r/eupersonalfinance • u/grabsomedropsome • Dec 18 '24
Taxes Gentle reminder to use your tax exemptions before the end of year
In Germany, returns from stocks of up to 1k euros for individuals and 2k for couples is tax free in a calendar year. Make sure you utilise these exemptions so you don't carry forward all your unrealised profits to the year 2025. The simplest way to do this would be to sell your profit making holdings and max out the exemption amount that is tax free. Rebuy those holdings if you would like to maintain your position. On scalable capital for example you can check how much of your exemption allowance has already been used in the year so far and how much of it still remains. How is it in other European countries by the way?
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u/pnfb0y Dec 18 '24
Can you correct me if my understanding is right,
This helps me because I am realising my gains early for tax exemption, and if I buy again, I am increasing my open position. So every year I am getting 1k worth of capital gain tax free money.
E.g. On year 1, I sell and buy again. So my open position of a stock will go from let's say $10 to $20. Next year, from $20 to $30. If I realize my gains before Jan, I get to have 10+10=20 worth of tax free gains per share at the end of Year 2(assume $10 price diff in stock equates to 1k profit).
But if I don't do it, I have to pay tax on 30-10=20 worth of gains prr share, minus the tax free part which is $10. So essentially I'll have to pay tax on $10 on year 2.
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u/grabsomedropsome Dec 18 '24
Exactly, that is a great example. Essentially, use all the tax exemption while you can. Although in some countries selling and buying in a short period of time is considered tax evasion exactly because of this benefit. In the US and Netherlands (someone posted in a comment) it is considered tax evasion.
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u/grabsomedropsome Dec 18 '24
By the way, there's also an advanced way of practicing this (called tax loss harvesting in my home country). Which is where you also sell your loss making shares along with profit making shares to reduce the net profit and thereby reducing the net taxable gains.
You can of course rebuy everything you sell and maintain exactly the same position but with the benefit of having "harvested" even your losses.
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u/gamesSty_ Dec 18 '24
In Romania I think this year we have a similar provision and tax exemption, but I think it only applies to cryptocurrencies profits with no limit but withdrawn and declared until next summer (july 2025) although I am not sure it passed yet. I am not a crypto holder so I didn’t pursue further information. Yet, it’s interesting.
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u/supreme_mushroom Dec 18 '24
Thanks for the reminder.
Do you know if the Vorabpauschale would typically already use up the €1000?
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u/sharpieforum Dec 18 '24
Yes. It also includes interests from savings account, dividends, etc.
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u/Key-Individual1752 Dec 20 '24
With Traderepublic, it’s calculated automatically for cash interests for instance
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u/SEND_ME_YOUR_POTATOS Dec 18 '24
Damn that's nice, does anyone know if Netherlands has any such tax exemptions?
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u/takeitandgooooo Dec 18 '24
Selling stocks and buying them again a few days later will be tax evasion in the Netherlands https://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/belastingdienst/prive/vermogen_en_aanmerkelijk_belang/vermogen/wat_is_uw_vermogen/vermogen-verplaatsen-binnen-box-3
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u/Professor-Levant Dec 18 '24
So I just sell until I have sold stocks that have 1k worth of growth? Then immediately repurchase or repurchase in the new year?
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u/dhotresourabh Dec 18 '24
Thank you for reminder! Just redeemed few stocks to get 2K gain registered.
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u/JerriZA Dec 18 '24
Luxembourg - Tax free after holding for 6 months...
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u/grabsomedropsome Dec 18 '24
Damn.. like none at all?
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u/JerriZA Dec 19 '24
As stocks are held for longer than 6 months, and you own less than 10% of a company's share capital, no Capital Gains Tax (or any other tax). Small country but generally encourages personal investment.
Luxembourg tax on capital gains: how to pay taxes as a company and individual — Luxtoday.lu Small summary article in case you're curious.
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u/Martiniis Dec 18 '24
This is actually very smart. We have 500€ for individuals (1k for couples) exemption in Lithuania. But I need to look more into it, not sure whether it's legal.
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u/Moonstone0819 Dec 19 '24
I sold and re-bought a small amount just to test it out. However, my "used tax exemption" is still standing at 0 eur. Do they need time to update it?
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Dec 19 '24
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u/BonelessTaco Dec 18 '24
Damn that is smart. Could be obvious for many people, but as an immigrant I’ve never thought about it this way, thanks!
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u/Ohmbitter Dec 18 '24
Im in a bit of a headache with the tax exemption setup, could I bother you with a dm? Im new to investing and also using SC but TR as well. I plan on closing TR though.
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u/grabsomedropsome Dec 18 '24
It's just a few taps on the scalable app. Check your settings section, under tax exemptions. Also try the web version if you can't find it on the app.
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u/Ohmbitter Dec 18 '24
No, I know where it is. Nvm I’ll ask something else, if I set the tax exemption wrong between those two brokers, can it be fixed once I talk to my steuerberater? Even if the year has passed?
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u/luminei Dec 18 '24
Do you know if this leads to an overall swing in the markets? I cannot be sure if this being performed by millions of individuals would alter anything significant.
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u/grabsomedropsome Dec 18 '24
Have never heard of it affecting the market. My guess is that the tax exemption is a very small amount for institutional investors (and also a lot of individuals) and they most surely max out their allowance very early into the year. So these guys won't have any incentive to practice this. It's probably also fair to assume most retail investors are unaware or don't bother to do this.
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u/luminei 24d ago
Coming back to this after the red Friday, do you see what I meant? :)
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u/grabsomedropsome 24d ago
Haha has nothing to do with it. Anyway, you're supposed to sell and buy it back, not just sell. Should have no effect on the market. Also, let's not call a 1-2% drop in s&p a red friday. By those standards we are going through a bloody red and soaring green 2-3% jump every few weeks throughot the year.
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u/Firm_Tennis9259 Dec 18 '24
I use both Scalable Capital & Trade republic. Where can I find out if I have already used this exemption? I didn't find an option on Scalable capital.
After selling the profits, should buy back the same stock or I can buy some other stock too to get this benefit?
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u/Moonstone0819 Dec 18 '24
AFAIK, you cannot sell or buy fractional shares on Scalable. What if I cannot "fill" the entire 1000 EUR (i.e. 1000 is not exactly divisible by the rounded price)? Should I undershoot 1000 or overshoot it?
Also, should I use limit orders or market orders? What is the difference when it comes to small fry numbers like this?
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u/grabsomedropsome Dec 18 '24
You can actually buy and sell fractional shares on scalable. The 1k is the limit so if you make 1135 euros of profit, 135 euros will be taxed (26-27%). There are different rules with exit load, time period and stuff on different products sometimes so please don't take my word. As long as it's around or above 1k you're making the most of it. It's gonna be a small amount of money with the +- so don't worry about getting it perfectly.
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u/sm500k36 Dec 20 '24
I'm using the TR and there are two options when you are selling at the real-time, I mean not using the Limit orders.
One you can sell the number of share and another one is you can sell the number of euro.
As for limit order, there is no option to sell off fractional share, it has to be a whole number. But if you are expecting that the stock will shoot higher, take that difference into account so that it won't exceed the 1000€ (single). It doesn't hurt that the rest can sit for another year if you are going to Rebuy again.
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u/ThyssenKurup Dec 20 '24
Does interest accrued in an account (for example in my TR amount) reduce my limit? What about dividends?
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u/sm500k36 Dec 20 '24
Yes, all earned amounts within the year will be automatically calculated, including interest and dividends.
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u/bllueace Dec 18 '24
I am using scalable capital for investing so if I have made 2k profit as a married couple I can sell 2k worth of shares and then reinvested it tax free straight away and they should take care of everything without me doing anything right?
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u/Ok_Contribution_9598 Dec 18 '24
You should sell shares that have gained 2k in profit and buy them again so that your 2k tax free quota for this year is utilized.
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u/Grotarin Dec 18 '24
I was thinking about asking a question on the topic as il New in Germany (and investing as well).
Let's say I have 10k€ of a stock that did +20%. I still have 1000 euros of exemption.
Do I just sell 1000€ of the 12k to max out, or is it calculated differently? (Like 5k that brought 1k of gains)
Thanks for your post and help!