Distance allowance, car insurance and for the self-employed also the car tax – some car costs can be deducted from the tax. What to look out for.
Buying a car is expensive, so it’s no wonder you want to save as much money as possible. As an entrepreneur or self-employed person, you can deduct not only the vehicle tax, but also all vehicle costs completely from your taxes.
Employees cannot deduct vehicle tax as an individual item. In return, over 1000 euros can easily be saved via the flat-rate distance allowance and motor vehicle liability insurance. You can read how to do this under point 2.
In general, only entrepreneurs and the self-employed can deduct vehicle tax. Like all other costs incurred to purchase and maintain the vehicle, the corresponding amount can be included in the tax return as operating expenses. The prerequisite is, of course, that the car is mainly used professionally. The official use of the vehicle must be between 50 and 100 percent for it to be considered a “necessary business asset”.
If the car is used between 10 and 50 percent for professional purposes, it is considered a “voluntary business asset”. In this case, a decision must be made as to whether the vehicle will be included in the company’s or private assets. If you opt for the former, all vehicle costs can be deducted proportionately.
If, on the other hand, less than 10 percent of the car is used for business purposes, it is automatically assigned to private assets and the costs cannot be deducted as business expenses.
Jacob Jarolics is head of the Germany department within Ageras GmbH. The company offers clients free and non-binding placement of tax consultants, accountants and auditors in Central and Northern Europe. Jacob Jarolics is Danish and spent seven years in the Frankfurt area.
In general, you have to prove how many parts the vehicle is used for professional and private purposes, because only the business part can be deducted from the tax. The tax office requires a logbook to determine the exact private portion. All information should be adequately documented, e.g. by entries in the appointment calendar and fuel receipts. Alternatively, you can choose flat-rate taxation.
With the so-called 1 percent rule, 1 percent of the gross list price at the time of initial registration is calculated as a private part every month and deducted from the costs. You have to calculate which of the two methods is more worthwhile for you from a tax point of view based on the kilometers driven, the extent of private use and the type of vehicle. As a rule, the lower the proportion of private trips, the more sensible it is to keep a logbook, even if this is significantly more complex and time-consuming.
If you, as an employee, use your private car to drive to work, you can deduct the so-called “distance allowance” as income-related expenses. The legislator allows you to charge 0.30 euros per kilometer travelled. However, the flat rate may only be calculated once per working day. This means that you can only estimate the one-way route – either the outward or return journey – and only take into account the days on which you actually worked. For business trips or other business trips, however, you can calculate the entire route. The lump sum is intended to cover various costs that arise proportionately for the car. These include repairs, vehicle insurance and vehicle tax.
As an employee, you cannot deduct the additional costs as individual items, but there is a ray of hope: In contrast to motor vehicle tax, as an employee you can claim the contributions to the mandatory motor vehicle liability insurance for tax purposes. The prerequisite is, of course, that you are also the policyholder. If you have comprehensive insurance (partial or fully comprehensive), you can only deduct part of the liability insurance.
You have two different options for deducting the contributions for tax purposes: as income-related expenses or as special expenses. In general, you can deduct all costs that arise from your job as income-related expenses. However, you can also note the vehicle liability insurance in “Annex Pension Expenses” from line 44 as special expenses for accident and liability insurance. It is important that you decide on one of the methods, since neither simultaneous applications nor prorated distributions are allowed. A tax advisor can determine which option brings you more tax advantages.
The distance allowance and motor vehicle liability insurance are also interesting for entrepreneurs and the self-employed, because it does not always pay off to include the vehicle in the company’s assets. If the scope of business use is between 10 and 50 percent, a decision must be made as to whether higher deductions can be made if the car is allocated to private assets.
