Claiming Tax Advisory Fees as a Deduction: The Options Available

The rules have been complex since a legislative change in 2006. Previously, you could deduct the full cost of tax advice as special expenses (Sonderausgaben); since then, you must allocate the costs to the relevant category of income — such as employment income, rental income, or profit from freelance activity. A flat-rate rule and a simplification rule do, however, ease the administration.

In principle, you may deduct all tax-advisory costs that are professionally motivated. When allocating costs, what matters is which parts of the tax return the tax adviser's work relates to. The main form of the income tax return and schedules such as the Child Schedule (Anlage Kind) and the Pension-Provision Schedule (Anlage AV) are treated by the tax authority as private in nature.

The position is different for the following schedules:

• N: Employment income
• S: Income from freelance work (profit calculated using the EUER form)
• G: Income from a trade (profit calculated using the EUER form)
• KAP: Capital income
• V: Rental and leasing income
• R: Pension income

You must allocate the respective portions of the tax-advisory costs precisely to these different categories of income. Are you an employee who also earns money as a freelancer on the side? In that case, you enter part of the tax-advisory fees as income-related expenses (Werbungskosten) on Schedule N and another part as business expenses on the EUER form.

Tax advisers automatically split costs into a private and a professional portion. For you as a taxpayer, this means you do not need to concern yourself with the complex cost-allocation rules. Simply enter the costs in your tax return in accordance with the invoice from your tax adviser. As a rule, clients leave this task to their tax adviser, so no further action on your part is required.

The flat-rate rule is also worth noting. It is particularly relevant for items such as membership contributions to a wage-tax assistance association and expenditure on software and books — costs for which you would otherwise need to carry out a cumbersome cost-splitting exercise. Instead, you may simply state a flat annual amount of 100 euros. It makes no difference to what extent these costs relate to private or other elements.

The simplification rule points in the same direction and is recommended for larger amounts. The tax office will accept half of any given sum without a breakdown of the costs. If you spend 300 euros on software and books, for example, the tax authority will take 150 euros into account.

Whether you are an employee, a pensioner, or an investor: tax-advisory costs are entered as income-related expenses (Werbungskosten). Please bear in mind the standard allowances applicable to each category of income. Your tax-advisory fees will only generate an additional tax saving if your income-related expenses exceed the standard allowance; otherwise they are already covered by the flat-rate allowance and there is no need to list them separately.

The following standard allowances are relevant:

• Employee standard allowance: 1,230 euros from 2023
• Saver's allowance: 1,000 euros from 2023 (married couples: 2,000 euros)
• Standard allowance for income-related expenses on pensions: 102 euros

As a trader or freelancer, you account for tax-advisory costs in your profit calculation, which is carried out on the EUER form. The business expenses section contains a dedicated field for this purpose — in line 52 you enter "Costs for legal and tax advice, bookkeeping".

Take care not to mix costs with a business motivation and those with a private motivation. Precise itemisation is generally worthwhile, because for most business owners the fees attributable to the freelance or trade category considerably outweigh the private portion.

Tax advisers relieve you of a substantial administrative burden and actively support you with tax optimisation. You can also claim part of the costs as a tax deduction — a further good reason to engage tax professionals. Your Guhr Steuerberatung correctly enters all cost portions in the relevant sections of your tax return: there is nothing you need to worry about.

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