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Your first tax return? We explain how it works.

We shed some light on tax returns — includ­ing the tax­a­tion of income from cap­i­tal gains.

It arous­es feel­ings like a root canal at the den­tist. But it’s not as bad as its rep­u­ta­tion. And it’s worth it for you. If you know how, your tax return will be easy and you can save a lot of mon­ey. Until then, it is impor­tant to feed your tax return with the right data in the right places. Inter­est­ing for your invest­ments at Wat­ti­fy: What is the best way to pay tax on income from cap­i­tal gains?

We pro­vide you with the answer. We also shed light on the bureau­crat­ic dark­ness of tax returns and give you a tip or two on how to mas­ter them clean­ly and prof­itably.

Please note: Our blog offers infor­ma­tion and sug­ges­tions on the top­ic of tax­es with­out guar­an­tee. It is not tax advice and can­not replace a tax advi­sor.

The what-how-where of tax returns

If you are self-employed, run a busi­ness or your own farm, you are required by the state to file a tax return. If you work as an employ­ee, income tax is auto­mat­i­cal­ly deduct­ed from your salary as wage tax. If you have no oth­er sig­nif­i­cant income, you would not have to file a tax return. Nev­er­the­less, mil­lions of work­ers vol­un­tar­i­ly choose to do so. Why?

The state uses a so-called lump sum” to deter­mine the amount of tax to be with­held. This is a fixed sum that the tax office off­sets against your income. For your income, this is the employ­ee lump sum” of €1200 (retroac­tive from 1 Jan­u­ary 2022). It sim­u­lates the costs, income-relat­ed expens­es”, that you might have had in con­nec­tion with your pro­fes­sion and that reduce your tax­able income. Your tax rate depends on the amount of your income, your liv­ing sit­u­a­tion and so-called allowances” (more on this lat­er).

If your actu­al income-relat­ed expens­es are high­er than the flat-rate amount, you have paid too much tax. You can get a refund of this dif­fer­ence. To do this, you vol­un­tar­i­ly write a tax return in which you list your expens­es and income. The for­mat for the infor­ma­tion fol­lows a stan­dard. You can find the forms online, for exam­ple, and can fill them out and send them direct­ly dig­i­tal­ly in the ELSTER por­tal pro­vid­ed by the tax office. This saves paper and speeds up the process. The com­plet­ed doc­u­ments are sent to the com­pe­tent tax author­i­ty, in the case of income tax the one for your dis­trict of res­i­dence. If you are oblig­ed to file a tax return, the dead­line is 31.07. of the fol­low­ing year (some­times devi­at­ed by Coro­na). If you file your tax return vol­un­tar­i­ly, you have four cal­en­dar years. This means you can get back mon­ey from years long gone.

But what do you have to pay atten­tion to when fill­ing out your tax return? Here are a few tips and tricks.
Laptop, notebook and coffee on a table in the green.
It's best to find a relaxed place to do your tax return.

Tips for sav­ing tax

1. check tax allowances

Tax-free allowances are sums on which you do not have to pay tax. It is worth know­ing where your income lies with­in these lim­its so that you can claim it on your tax return. For exam­ple, the basic tax-free amount for an annu­al income is €10,347 (as of 2022). Which allowances count for you depends on your liv­ing sit­u­a­tion and the source of your income. There is a child allowance for par­ents, an edu­ca­tion allowance for appren­tices and stu­dents, an old-age allowance for senior cit­i­zens and much more.

2. cal­cu­late income-relat­ed expens­es

Did you buy a lap­top for work? Did you pay for a train­ing course? Did you per­haps even move for your new job? All of these things fall under the cat­e­go­ry of work-relat­ed expens­es and can be claimed for tax pur­pos­es. Espe­cial­ly the com­mut­ing allowance for your way to work pays off. Keep receipts, invoic­es, etc. as proof. You do not have to include them in your tax return, but the tax office can claim them up to one year lat­er.

3. claim loss car­ry-for­ward (espe­cial­ly for stu­dents)

If you have made loss­es instead of income over many years, for exam­ple as a stu­dent dur­ing your stud­ies, you can save a lot of tax by car­ry­ing for­ward loss­es. To do this, you sum­marise your income-relat­ed expens­es for this peri­od — semes­ter fees, work equip­ment, trav­el expens­es, semes­ter abroad, etc. (keep receipts!). (Keep receipts!). You can then off­set the accu­mu­lat­ed loss­es against your first income in your tax return. Please note: The loss car­ry-for­ward for income-relat­ed expens­es only applies to the sec­ond degree. How­ev­er, this includes the Mas­ter’s pro­gramme.

4. use tax soft­ware

If Annex N and AV sound like pass­port A38, tax soft­ware could help you. These are com­put­er pro­grammes that guide you step by step through your tax return. Com­pli­cat­ed tax cas­es are shown here in sim­pli­fied form. The soft­ware takes your tax-rel­e­vant data and puts it into the offi­cial for­mat in the right places for you. You even get a cal­cu­la­tion in advance of how much your refund could be. Tax soft­ware of this kind costs about 30 euros a year, which you can deduct from your tax­es.
Person checks price development on mobile phone and laptop
You also have to pay tax on the profits from your investments.

Make the most of your Wat­ti­fy return

You pay cap­i­tal gains tax on the prof­its from your Wat­ti­fy invest­ments. Wat­ti­fy auto­mat­i­cal­ly deducts this with­hold­ing tax of 25% for you. You can also save tax here with the help of a tax-free amount, the saver’s allowance. This is € 801, which you can claim annu­al­ly in your tax return via the KAP invest­ment income annex. It’s even eas­i­er with an exemp­tion order. You can set this up at Wat­ti­fy. This way, you direct­ly save tax­es with­in your exemp­tion amount. By the way, you can divide exemp­tion orders between sev­er­al secu­ri­ties accounts and finan­cial ser­vice providers. For exam­ple, you could exempt € 501 for Wat­ti­fy, € 200 for shares and anoth­er € 100 for ETFs.

Anoth­er pos­si­bil­i­ty to exempt your­self from tax­es via the saver’s lump sum is a non-assess­ment cer­tifi­cate (NV = Nichtver­an­la­gung) instead of an exemp­tion order. You receive this cer­tifi­cate if your income, includ­ing income from cap­i­tal gains, is below the basic tax-free amount. It is there­fore inter­est­ing for low-income earn­ers such as trainees and stu­dents.

A third form of assis­tance is the favourable tax­a­tion test. It checks whether your income tax rate is below the 25% cap­i­tal gains tax and adjusts your cap­i­tal gains tax rate to your income tax rate. You can also find the favourable tax treat­ment test in the KAP annex of your tax return.

With us, you are always informed about your earn­ings. With the help of the cryp­to reg­is­ter guide (ecrop), you receive doc­u­men­ta­tion of your invest­ments and inter­est upon reg­is­tra­tion, trans­fer and annu­al­ly.

Invest sus­tain­ably and mas­ter your tax­es — now with Wat­ti­fy

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