Tax Reduction for Tradespeople Expenses: How to
Save money: Tips for tradespeople expenses.
Almost every taxpayer needs tradespeople (Handwerker) now and again: walls must be painted, new floors must be laid, and machines must be repaired – tradespeople’s’ activities are not just diverse, but also expensive – so it’s a good thing that invoices for the services can be claimed on your tax return (Steuererklärung)! Employees can potentially save up to 1,200 euros by provided proof of their tradespeople invoices.
What is required to claim these on my tax return?
Invoices for tradespeople services
Completed work and travel costs are the only tradespeople expenses that are relevant for tax purposes – material costs are not included. If you don’t want to run into trouble with the tax office (Finanzamt) down the line, you should ensure that the invoices break down the costs of materials separate from the other expenses.
Your well-kept invoice should include the following information:
- The tradesperson’s name, address, and tax number (Steuernummer)
- Customer’s name
- Type of service
- The time period in which the work took place
- Invoice amount broken down into wage, travel, and material costs
In an attempt to prevent undeclared work, the invoice cannot be paid in cash. It needs to be paid by other means: for example, by bank transfer, giro card, or credit card. Many contractors prefer to be paid in cash to avoid card payment fees, so ensure that you discuss types of payment with the company beforehand.
Tradespeople services must take place at your home
According to § 35a of the Income Tax Act (EStG), tradespeople services must take place in the taxpayer’s home in order to be claimed on their tax return. The services must be for renovation, maintenance, or modernization measures – services such as meals on wheels or costs for grave maintenance could therefore not be claimed.
Typically, services completed in a workshop cannot be claimed on your taxes. The Federal Tax Court (Bundesfinanzhof) allows those affected by this rule to make an appeal referring to ongoing proceedings about these issues at the court. As soon as there is a specific ruling, their tax assessment notice (Steuerbescheid) will be adjusted accordingly.
How are tradespeople services assessed?
Only 20% of tradespeople services can be claimed on your taxes, therefore the expenses must be pretty high (excluding material costs) in order to reach the maximum refund of 1,200 euros.
Example: The Eigendorf family had a baby and moved into a larger apartment, but the old PVC flooring there is very worn and has several holes. Since the landlord isn’t willing to pay for a new floor, the Eigendorf family hires a tradesperson to do the job and takes on the expenses themselves. The flooring expenses for their 70-square-meter apartment came to about 3,150 euros – this consists of material, labor costs, and tradespeople travel expenses. The high-quality carpet alone cost 2,000 euros, and as the government doesn’t want to financially support costs for a carpet (only the work completed by tradespeople), this part cannot be claimed on their taxes. The family can deduct the remaining 1,150 from their expenses which leads to a tax relief of 230 euros (20%).
There are exceptions for owner-occupied property renovations. Up to 40,000 euros can be claimed under certain conditions – sometimes, material costs can also be deducted.
Tax tip: Claim your tradespeople costs efficiently
As you can see from our example – you have to accumulate high tradespeople expenses to even come close to the tax refund maximum limit. But if you have to renovate your whole house, costs quickly exceed 6,000 euros – keep in mind, once you exceed 6,000 euros, you’ve already reached the maximum refund of 1,200 and won’t receive anything more – no matter how much higher your service expenses are.
Our tip to you for these types of situations would be to spread your tradespeople expenses over the course of two years – have part of the house renovated in the current year, and the remaining part in the following year. You could also start your expensive renovation towards the end of the year in order to spread the costs over two years. Unfortunately, this type of tip doesn’t work for short-term washing machine repairs or similar spontaneous services.
Using tax allowances (Freibeträge) to secure lower monthly tax payments
If you plan your larger expenses far enough in advance, you can apply for tax allowances to ensure a lower tax burden during the year. There are tax allowances for many different expenses – including tradespeople costs. The tax allowance can amount up to 4,800 euros and would reduce the wage tax (Lohnsteuer) that you pay monthly; however, through this, your tax refund would then be reduced by amount of the allowance. The payable tax amount remains the same in the end, it is simply split up differently. Because of this, all who receive tax allowances must file a tax return in the following year – our modern online tax tool can help with that.
You may be wondering – if you end up having to pay the same amount of tax anyway, is there still a point in applying for tax allowances? There are some advantages to pushing off the tax payment until your tax return:
- Overdrawing your bank account can lead to high overdraft fees. This money can be saved if you receive more net wages each month.
- Taxpayers with high savings (without a negative interest period) can invest part of the money into their savings accounts to receive interest on it or invest in other capital investments.
Where can I enter tradespeople services on my tax return?
Tradespeople services used to be entered on the 3rd page, 75th line of the tax return cover sheet – but in 2019, more separate forms were introduced. Now you must enter these expenses on the household-related expenses form (Anlage für haushaltsnahe Aufwendungen) on line 6. However, a paper tax return can be stressful and time-consuming – our online tax return tool ensures no opportunity to save taxes is overlooked and your tax return is submitted in a timely and environmentally friendly manner. Our customer service team is always available to answer technical questions.
Tradespeople services can only be claimed in one place on your tax return. It is forbidden to deduct the expenses as income-related expenses (Werbungskosten), special expenses (Sonderausgaben), extraordinary expenses (außergewöhnliche Belastungen), or business expenses simultaneously.
List of deductible tradespeople services
- Furniture assembly
- Replacement/renewal of fitted kitchens
- Replacement/renewal of windows
- Replacement/renewal of doors
- Bathroom modernization
- Facade work
- Interior/exterior wall work
- Additions such as conservatories
- Terrace roofing
- Basement finishing
- Electrician work
- Locksmith services
- Chimney sweeping
- Lightning protection system control
- Graffiti removal
- Disposal of building rubble
- Vermin and pest control
- Repair/maintenance of washing machines/stoves/other household appliances
- Repair/maintenance of garbage disposal
- Elevator inspection/repair/maintenance
- Maintenance/repair/replacement of heating/electrical/plumbing/gas systems
- Work on house additions for electricity/water/gas/television/telephone/internet
Renters: check your annual utility bill
Tenants should always check their annual utility bill to see if it lists tradespeople costs that can be claimed on their tax return. All personnel and travel costs for tradespeople, janitors, cleaning, gardening, etc. can be claimed – but material costs cannot be claimed. The total utility costs (Nebenkosten) can typically be entered on line 5 of the household-related expenses form. Tradespeople costs can also be separated from the utility costs and entered together with the other tradespeople costs on line 6.
You should keep both your tradespeople services invoices and your annual utility bill in case the tax office requests proof. You can dispose of them one year after your final tax assessment notice (Steuerbescheid).
Household-related expenses must be for your own home
To deduct household-related expenses, you must be using the house or apartment that you are deducting the costs for. If you are a landlord renting out your apartment, you should check whether the costs can be deducted as income-related expenses or business expenses instead.
Renovations outside of Europe
Tax reductions for renovation, maintenance, and modernization measures only apply to work done on homes in the European Union or the European Economic Area. Expenses for homes outside of these regions cannot be claimed – at least not on German tax returns.