Provisions for a severance payment
February 16, 2011 | 50,00 EUR | answered by Oliver Burchardt
Dear Sir or Madam,
Situation:
Four years ago, I had to file for private insolvency due to scrap properties and real estate fraud. This private insolvency was ended prematurely because I sold my job in 2009 and was able to provide a larger severance payment to the estate. Since then, I have been in early retirement at the age of 63. I am 90% disabled due to a cancer illness.
The severance payment was also intended to partially offset the reduction in pensions. Since September 2009, I have been receiving a company pension as well as the regular state pension. However, this is no longer enough to cover my cost of living. I have been working part-time as a freelancer since the beginning of 2010.
Question for the tax consultancy:
1) Can I make a provision in the income tax return for the year 2009, which I am currently working on, for the following years for:
1a) Legal fees incurred due to the private insolvency amounting to approximately €7,000.00
1b) Start-up costs for the following years as a self-employed real estate agent
1c) Other costs due to the current situation.
Due to the severance payment, the income tax paid in 2009 was over €80,000.00. I have no tax-free allowances on my wage tax card. There is a carryforward loss on rental and leasing of €63,000.00.
I would greatly appreciate a prompt response to my questions.
Sincerely,
Wolfgang K.
Dear inquirer,
Thank you for your inquiry, which I am happy to answer as part of an initial consultation.
Please note that the tax assessment is based on the information provided. Changing, adding, or omitting information can affect the tax result.
The costs of personal bankruptcy are not deductible costs of private life and therefore cannot be considered for tax purposes.
In principle, you can deduct the expenses for starting your business from your taxes. However, creating provisions (if you are required to keep accounts or do so voluntarily) is only possible for expenses that were incurred in 2009. This includes costs for start-up consulting that you received in 2009 but have not yet paid. If you determine your profit using the income-surplus calculation, you can only deduct the costs that you actually paid in 2009.
However, it is possible to deduct the so-called investment allowance. If you intend to purchase movable assets for your business within the next three years, you can deduct 40% of the expected acquisition costs in 2009, § 7g EStG. However, you must prove to the tax office that you had already specifically planned the opening in 2009 and provide documents that show the tax office your intention to invest. You must document the function of the asset and the expected costs separately and submit them in an attachment. If you do not invest in the next three years, the amount will be taxable again with an interest rate of 6% per year.
Due to your 90% degree of disability, you are entitled to a lump sum for extraordinary burdens of €1,230. If you incurred higher costs, you can choose to deduct these costs. However, the deduction is reduced by the reasonable burden. The reasonable burden is defined in § 33 para. 3 EStG and depends on the specific situation.
Also, any reimbursements from third parties (e.g. health insurance) must be offset. Deducting the actual costs is only worthwhile if the lump sum is exceeded in your specific situation.
I hope I have been able to assist you in the course of your commitment.
Kind regards,
Oliver Burchardt
Tax advisor
