What is the difference between a tax-free allowance and a threshold in the income tax return?
November 7, 2023 | 45,00 EUR | answered by Eiko Hoffmann
Dear tax consultant,
My name is Laura Bauer and I have a question regarding my income tax return. I am currently preparing my documents for the tax office and came across the terms "allowance" and "threshold". However, I do not quite understand the difference between the two and how this affects my tax return.
Background information: I am an employee and my income is taxed through payroll tax. This year, I had some exceptional expenses that I would like to claim as an allowance or threshold in order to reduce my tax burden. However, I am unsure which concept would be more suitable for my situation.
My concerns are that I may provide incorrect information and thereby encounter issues with the tax office. Therefore, I want to ensure that I understand the terms correctly and make the right decision to make my income tax as efficient as possible.
Could you please explain to me what the difference between an allowance and a threshold in the income tax return is and how this could impact my tax burden? Are there specific requirements I need to meet in order to use an allowance or threshold? And which of the two options might be more beneficial in my case?
Thank you in advance for your assistance.
Best regards,
Laura Bauer
Dear Mrs. Bauer,
Thank you for your question regarding the income tax return and the terms "allowance" and "exemption limit". I will be happy to explain to you in detail what these terms mean and how they can affect your tax burden.
An allowance is a specific amount that is deducted from your taxable income before the tax is calculated. This means that this amount is tax-free and therefore reduces your tax burden. Allowances can apply, for example, to children, education expenses or extraordinary burdens.
An exemption limit, on the other hand, refers to a specific amount up to which income is tax-free. If your income is below this limit, you do not have to pay taxes. If it is above, you must pay taxes on the entire amount. Exemption limits apply, for example, to income from renting and leasing.
In your case, as an employee, you could claim extraordinary expenses as an allowance. However, these expenses must meet certain requirements to be recognized as extraordinary burdens. These include, for example, medical expenses, care costs or costs for a second household.
It is important that you can provide evidence for the expenses and correctly report them in your tax return. Otherwise, you could have problems with the tax office. Therefore, I recommend that you carefully keep all receipts and documents and, if necessary, seek support from a tax advisor.
Whether an allowance or an exemption limit is more sensible in your case depends on the amount of your extraordinary expenses. If you are unsure, you can also inquire at the tax office or consult a tax advisor to find the best solution for your tax situation.
I hope that this explanation helps you and wish you success with your income tax return.
Sincerely,
Eiko Hoffmann
