Is there a rule of thumb of what I can make a tax deduction in Germany? Yes and no – an overview!

When going through a year one accrues all sorts of expenses for a variety of reasons. What would be more logical than trying to cut the tax office in on some! However, for Americans it can be extremely confusing to identify which expense qualifies for a tax deduction on either side.

The following is supposed to be an overview of the general rules and differences – we will cover details separately in future articles!

In the US you have two categories of deductions – the standard deduction or the itemized deductions.

On the German end there are several buckets of deductions. The most common ones are

• “Werbungskosten” or “Betriebsausgaben” (directly tied to a specific source of income)
• „Sonderausgaben” (mostly insurance expenses for health, care and retirement or donations)
• “Außergewöhnliche Belastungen” (special expense items which you cannot get out of)
• “Haushaltsnahe Belastungen” (home & household related expenses)

For the US side the following expense items are examples of deductible expenses under either the standard or itemized deduction:

1. Alimony payments
2. Business use of your car
3. Business use of your home
4. Money you put in an IRA or HSAs
5. For military servicemembers: moving expenses

If you itemize, you can deduct – amongst others – these expenses:

1. Capital losses
2. Donations to charity
3. Gambling losses
4. Home mortgage interest
5. Losses from disasters and theft
6. Medical and dental expenses over 7.5% of your adjusted gross income

For some of those there would be a way to deduct them in Germany as well, especially the business use of particular assets, money put away for retirement and health, moving expenses and donations. For some there would not – unless it was for very extenuating circumstances and even then there would not be recognition of the full amount. Of the above those are alimony payments, gambling losses or disaster losses.

You see, the devil is in the details and the taxperts are happy to help you navigate the waters of German and American tax deductions – do not miss out on an opportunity to get some of your money back!