Strict Requirements to Have your Finanzamt Co-Finance your Offspring's Studies
This article will show you a typical cat-and-mouse game between taxpayers and their Finanzamt. Bob and Mary run their own law practice. Their eldest sun, Bradley, wants to study at the university. In order to finance him, he was supposed to work in their company and they would finance his studies. His education costs were to be deducted as company expenses. To successfully deduct these employment costs, you have to follow very strict rules. These rules were now confirmed by judgment of Finanzgericht (Fiscal Court) Saxony-Anhalt (December 2, 2005, re. 1 K 141/02).
The reason for such strict requirements is that parents owe their children support §1601 BGB and the costs for an education - until they are of age, whichever comes first. If you meet the following requirements, you will be able to deduct all the employment costs.
- The child must work in the company during semester breaks.
- The child must remain in the company at least five years after his studies.
- Stipulation of a contractual penalty for the case that junior decides not to continue in parent's business.
- It must be proven that the total costs for the studies for an employee in the firm are common or at least customary in the relevant industry.
- Junior receives his salary to an own private bank account.
In this case, everything would have been square and fair if Bob would have made sure to write down how many hours Bradley is to work in the office and had not given Bradley a Mercedes 500 cabrio without anybody else in the company having the same status.
To make sure your tax office will accept your inclusion of the kid in the company as an employee, make sure at least one other employee has, if not exactly the same, at least a very similar status. This second employee is to function as proof of your company's standard.
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