Capital reserves accumulation

13 posts in this topic

Scenario:

 

Freelancer needs capital reserves to help get situated in a possible "new life" as a regular employee.

 

Freelancer has an "old" (1999) Capital Life Insurance Policy with a good interest rate that he could sell back for more than enough money, but doesn't want to.

 

To buy some time on that decision, Freelancer tells Finanzamt that he wants to buy a new car in the next two years, and puts 40,000 in Rücklagenbildung for the 2012 tax year.

 

If I'm not mistaken, this would mean a relatively large return for the 2012 tax year and less upfront payments for the first (and last self-employed) quarter of 2014, and would give me time until April of 2015 (when I do my 2014 taxes) to decide if I still need to sell the Life Insurance or not.

 

Other than the extra 40,000 of taxable income that would go on top of my 2014 income, are there any disadvantages to this that I'm overlooking?

0

Share this post


Link to post
Share on other sites

If you mean the Investitionsabzugsbetrag according to §7g EStG, then - if you do not make the investment - they simply go back to your old tax return from the year when you claimed for it and add those 40.000€ to your income and retroactively change the tax.

This also means that you will have to pay late interest in accordance with §233a AO.

 

What you refer to, with them adding it the income in the year you fail to make the investment, and charging 6% penalty interest per year elapsed, was the old law, for the Ansparabschreibung, which no longer exists.

 

It is all explained in this article.

2

Share this post


Link to post
Share on other sites

Thanks, Panda, I guess that's what I mean. Even with the retroactive taxes and late fees, I'm assuming it would be cheaper than the interest on a loan or the penalties for prematurely cashing in my life insurance, wouldn't it?

0

Share this post


Link to post
Share on other sites

Yes, probably.

The Finanzamt late interest is set down in §238 AO at 0.5% per month, i.e. 6% per year.

 

If you cash in an old life insurance, i.e. give it back to the insurance (= Rückkaufwert), then, if you now no longer qualify for the old tax exmption rules of having to keep the insurance for at least 12 years, they will also go back into the tax returns of all the years that you claimed those life insurance contributions as a Vorsorgeaufwendung, and retroactively change them to deny you those deductions, and also charge you Kapitalabschlagsteuer (and Soli) on the hitherto tax-free interest payments each year.

Besides, the Rückkaufwerte are abysmally low.

 

A way to avoid the above would be sell the life insurance to a company specialised in buying up life insurances, but please see here for an article describing the pitfalls in that alternative.

 

It may be cheapest to simply take out a bank loan with fixed monthly repayments (= Ratenkredit), see here.

0

Share this post


Link to post
Share on other sites

 

Besides, the Rückkaufwerte are abysmally low.

 

That's one of the reasons I don't want to sell the thing. The other being the great 4% guaranteed interest, which the insurance company now regrets.

 

I've had the insurance for over 14 years, so I'm assuming that none of those horrors you posted about back tax corrections are of concern to me, should I need to sell it after all...

 

Thanks again. Wish I could give you a thousand greenies.

 

 

It may be cheapest to simply take out a bank loan with fixed monthly repayments (= Ratenkredit), see here.

 

PS: The whole point of this exercise is to decrease my monthly outgoings before switching to regular employment, so another monthly payment is exactly what I want to avoid.

0

Share this post


Link to post
Share on other sites

Just one thing, if you do go the deferred taxation route, please take into consideration that in that case you cannot officially give up your freelance activity until those 3 years are up and you reach the year when you don't after all buy the stuff you announced.

 

If you officially tell the Finanzamt before then that you are no longer a freelancer, they will unravel the thing right then and there and ask for the extra tax right away.

 

So you simply coast along, during the first year of in reality no longer being a freelancer, by sending Umsatzsteuervoranmeldungen of 0€ each month and claiming 0€ profit in your yearly tax return.

After your first year of claiming 0€ in your USt-Voranmeldungen, they will tell you to no longer submit USt-Voranmeldungen, so from year 2 you will only have to do the Anlage S with 0€ profit each year.

Of course, it would help if you had at least a little freelance profit each year, so as to not raise any red flags.

1

Share this post


Link to post
Share on other sites

 

If you officially tell the Finanzamt before then that you are no longer a freelancer, they will unravel the thing right then and there and ask for the extra tax right away.

 

That shuts down the whole idea, as I would still have to pay the quarterly income tax... Oh well. Thanks anyway. Looks like I'll have to sell after all.

0

Share this post


Link to post
Share on other sites

Not necessarily.

You can send the Finanzamt a letter asking them to reduce the Einkommensteuer pre-payments since your financial situation has worsened and you do not have a follow-up freelance contract lined up.

Write them an emotional letter explaining that all banks (or whatever is your area of expertise) are laying off expensive freelancers and even if you do find a new contract it will only pay much less than before, with all the laid off freelancers that are now around as competition.

They will then reduce the pre-payments, the Munich Finanzamt isn't unreasonable.

 

I would also look into the bank loan idea, it may be cheaper than the 6% Finanzamt route. Also, banks have special, better loan conditions for their employees, so also look into that if your employer will be a bank.

While you're at it, Starshollow posted something about SMAVA, see Alternative ways and means for loans.

Then, there is also a thing called Police-Darlehen, where you get a loan against your policy from your insurance.

1

Share this post


Link to post
Share on other sites

 

the Munich Finanzamt isn't unreasonable.

 

I would also look into the bank loan idea, it may be cheaper than the 6% Finanzamt route.

While you're at it, Starshollow posted something about SMAVA, see Alternative ways and means for loans.

 

I'm with the Bayreuth Finanzamt, but they're just as reasonable.

 

With the Rückkaufwert on my LV being so high, I wouldn't have a problem getting a(nother) loan. The whole point of this was to pay off my loans (one for a car and another "small" personal one), so my monthly outgoings would decrease along with my decrease in income.

 

The wife says we paid these high payments to the LV every month for our future, and our future is now. I guess she's right, and I'm just going to have to bite that bullet, use it to pay off my debts, invest as much of what is left as I can, and put a few thousand more in my tageskonto for those unforeseen costs.

0

Share this post


Link to post
Share on other sites

Hi Panda, 
I have been trying to find an answer to a query in TT and in the net. but unable to find the correct needed answer. 

I am little bit confused with IAB and would like some clarification on the same. 

 

As per my understanding:

I can make a plan and keep aside a portion of my profits as ''Reserve Investment for movable assets'' (40%) for future years (3yrs at the max)


So the  40% is the confusion what I have... let's take an example:

I plan to purcase a car in 2019, net worth € 25000; 
so the 40% of €25000 is €10000 what I have to keep aside in 2017&2018..

 

Scenario: 1 : estimated Car worth €25000
2017= 10000 (IAB)
2018= 10000 (IAB)
2019= 5000. ??? expenses in 2019 or IAB?

or 

is the 40% considered for all the 3years??
i.e €10000 / 3yrs. ( Just speculating)

 

Scenario: 2 : estimated car worth €25000.
2017= 3333.3 (IAB)
2018= 3333.3 (IAB)
2019= 3333.3 (IAB) plus €15000. 


Which of the Scenarios have I understood correctly?

 

So, my questions are:

What If I purchase a car in  2019 worth €20001 and not 25000. will this excess portion €4999 be taxable? if yes from 2017 or only 2019?

Secondly if allowed, as I am clearly deivating form the planned purchase of €25000 to €20001, I technically then invested only 80% of the value instead of 100%.?

are there any free tool/ Calculator where I can plan accordingly, as I'm  worried if my reserves shoot up or push down from the target as per original planned, what consequences I would face?

 

Thanks in advance.

0

Share this post


Link to post
Share on other sites
1 hour ago, sweetchoco2014 said:

Which of the Scenarios have I understood correctly?

 

Neither.

Please read here about the Investitionsabzugsbetrag: http://www.steuer-gonze.de/web/index.php/brandaktuell/373-der-investitionsabzugsbetrag-zur-foerderung-kleinerer-und-mittlerer-betriebe-gem-s-7g-estg

 

You only get to claim for 40% of the estimated cost once, in the year you first plan that future expense, in your case in 2017.

 

Example 1 (see section "5. Beispiel für einen möglichen Abschreibungsverlauf" near the end of the above article)

In 2017 you plan to buy a car in 2019 that costs 25,000€, and in January 2019 you do buy one for 25,000€

 

Your profit will be lowered by the following depreciation amounts:

 

2017: - 10,000€ 40% depreciation for Investitionsabzugsbetrag  according to §7g (2) EStG, 40% * 25,000€

 

2018: 0€

 

--> since you already reduced the car cost by 10,000€, only 15,000€ (= 25,000€ - 40% * 25,000€ = 0.6 * 25,000€) remain to be depreciated, this is the new Bemessungsgrundlage.

 

2019:   - 1,875€ standard depreciation of a car over 8 years (AfA Pkw), 1/8 * 15,000€

            - 3,000€ 20% special additional depreciation (Sonderabschreibung)) according to §7g (5) EStG, 20% * 15,000€.

                               Or split those 20% over 5 years as you like, e.g. 4%*15,000€ = 600€ in 2019, in 2020, in 2021, in 2022 and in 2023

31.12.2019 Buchwert Pkw (= book value car): 15,000€ - 4,875€ = 10,125€

 

2020:   - 1,875€ standard depreciation of a car over 8 years (AfA Pkw), 1/8 * 15,000€

31.12.2020 Buchwert Pkw: 10,125€ - 1,875€ = 8,250€     

 

2021:   - 1,875€ standard depreciation of a car over 8 years (AfA Pkw), 1/8 * 15,000€

31.12.2021 Buchwert Pkw: 8,250€ - 1,875€ = 6,375€     

 

2022:   - 1,875€ standard depreciation of a car over 8 years (AfA Pkw), 1/8 * 15,000€

31.12.2022 Buchwert Pkw: 6,375€ - 1,875€ = 4,500€     

 

2023:   - 1,875€ standard depreciation of a car over 8 years (AfA Pkw), 1/8 * 15,000€

31.12.2023 Buchwert Pkw: 4,500€ - 1,875€ = 2,625€     

 

2024:     - 875€ remainder value depreciation (Restwertabschreibung) §7a (9) EStG since the 5 year Sonderabschreibung period (§7g (5) EStG) is up, remainder usage period is 8 years - 5 years = 3 years, 1/3 * 2,625€

31.12.2024 Buchwert Pkw: 2,625€ - 875€ = 1,750€   

 

2025:     - 875€ remainder value depreciation (Restwertabschreibung) §7a (9) EStG since the 5 year Sonderabschreibung period (§7g (5) EStG) is up, remainder usage period is 8 years - 5 years = 3 years, 1/3 * 2,625€

31.12.2025 Buchwert Pkw: 1,750€ - 875€ = 875€   

 

2026:     - 875€ remainder value depreciation (Restwertabschreibung) §7a (9) EStG since the 5 year Sonderabschreibung period (§7g (5) EStG) is up, remainder usage period is 8 years - 5 years = 3 years, 1/3 * 2,625€

31.12.2026 Buchwert Pkw: 875€ - 875€ = 0€   

 

********************************************************************************************************

 

Example 2

In 2017 you plan to buy a car in 2019 that costs 25,000€, and in January 2019 you buy one that only costs 20,000€

 

Your profit will be lowered by the following depreciation amounts:

 

2017: - 8,000€  initially you will have used a 10,000€ depreciation (40% Investitionsabzugsbetrag  according to §7g (2) EStG, 40% * 25,000€),

                         but after your 2019 tax return will be processed, they will see that you bought a cheaper car

                         --> they will go back into your 2017 tax return,

                         and retroactively lower the Investitionsabzugsbetrag depreciation to 40%*20,000€ = 8,000€,

                         i.e. you will suddenly have to retroactively tax 2,000€ more profit in 2017 after your 2019 tax return has been processed,

                        and pay 6% late interest on that extra tax amount in accordance with §233a AO. .

 

2018: 0€

 

--> since you already reduced the car cost by 8,000€, only 12,000€ (= 20,000€ - 40% * 20,000€ = 0.6 * 20,000€) remain to be depreciated, this is the new Bemessungsgrundlage.

 

2019:   - 1,500€ standard depreciation of a car over 8 years (AfA Pkw), 1/8 * 12,000€

            - 2,400€ 20% special additional depreciation (Sonderabschreibung)) according to §7g (5) EStG, 20% * 12,000€.

                               Or split those 20% over 5 years as you like, e.g. 4%*12,000€ = 480€ in 2019, in 2020, in 2021, in 2022 and in 2023

31.12.2019 Buchwert Pkw (= book value car): 12,000€ - 3,900€ = 8,100€

 

2020:   - 1,500€ standard depreciation of a car over 8 years (AfA Pkw), 1/8 * 12,000€

31.12.2020 Buchwert Pkw: 8,100€ - 1,500€ = 6,600€     

 

2021:    - 1,500€ standard depreciation of a car over 8 years (AfA Pkw), 1/8 * 12,000€

31.12.2021 Buchwert Pkw: 6,600€ - 1,500€ = 5,100€     

 

2022:    - 1,500€ standard depreciation of a car over 8 years (AfA Pkw), 1/8 * 12,000€

31.12.2022 Buchwert Pkw: 5,100€ - 1,500€ = 3,600€     

 

2023:    - 1,500€ standard depreciation of a car over 8 years (AfA Pkw), 1/8 * 12,000€

31.12.2023 Buchwert Pkw: 3,600€ - 1,500€ = 2,100€     

 

2024:     - 700€ remainder value depreciation (Restwertabschreibung) §7a (9) EStG since the 5 year Sonderabschreibung period (§7g (5) EStG) is up, remainder usage period is 8 years - 5 years = 3 years, 1/3 * 2,100€

31.12.2024 Buchwert Pkw: 2,100€ - 700€ = 1,400€   

 

2025:     - 700€ remainder value depreciation (Restwertabschreibung) §7a (9) EStG since the 5 year Sonderabschreibung period (§7g (5) EStG) is up, remainder usage period is 8 years - 5 years = 3 years, 1/3 * 2,100€

31.12.2025 Buchwert Pkw: 1,400€ - 700€ = 700€   

 

2026:     - 700€ remainder value depreciation (Restwertabschreibung) §7a (9) EStG since the 5 year Sonderabschreibung period (§7g (5) EStG) is up, remainder usage period is 8 years - 5 years = 3 years, 1/3 * 2,100€

31.12.2026 Buchwert Pkw: 700€ - 700€ = 0€   

 

3

Share this post


Link to post
Share on other sites

Thank you very much Panda.. as always.. really well clarified...

Have a question though.. is the  Standard depreciation of a car 8 years or 6 years (AfA Pkw)??? coz when I tried to search  it earlier, I was under the impression that the Standard depreciation of a PKW was 6 years (in the below link)

 

http://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/Weitere_Steuerthemen/Betriebspruefung/AfA-Tabellen/2000-12-15-afa-103.pdf?__blob=publicationFile&v=1

 

4.2.1 Personenkraftwagen und Kombiwagen               6 Jahren.

 

Thank you..

0

Share this post


Link to post
Share on other sites

Yes, you're right, it's 6 years.

It's "other vehicles" (= sonstige Beförderungsmittel) that would be 8 years.

1

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now