A married couple thought they could take advantage of the tax bonus by making an advance payment on tradesmen's labor costs in the previous year. However, the Düsseldorf Tax Court put a stop to their plans. (Photo: © bartusp/123RF.com)
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Please note: A tax deduction for tradesman services is only available after the service has been rendered. Not for advance payments! Learn more about the Düsseldorf Finance Court's ruling.
A prepayment is not sufficient for tax relief on skilled trades services . This was clarified by the Düsseldorf Tax Court in a recent ruling. The service must first be rendered and the invoice amount paid; only then can the customer claim the tax deduction under Section 35a Paragraph 3 of the German Income Tax Act (EStG) from the tax office.
In the fall of 2022, a married couple commissioned a plumbing company to replace their old oil heating system and carry out plumbing work in their home. The clients suggested by email that the contractor invoice two-thirds of the estimated labor costs as an advance payment at the end of 2022. The business did not respond. Nevertheless, shortly before the end of the year, they transferred a total of €5.242 for labor costs to the plumbing company, which they claimed as a tax deduction.
The work was carried out starting in January 2023. In their 2022 income tax return, the couple claimed the advance payments as expenses for skilled trades services. They argued to the tax office that the decisive factor was the timing of the payment. Furthermore, they maintained that the respective quotes provided a legal basis for the payments.
Savings with tradespeople's invoices: 20 percent of up to €6.000 in labor costs (not material costs) can be deducted annually – which can mean tax savings of up to €1.200 . A married couple filing jointly can only claim this bonus once.
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The tax office refused the tax reduction because in the year in dispute - i.e. 2022 - neither invoices from the craft business were available nor were any craftsman services provided.
The Düsseldorf Tax Court dismissed the subsequent lawsuit filed by the customers (judgment of July 18, 2024, case no. 14 K 1966/23 E). The tax reduction for skilled trades services requires, among other things, that...
Neither of these requirements was met in the year in dispute.
The judges ruled that advance payments solely for wage costs were neither customary in the market nor otherwise objectively justified and therefore should not be taken into account. They further stated that allowing such advance payments for tax purposes would contradict the purpose of Section 35a of the German Income Tax Act (EStG) and the monetary limit on the tax reduction stipulated therein.
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