How can I optimize the use of tax class combinations?
July 1, 2024 | 30,00 EUR | answered by Babette Schneider
Dear tax consultant,
My name is Quentin Busse and I work as a full-time employee. My wife is currently on parental leave and is expected to return to work in a few years. We have two children of school age.
In the past, we both were in tax class IV, as we earned similar amounts. Now the question arises whether it would be beneficial for one of us to switch to tax class III in order to benefit from tax advantages. I earn slightly more than my wife, so it would probably be more advantageous for me to switch to tax class III.
However, I am concerned about whether a change in tax class could have a negative impact on our financial situation. I am also unsure if there are other ways to optimize our tax class combination to achieve tax advantages.
Could you please explain to me how we can optimize our tax class combination to pay the lowest possible taxes? Are there specific criteria we should consider before considering a switch in tax class? And what other options do we have to achieve tax advantages?
Thank you in advance for your support and advice.
Best regards,
Quentin Busse
Dear Mr. Busse,
Thank you for your question regarding tax classes. It is understandable that you are considering how to best utilize the tax class to achieve tax benefits. In your case, where you earn more than your wife and she is on parental leave, it may be advisable to consider a change in tax class.
In Germany, there are six different tax classes that can be chosen based on individual life situations. Tax class III is usually beneficial for the partner with the higher income, as it results in a lower tax deduction and therefore more net salary. Tax class V, on the other hand, is designed for the partner with the lower income.
Before considering a change in tax class, you should consider several criteria. Firstly, you should take into account the annual tax-free allowance, which is higher for married couples than for singles. Additionally, you should check if by changing tax class, you might lose other tax benefits, such as the marriage splitting.
There are other options to achieve tax benefits as well. One option is for one partner to remain in tax class IV and the other to switch to tax class III. This way, both partners can benefit from tax advantages without significant financial losses. Furthermore, you can consider whether it is advantageous for you to be jointly assessed or if individual assessment would be more beneficial.
I recommend contacting a tax advisor who can analyze your individual situation and provide you with specific recommendations. A tax advisor can also help you avoid potential tax pitfalls and optimize your tax burden.
I hope that my response has been helpful to you. If you have any further questions, please feel free to contact me.
Best regards,
Babette Schneider, Tax Advisor
