How do tax deductions work?

Ever since the release of Adam Smith’s “Wealth of Nations”, Nation states have realized that they should only tax income. However, not all the money you make is income. You often have expenses in order to create this income. That’s why governments make a distinction between income and taxable income.

A tax deduction works by lowering your taxable income, which is the amount the tax is applied to. For example, if you make 100k, but you have 80k in tax-deductible expenses, your taxable income is 20k. If the income tax rate is 10%, then you are obliged to pay 2000 eur in tax. If you would have only 10k in tax deductions, then your taxable income would be 90k and the tax you have to pay is 9000 eur.

In Germany, the highest amount of tax deductions available are for Rurup pension plans, where you can save 20k/eur year or 55k eur/year if you file as a married couple.

If you are interested in maximizing tax deductions, feel free to contact our advisors who can help you structure your financial plans.

Our experts are familiar with the tax-implications of most investments available and can also inform you about other tax-deductibles that you could take advantage of.

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We regularly help our clients optimizing their investments for tax-efficiency.

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