How does the withholding tax affect my capital gains?
July 23, 2024 | 40,00 EUR | answered by Anna Karpinski
Dear tax advisor,
I am reaching out to you because I am unsure about how the capital gains tax affects my investment returns. Over the past few years, I have been investing in various forms of assets, including stocks, bonds, and investment funds. I have been reporting the returns from these investments in my tax returns regularly, but I am not entirely clear on how the capital gains tax comes into play.
Currently, I am earning an annual return of about 5% from my investments. I am concerned that I may not be properly considering all the tax aspects, which could lead to tax arrears or even fines. Additionally, I am unsure if I might be missing out on tax benefits that could be available to me through the capital gains tax.
Therefore, my question to you is: How exactly does the capital gains tax affect my investment returns and what steps can I take to optimize my tax burden? Are there specific tax-free allowances or tax benefits that I should be taking advantage of? How can I ensure that I comply with all legal requirements and avoid the risk of tax arrears?
I look forward to your expert advice and thank you in advance for your support.
Sincerely,
Otto Widmann
Dear Mr. Widmann,
Thank you for your inquiry regarding the withholding tax and its impact on your capital gains. I understand that you are concerned about ensuring that you are considering all tax aspects correctly and do not want to risk any tax or penalty payments. I am happy to explain to you in detail how the withholding tax affects your capital gains and what measures you can take to optimize your tax burden.
The withholding tax is a flat rate tax imposed on capital gains such as interest, dividends, and capital gains from securities sales. The tax rate is currently 25% plus solidarity surcharge and possibly church tax. This tax is deducted directly by banks or corporations and remitted to the tax office, so you as an investor do not need to take any action.
It is important to note that the withholding tax also applies to your capital gains from stocks, bonds, and investment funds. Therefore, you should declare all income from these investments in your tax return, even if they have already been taxed. However, you may be able to use certain allowances to reduce your tax burden. For example, as a single person, you have an annual tax-free savings allowance of €801. For married couples, this amount doubles to €1,602.
To optimize your tax burden, you should also make sure to offset losses from capital investments against gains. You can offset losses up to a certain amount with gains from the same class of investment and thus reduce your tax burden. Additionally, you can take advantage of tax benefits by investing in tax-optimized investment products such as ETFs.
To ensure that you comply with all legal requirements and do not risk any tax payments, I recommend regularly reviewing your capital investments and making adjustments if necessary. It is also advisable to seek advice from an experienced tax advisor or financial expert to optimize your individual tax situation.
I hope that this information has been helpful to you and I am happy to answer any further questions you may have. Thank you for your trust and your inquiry.
Sincerely,
Anna Karpinski
