxes in Germany

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For members


What freelancers in Norway need to know about tax

If you’re ready to venture out on your own as a freelancer, then it is essential to brush up on the tax rules and regulations in Norway.

People going over their taxes and finances.
Here's what freelancers in Norway need to know about taxes. Pictured are people going over their finances. Photo by Scott Graham on Unsplash

Are freelancing and being self-employed the same thing?

According to the Norwegian website for government dialogue, Altinn, “A freelancer receives payment for individual assignments without being a permanent or temporary employee of the organisation he or she is carrying out work for, but does not need to be self-employed.”

This is helpful to clarify. Because when you decide to work for yourself in Norway, you can do this in a matter of two ways. The two most common methods to register your freelance work or self-employed business is as an enkeltpersonforetak, or as an AS, which is an acronym for aksjeselskap. 

In English, an enkeltpersonforetak means “sole proprietorship”. And an aksjeselskap means “Private Limited Company”. 

Both enkeltpersonforetak and AS come with their own set of positives and negatives. Technically, you are NOT considered a freelancer if you have set up an AS. 

If you have set up an AS, then you are considered an employee of your own company. 

The two may often be compared to one another. But in the eyes of tax law and the rules that apply to your freelance work, they are very different. If you are setting up an AS, it is highly recommended that you hire an accountant as the tax rules are intricate and very specific to what type of business you run.

If you are a freelancer working as an enkeltpersonforetak 

For a sole proprietorship, you need to pay advance tax quarterly – or four times a year in Norway. This is done by the freelancer calculating how much profit they expect their work to earn within the taxing quarter. 

It may be difficult to predict, which is why you shouldn’t worry if you make more or less than your original registered claim.

For example: Let’s say freelancer Petter registered with skatteetaten, the Norwegian Tax Administration, that he would make 50,000 kroner in the first quarter of the year. Suddenly, Petter unexpectedly gets five new clients and happily makes double, earning 100,000 in the first quarter instead, all Petter has to do is log into his skatteetaten account and adjust his original tax claim so the amount he pays in taxes will be accurate. 

The Norwegian Tax Administration determines how much tax is to be paid based on the expected profit. 

In addition to quarterly registers, freelancers are responsible for sending invoices, keeping track of their accounts, and creating their own pension scheme. They are also responsible for the value-added services, or VAT.

What is VAT?

This is where it can get a little confusing with the terms. The Norwegian VAT officially uses the acronym MVA, for merverdiavgift. And if that wasn’t confusing enough, Norwegians have developed a slang word for this type of tax called moms

So, VAT = MVA = merverdiavgift = moms. All four terms refer to the same type of tax.

For freelancers that have earned more than 50,000 kroner over the course of a year, they need to register their VAT, which is the sales tax on goods and services.  

Again, this is when you should double-check to see if your line of work can be VAT exempt. Specific industries, such as education and arts and culture, are exempt from registering their VAT. This is because they don’t have to pay VAT. But most importantly, they are not allowed to charge their clients VAT for their services or goods.

However, freelancers who work in VAT exempt industries can electively register their VAT so they can both charge VAT and receive VAT deductibles. 

The VAT tax rate has held steady at approximately 25 percent over the past decade. When you have registered the tax on your goods and services, it is possible to request a VAT refund on purchases made up to three years back in time.

This is, again, a really good time to know what you can deduct or get back with VAT. 

For example: Let’s say Anna works as a freelance PR agent and takes a potential new client out for a “working lunch”. Unfortunately, she cannot register the lunch receipt as a work-related deductible as it is not allowed to apply for a VAT deductible on foods. 

However, let’s say Anna bought a printer that was necessary for her PR services. She could apply for a 25 percent VAT deduction on the printer’s costs as it is deemed necessary work equipment.

To register VAT for your goods and services, look here

Programmes and accountants can help with this.

Accounting programmes and actual accountants can help ensure you are managing the administration side of your business correctly. And even if you have both of these helpful options, you should still give yourself enough time each week, or month, to keep your accounts up to date if you are a freelancer. 

Managing your own accounts and taxes can be overwhelming. Luckily, there are some different options available.

Having an overview of your accounts with an accounting programme is cheaper than hiring an accountant and a great way to keep a 24/7 overview of your business.

If you are intimidated by the math side of things, or worse, making an honest tax mistake that is still illegal, don’t worry. The newest programmes have a reputation of being easy to learn and user friendly. 

Here is a list of the top accounting programmes recommended for small businesses in Norway. 

Remember, Google Docs and Word are not an option for creating your own invoices, as all invoices must be auto-numbered. 

There is peace of mind in letting a professional handle your accounts, but you will have to pay for it. The average price for an accountant in Norway is around 500 kroner per hour plus VAT (value-added tax). 

If you choose to hire an accountant to manage your firm’s books, here is a list of what the average accounting services can cost you. 

If you’re still unsure

Learning your adopted country’s tax laws is both time-consuming and filled with small intricacies and loopholes. If ever you come across a new billing or taxing situation you’re not completely sure about. You can reach out to the Norwegian Tax Authority for more clarity.