A tax deduction is a legal way to reduce the amount of taxes a taxpayer owes. To qualify for a tax deduction, certain criteria must be met. The deduction is considered when filing a tax declaration and is granted if certain criteria are met.
A tax declaration is an important document for the IRS. It allows you to track your income and expenses and document your allowable exemptions and deductions.
You can complete a tax declaration on paper or online. There are no specific requirements; the important thing is to fill it out accurately and without errors.
To automate the process, you can use online services such as taxx.lu or hire a professional accountant to help you fill out the document.
If you fill it out on your own, you have to read it very carefully. There are notes under almost every field. Most of the time they will also tell you about compensation amounts you can get on every tax item.
There are several tax deductions in Luxembourg. For your convenience, we have divided them into the main categories. You can set the necessary criteria using the filter system.
An employee (resident or non-resident) can receive a tax deduction in the following categories:
Taxpayers are entitled to deduct from their tax base fixed expenses incurred during the year.
These can be:
- Allowance paid to a divorced spouse;
- Permanent charges for an obligation;
- Alimony payments;
- Lifetime payments.
To benefit from the deduction:
- Luxembourg resident taxpayers, employees, or pensioners who apply for the payroll tax regularization in their annual declaration not later than December 31 of the year following the relevant tax year.
- Luxembourg resident taxpayers, employees, or pensioners who request a statement of expenses on their tax withholding form or card during the relevant tax year.
Only contributions paid directly to the system are counted. Additional pension contributions set by the employer and life insurance contributions are not deductible.
To deduct these expenses from the base, non-resident taxpayers must submit a request for tax treatment equal to that of resident taxpayers.
Retirement insurance is a special type of insurance contract that allows you to save for a comfortable retirement.
A deduction can be obtained if the insurance company is accredited by Luxembourg or another EU country and is authorized to operate in the Grand Duchy.
Conditions for obtaining the deduction:
- The contract must be concluded for a minimum period of 10 years.
- The savings are paid out to the taxpayer at the earliest at the age of 60 and the latest at the age of 75.
- The insurance contract stipulates that early repayment of the savings is excluded, except in cases of serious illness and disability.
- Non-resident taxpayers must apply to be recognized as Luxembourg residents for tax purposes.
The maximum deduction for this category can be 3,200 euros per year, regardless of the age of the taxpayer.
Taxpayers are also allowed to deduct extraordinary expenses. Extraordinary expenses are those that cannot be avoided but are not the same for all people in the same income or social category.
Procurement or transaction costs are not considered extraordinary expenses.
Full extraordinary expenses are:
Child care expenses include amounts paid to approved child care organizations. Also included are the costs of nursery schools, day care centers or kindergartens, relay centers, and duly licensed parental assistants.
This includes expenses for household help, such as a cleaning service. You can deduct these expenses if three conditions are met:
- Domestic workers are affiliated to the social security system by the taxpayer or an intermediary company.
- Domestic workers mainly perform work in the taxpayer's home.
- There are persons hired as employees by the taxpayer or by the intermediary company.
Based on these rules, it is not possible to obtain a deduction for the services of a gardener, driver, or concierge. Such services are considered a luxury rather than a household necessity.
Expenses related to the dependent status of the taxpayer, his or her partner or child, if the person is not entitled to child benefit.
This category includes, for example, parents brought in by the taxpayer from another country. To receive a deduction, it is necessary to substantiate the expenses. This is usually done by providing receipts for medical services, food, etc.
Alimony is classified as a special expense. However, if the order for payment was issued before January 1, 1998, the claimant is entitled to a deduction in proportion to the amount of the payment. If the spouses have requested that alimony be reclassified as a special expense, this section no longer applies.
Other expenses that do not fall into the above categories may also be recognized as extraordinary:
- Costs of divorce proceedings;
- Criminal proceedings if the taxpayer is acquitted;
- Expensive medical treatment or surgery not covered by CNS;
- Costs caused by disability or inability to work;
The question of whether a type of expense is an extraordinary expense can be answered accurately by a qualified accountant.
With all the new variables in mind, carefully fill out the return, paying particular attention to the sections where tax deductions are shown. These lines usually contain notes and comments from the preparer.
It is recommended that you consult a professional accountant who can advise you on controversial issues
After making sure the document is completed correctly, submit it to the IRS. Nothing more is required of you. After some time (up to 30 days on average), you will receive an official letter from the IRS.
This letter will indicate the total tax base, the amount of mandatory payments, and the amount of compensation to which you are entitled. A tax deduction in Luxembourg is essentially a large refund that you receive sometime after the tax has been paid.
If there is an error in the tax office's calculations, you have the right to appeal the inspector's decision. You have 90 days from the date you receive the calculation sheet to do so.
Keep in mind, however, that as with appeals, the outcome can be in your favor or against you. There have been cases when the tax office has found additional errors in the calculations and the end has received an even larger amount than before.
Frequently Asked Questions (FAQ)
Can a foreigner get a tax deduction?
If I claim a tax deduction, does that mean I pay less?
Can I argue with the IRS if it is wrong?
Should I contact an accountant?
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