Transcript

Our Guest: Daniel Hahnemann (CEO of Wundertax)

Jae:
[0:00] I have a confession! [What's that?]  I have not filed my taxes for the last two years, I think, since I moved to Berlin.

Manuel:
[0:08] Taxes, it's an important topic when you move to a new place.

Jae:
[0:11] Yeah.

Manuel:
[0:12] Jae, I have good news for you.

Jae:
[0:13] What?

Manuel:
[0:14] It's probably not too late to file those taxes. It depends. We'll learn a bit more about all of that in this episode. And today is a special episode. We have a special guest, Daniel Hahnemann. He's the co-founder of Wundertax, which started in 2016 as a way to initially help students file their taxes. And now it has a big focus on expats. You can file your taxes in Germany all in English. No need to learn any German tax vocabulary. And this podcast episode is sponsored by Wundertax. You can actually try it out for free and see what the amount of your tax return would be if you file it. And then if you do file it, you get a €5 discount on the app if you sign up through our link moving.wundertax.de and you'll find that link in the show notes. And now without further ado, our conversation with Daniel Hahnemann.

Death & Taxes

Manuel:
[1:22] Two things are certain in life. Death and taxes is what they say. Can this topic be fun or is it just always ... does everybody hate talking about this topic? You have to talk about it all the time, Dan.

Daniel:
[1:34] I have to talk about it all the time.

Manuel:
[1:35] You chose this as your life.

Daniel:
[1:39] Well, can taxes be fun? Solving taxes can be fun. Getting a bigger refund than you expected can be fun.

Manuel:
[1:47] That's true.

Jae:
[1:48] Paying your taxes.

Daniel:
[1:50] No, not that fun. but enjoying the Friday evening beer after you submitted your tax return, it tastes so much better. But no, it is ... like I'm not going to, you know, like ... taxes are pretty dry. But I think that's what makes it fun for us because taxes are so awful and people always are ... you know, you're the coolest at the party if you're saying, like: I'm a tax professional. [That's true.] [People have questions.] Yeah, no. It's a problem we solve, right? People are super happy once it's done. They're really thankful. Like, just today we got two compliments to the customer support team who were like: Oh my God, you guys saved me! So we get those compliments. People are happy, and that's what makes it fun.

Manuel:
[2:46] Also, before we get into the nitty-gritty of the German tax system and how it all works i just want to say that I do enjoy paying taxes. I do enjoy living in a society that has roads and hospitals and schools. And you know people are like, "I hate paying taxes," but I mean obviously there's a lot of waste and inefficiencies and a lot of things are not going well, ,but I would rather live in this society than in a society where it's just everybody fights for themselves and there's like no public interest. [America? No public interest?] You said it. I didn't say it.

Jae:
[3:20] I like the idea of paying taxes.

Daniel:
[3:27] The meta.

Jae:
[3:28] I like the meta. I'm all for that. I am still just taken aback whenever I receive, you know ... [The bill?] yes, the paycheck. I'm like: My salary was this, but this is what I'm getting. But I think, on principle, it makes sense. I'm all for having health care!

Manuel:
[3:49] That's a whole different discussion. Okay, well, we explained a little bit who our audience is to you, Daniel. A lot of people new to Germany, new to Berlin, planning to move here.

The German Tax System

Manuel:
[4:00] Can you give us a high-level overview of the German tax system? How does it work?

Daniel:
[4:09] Sure. Well, as in every other country, the tax system is ... Well, taxes are the primary source of income for the government. It's the same in Germany. And no, well, Germany has one ... with the difference being Germany has one of the proven most complicated tax systems worldwide. Their taxes, like ... And complications, subsidies, deductions, blah, blah, blah, for everything, and exceptions, what have you.The German tax system, the largest source of income is income tax, with about 26%, and about 20%-ish is VAT. And then you have the huge long tail of other taxes. So income tax, you get deducted every month. You have the privilege of getting deducted.

Jae:
[5:03] That's true, yes.

Daniel:
[5:06] It's the largest source of income for Germany, for the German government.

Taxation for Employees

Manuel:
[5:11] And you mentioned this. In Germany, the income tax gets deducted every month from your paycheck if you're employed, whereas in some other countries, in Switzerland, for example, you just get your salary with nothing deducted, and then once per year, you have to pay a big check.

Daniel:
[5:26] Which is wild to me. My dad's from the border of Switzerland, and when I talk to people about that, they're like: Oh, yeah, no, we have to save, and we don't know what we have to pay. And a lot of the ... Because it's done by canton, basically some of them are not digitalized, so they still have to hand it in by paper. [Oh, wow!] So it's really like a shot in the dark for them.

Jae:
[5:48] I would rather actually have it deducted each month than have like a bill at the end of the year that's like: Oh, shit!

Daniel:
[5:54] So, but like in Germany, how it works for most people is if you get employed every month, the Lohnbüro, the salary, the payroll office, they actually deduct a certain amount from your taxes ... from your salary. And how it works is, they say: Okay, let's say this month you get €3,000 gross. On a yearly basis, they take it times 12, and apply the percentage, and that's what you have to pay. Divide that by 12, and then you get the taxes deducted.

Manuel:
[6:34] But it's an estimation, essentially. It's not actual taxes. They're estimating this is what you're going to owe us at the end of the year, and we're going to deduct one twelfth of that. But in the end, we might be wrong. We don't really know.

Daniel:
[6:45] So let's say you quit your job, and then you only work ten months in the year. So actually, your income wasn't $36,000. It was $30,000. So you actually only pay taxes on the $30,000. But because during the year, the first ten months, you got deducted as if you would earn $36,000 for the year, the government actually owes you money, right? Because initially, throughout the year, they deducted too much. So that's where the tax return comes into play.

Jae:
[7:17] We love that.

Manuel:
[7:18] And even if you did work the whole year, because there's so many things you can deduct from your taxes, most people who are "just employed" [Yeah.] get money back, right? Like very few people have to actually pay more money at the end of the year.

Daniel:
[7:41] So, let's put it this way. If you didn't have anything crazy, you live close to work, you didn't move, you worked 12 months, your salary didn't fluctuate or anything, basically, you have the most vanilla life, the most vanilla year ...

Manuel:
[8:02] No judgment!

Daniel:
[8:03] You don't ... you wouldn't get anything back. But the thing is, there are so many different types of deductions, that normally you always get something back, so ...

Manuel:
[8:16] If you donate, for example, I donate to various charities and you can deduct that from your taxes.

Daniel:
[8:22] You can deduct that from your taxes. You need the invoice though. But for instance, also, if you live in a large apartment complex, you get ... every year, you get ... or basically every tenant gets like a bill at the end of the year, right? The Nebenkostenabrechnung, Betriebskostenabrechnung, [Yeah.] where like stuff, you know, the repairs ... Everything's listed.

Manuel:
[8:44] The cleaning, the garbage, the repairs ...

Daniel:
[8:46] If you live in a single house, rent that one, like there's not going to be that much, right? But if you live in an apartment complex, all the handiwork that was done, or the cleaning of the common areas, etc., those are all tax deductible. So even if you just live in a large apartment complex, you also get money back from the government because that's deductible. And it's... I mean, to get into the nitty gritty, it's 20% up until an amount of $1,200 of the cost, so that's deductible. And I guess, yeah, if you take up the sum of the parts, like basically everybody should do a tax return. And it's not that much work. Even if you see: Okay, I don't get anything back, then just don't submit it, right?

Manuel:
[9:34] So, okay, this is a good point. We're now in the topic of taxation for employees, right? If you just have a job, you get a paycheck, you get the taxes deducted every month, you just said everybody should do it, even if you don't file it. So it's optional to do your taxes?

Daniel:
[9:49] Well, it's optional, except for the ones for who it is ...

Manuel:
[9:54] Except for when it isn't!

Daniel:
[9:55] Except for when it isn't! Right, in principle, so there are actually quite a lot of reasons why you have to do it, so ... but the most obvious one is if you owe money, which is if you're a freelancer.

Manuel:
[10:10] Okay, let's ... but let's ... We'll keep the freelancers for the next section. [Yeah.] So if I'm not a freelancer, I'm just an employee at a company do I have to file my taxes?

Daniel:
[10:16] There are cases, yeah, there are cases such as, I mean if you had side income, if you haven't had a side hustle, if last year you had a negative, if you receive certain governmental subsidies ... what else? If  ... Actually the the most common reason is if the government asks you to. [Oh!] Like that happens. You get a letter and they're just like: We don't have a reason, we just want to check. Like that that happens a lot. Like I got that this this year ... well no, sorry, for the year before! [Funnily enough ...  !] [I just happened to have an app! It's okay, it's really okay, don't worry, I got this!] Exactly! No, but like it happens. Like people just ... the government the tax office just asks you, and that is ... I think that is probably one of the most common reasons why you have to do one.

Jae:
[11:17] But like generally, like let's say if you just moved here, you've been here for like a year and you don't really know like the systems. You're not like ... there's no like fear: Oh shit! I didn't do my taxes for this past year, or whatnot - asking for a friend! No one's gonna be like knocking on my door - or their door?

Daniel:
[11:33] No, no. You'll definitely get a letter. [Okay.] You'll definitely get a letter.

Manuel:
[11:38] If you need to do it. But that's the other thing. You should do it, and you still can do it, because you can do it up to four years. Because I used ... I'm not naming any names here, but I used to have a good ... I have a good friend, and we used to live together. And we made a deal once where she cleaned the apartment - we were sharing an apartment - and I filed her tax returns for the past four years because she hadn't done it. She got so much money back, it was really worth it.

Daniel:
[12:05] Was she a student?

Manuel:
[12:07] Yeah, she ... No, no, she was already working.

Daniel:
[12:09] Okay, because if you're a student, actually, you can go back seven years.

Manuel:
[12:12] Wow! I didn't know that.

Daniel:
[12:13] So the three extra years are to basically identify if you had a loss. So this is a whole different topic.

Doing Your Taxes As a Student

Manuel:
[12:23] Okay, let's go there, though. Why should I do my taxes as a student if I don't have an income, if I'm just studying?

Daniel:
[12:28] Well, that is the classic question. We started like that. So what we did was, when we were studying, my co-founder and me ... In Germany, you have these seminars by these guys in suits that sound super serious, but at the end of the day they just show slides that you should do a tax return as a student, but they don't tell you how.

Daniel:
[12:50] So what tax break exists, is you can actually deduct all the costs that you had as a student, from basically zero. You can say: It's a loss, I made negative income. And it gets massive. If you do an internship away from your home town you can - like, don't quote me on the number - but you can up to 90 days subtract ... or, you know, like you can subtract about, I think it was €20 per day for 90 days. So if you do an exchange semester in London, it's like €60 per day. So it's like ... It's a ruling that was made for people who go on business trips, if you have like an interview abroad, or something, or in a different town, that you can deduct that from your taxes. But you can also do it for your exchange semester for your internship etc. etc. So you can deduct all those crazy taxes ... all those crazy costs from your ... from basically zero income, and you have a loss. And that loss is a loss carried forward that you can then apply when you start working.

Manuel:
[14:04] So basically, philosophically, the government views studying at university as part of your job that you don't have yet. So you don't have the job yet, you're not making any money, but you're doing this in order to be able to get a job and make money, which you will pay income tax on, and so that's why the studies itself are tax deductible.

Daniel:
[14:26] Now here's another but: there was a ruling by the higher court that it only counts if it's a "second study" - that's the wording [Aha!] so if it's a master's [Yeah.] or if you did an apprenticeship before your bachelor's, or if it's a second bachelor's. Because they're saying like everything that you did in your first studies was all fun and games! [That doesn't count!]

Jae:
[14:52] "You were just tested!" ... ["So I studied ... !"] "Oh, you're not gonna go ... !"

Daniel:
[14:54] I mean you're laughing, but that's literally what the court decided! The court decided it was just like an exploratory phase, and the second studies are the ones that are actually ... [That's the serious ... ] [This says so much about Germany.] Yeah. ["No, no, don't ...  You can't just go study once, thats really not enough, you gotta go twice!"]

Jae:
[15:13]  Like, I believe that so much, that things, that makes it really ...

Manuel:
[15:19] Okay. Anything else we should know about ... [Students?] students?

Daniel:
[15:23] I mean, that's the thing, right? Like with the student tax return, is one of the craziest tax breaks you can get, like. Because most students are like: Oh I don't know, I don't ... I didn't pay anything, right? But actually, like if you go through the formula ... the form: massive deductibles.

Manuel:
[15:44] It doesn't feel urgent because you're not going to get that money back right away. It's not like you have minus zero negative income and then they just give you money. It basically gets put on hold, and then once you actually start working you get that money back.

Daniel:
[15:58] Well, you have to do a tax return once you start working.

Manuel:
[16:01] Right, and then you get...

Daniel:
[16:02] You have to, because you have a loss carried forward. If you have a loss carried forward, you have to do your tax return. But because ... Like let's say you deduct your master's abroad, it can go into the tens of thousands of euros, right? And then you start working, let's say ... let's take that €30,000 income. You deduct €10,000, you only have to pay taxes on basis of €20,000. You basically get half of all the paid taxes back - it's massive - in the first year.

How Deductibles Work

Manuel:
[16:33] By the way, now a quick interlude before we go into like freelancers and stuff. It took me a long time to understand the concept of what's deductible. [Yeah.] I mean, when I say a long time, I mean I was like 20 or something but I had already heard about taxes and deducting stuff from your taxes. The way it works - when you can deduct something, you know, for example a charitable contribution or your shoes that you bought for your work - the way it works is you earn a certain amount, you earn €30,000 per year, and now the charitable contributions, were €1,000. It's not that you have to pay €1,000 less [Exactly.] in taxes, it's that you deduct them, and that means now your actual income wasn't €30,000, it was €29,000, [Your taxable income.] your taxable income a,nd so you owe fewer taxes because your real income was lower, because the charitable contribution or the shoes or whatever doesn't actually count as income. [Exactly.] And that's how that works. It took me a long time. It's very simple, obviously, and everybody probably knows this, but it took me a while, so I just wanted to ...

Daniel:
[17:44] I couldn't have said it better. [All right.] That was spot on. There are different ... Like, just to add something maybe for the listeners: a rule of thumb is, if you spent money to get income - so basically the shoes are a great example - if you spent money to get income, that's normally tax deductible. So if you go for an interview and had to, you know, travel to there, that's definitely in it. Like a suit and a tie, those not. That was ... there's a ruling for that. But if you had to have like a special uniform that you had to buy for the job, if you ...

Jae:
[18:27] Like go buy like a laptop or something.

Daniel:

[18:31] A laptop. Pilots can actually deduct their Ray-Bans, their Aviators. I'm not joking.

Manuel:
[18:36] Yeah. So you really have to be open to this idea and really like keep it front of mind, because also if you apply for jobs, the postage, the ... [Exactly.] kind of in Germany ... I don't know if this is still a thing, but when I was young and applying for jobs, it wasn't digital; you sent these maps, these super expensive €5 kind of folders, and those you can deduct. The postage, books that you're reading about applying for a job or about the job, anything that you do because the end goal is to make money, is deductible.

Daniel:
[19:10] Exactly.

Manuel:
[19:11] And also, it's not illegal to try. Like, you can say: Hey, this book was really fun to read but it also has to do with what I want to do for work. Put it on your tax returns. They can still say no.

Daniel:
[19:22] So, and that's the main thing. Like, the tax office is never going to be like: Oh, you tried to deduct that book? Oh, you're going to have to pay! ["You're going to jail! You're going to go straight to jail!"] Like, that's never going to happen. Like that's what a lot of our users are afraid of. They're like: Oh my God! Like I mean, one expat, they renovated their kitchen, and for things like that you're actually - what I just said - you're allowed to deduct. This is not to get an income, to get a job, but like to make money. This is the Haushaltslage Diensleistung, so, jobs in your house, or close to your house ...

Manuel:
[20:05] If you're employing someone basically to help you with your household.

Daniel:
[20:07] Exactly. [Because that, also in retrospect, kind of helps you with your job because then you'd have to don't have to deal with your household so much.] Basically. But I think the main goal is to not pay people like, you know, [The black. Under the table.] ... the black, yeah. So, yeah, the thing is what happened is he tried to deduct his whole kitchen - his Ikea kitchen! -  and I just wrote him back like: Yeah, that's not gonna work. In general, we can't give ... we don't give tax advice. Like in general, it's the cost of the handyman, the service cost, that you can deduct, but not the kitchen itself, right? Where was I going with this? [Something unexpected happens.] Yes, something unexpected happened. Like he handed it in, and he was like panicky, and I was like: Look, there's like ... nothing's going to happen, right? Like you're not going to ... The tax office is just going to say no.

Manuel:
[21:07] Yeah, I mean, when I buy podcast microphones just because, you know, I really ...  It's also like, where's the kind of border between you need it for your job, and you want it for your job. [Yeah.] Like arguably, when you're a podcaster, one mic is enough, but maybe you're trying more mics because you want to try and see which one is best. You can put those on your tax return. At some point, the tax office might call you and ask, like: What are you using all these microphones for? Or they might just decide: Look, you know, five mics is enough. They can make those decisions. But as long as you're not lying, as long as you did purchase these things and you are using them for your job, you can put them on your tax returns. You can argue with them. [Exactly.] So. Okay. [Yeah.]

Taxation for Freelancers

Manuel:
[21:53] So now, with that out of the way: freelancers. [Yes.] I feel like as long as you're an employee, it's all easy and you do it once per year. And "It takes 17 minutes" is your slogan, is like what you're advertising. [Yeah.] It's pretty quick if you have an app like Wundertax. But if you're a freelancer, things get a little more complicated.

Daniel:
[22:17] Basically, yeah. I mean, if you're a freelancer, it goes much more into business taxes and accounting software ... accounting practices. So it does get more complicated, definitely. I think one of the starting points is actually to decide if you are a business, which is called a Gewerbe, or if you are a freelancer, Freiberufler, so selbstständig.

Manuel:
[22:43] Which is not something that you can decide. Like if in doubt, the default, let's say, is Gewerbe, is business. There are some specific professions, which can be Freiberufler, [Exactly.] freelancer. And you can ask them to essentially put you in that drawer, and they may say yes or no. And actually, like I just made this experience, because I'm employed but I was also developing a podcasting course, so I did the Anmeldung, I registered with the Finanzamt, I'm telling them: Look, I'm now starting this new business, I'm making an online course. And they said: Great. Here's your Steuernummer, your Tax ID, and you are now a Gewerbe, a business. I was like: I don't want to be a Gewerbe, a business, because it gets more complicated, it's easier to be a freelancer. And I argued to them that since I'm teaching this, it's really an educator type of role, and teachers can be Freiberufler, like it's possible to do it if it's an educational activity. And I was on the phone with them and they were like like: Well, did you study this? Because not everybody can just claim that they're teaching something.

Manuel:
[23:57] But if you studied this, then it's okay. And I was like: ["I just took a course!"] No, I did study this. I studied media production, including courses on podcasting. And they're like: Well, can you send me your bachelor's degree? And I was like: I sure can. I sent it, and they changed it. And so another learning that I made in the topic of taxes is, the Finanzämter, of all the Ämter, they're super approachable. [They are.] You can email them, you can call them and they are not your enemy. It's not like the Ausländerbehörde where it's sometimes you feel like they're trying to fight you. They want something from you. They want your money and they're happy to like answer questions. Or, you know, if you're not sure, don't lie to them. Ask them what the right thing to do is.

Daniel:
[24:42] I mean, basically, I would agree to you in so far, if your tax office is not in Berlin, because they're really overworked.

Manuel:
[24:54] Well, I've had pleasant phone calls.

Daniel:
[24:55] They're super approachable. Like, I mean, sometimes you can hear that they're stressed. Like if you're in the countryside, they like chat with you, talk about the weather and everything. But like, no, in general, they're not your enemy. They're definitely very approachable. They're super nice. If you have questions about your tax return, your refund, what's the status, they're all really happy to answer these questions. Like, I've never had a bad experience in terms of, yeah, like approachability or rudeness or anything.

Manuel:
[25:23] Okay, so you register as either a Gewerbe, business, or Freiberufler, freelancer. [Exactly.] And then what happens?

Daniel:
[25:31] I mean, you can ... Just a quick word to the Freiberufler: like, I mean, you have to look up, like, what you are. You can then try to get it or like what you did, call them. But, yeah, the standard is normally Gewerbe, that you are doing a business. If you are ... Like, I mean, a sort of kind of rule of thumb, if you're selling things, then you're probably a Gewerbe. Like if you're a consultant, for instance, and you studied business, then you're definitely, you know, then you can definitely go for like Selbstständigkeit or Freiberufler.

Jae:
[26:05] So like a service versus like a product?

Daniel:
[26:09] Exactly. Teaching. Teaching versus selling a course. That's kind of like the rule of thumb. So, if you want to go for a Gewerbe, or if you have to go for a Gewerbe, you have to register a business, basically. Gewerbeanmeldung, so you have to register, and then you get your Gewerbenummer, and then you get a tax ID, etc. And you basically have a new legal entity. It's still connected to you. It's not a company like a UG or a GmbH, but it's a business connected to your personal tax income or your personal tax return. Why would you want to have the Selbstständigkeit, or why did you want to have it?

Manuel:
[26:59] Freiberufler? From what I heard, it's because you only have to do your taxes once per year, and you basically have to submit a very simple table of all the income and all the expenses. So: I earned this on this day this on this day, like I wrote six invoices and I bought this microphone and this blackboard. And then you subtract those two things from each other and whatever is left is your profit or loss, and that's all they want to know. They want to see that table and they want to know did you make a profit or did you make a loss, and that's it.

Daniel:
[27:35] It's not that much different with Gewerbe, but you have to pay extra taxes and there are more steps. So you have to actually register your Gewerbe, but then you also have to pay extra taxes, which is the Gewerbesteuer, which means you also have to do an extra form, which is the Gewerbesteuererklärung. And then there are some other, like you know, admin stuff you also have to do on top of that, so it's definitely easier to be, you know, a Freiberufler, a freelancer in that sense.

Manuel:
[28:08] Maybe this is already really getting into the nitty-gritty but there's something called Kleinunternehmerregelung. [Yeah.] You explain what that is about.

Daniel:
[28:17] So Kleinunternehmer ... so you have to normally charge VAT, right? Like if you buy a product, if you buy a service, you always ... you normally pay VAT. But if you are a Kleinunternehmer, which literally means, you know, small entrepreneur, what happens is you can actually write an invoice without VAT, because it makes everything much easier. So when can you do that? If you have under €22,000 of yearly income through your Gewerbe or your Selbstständigkeit. So you don't have to actually charge this 19% VAT.

Daniel:
[29:04] And in the second year, if you think you're going to get €50,000, then you can ... or not more than €50,000 you can stay a Kleinunternehmer, so. But if you are going to ... In the second year, if you're going to go over the €22,000, so if you say like: Okay I'm going to be under €50,000 but I'm not sure how my business is going to go, and in the second year you get €23000, then in the third year you definitely have to start charging VAT. And that's where stuff gets complicated, because then you have to also do an Umsatzsteuer-Voranmeldung, which is, basically, during the year you have to tell the tax office how much you made in ... And this is, you have no control over it. The tax office tells you how often you have to pay VAT. It could be monthly, it can be quarterly, it can be a half year, yearly. So basically you have to then do that extra admin step as well. So if you have under €22,000 it's still not easy breezy, you don't have to do the ... you don't have to do VAT, you can ...

Manuel:
[30:19] You can just write an invoice and say: Hey, I'm charging you €100 and there's no VAT included because I don't owe tax. There's a little text snippet that you have to put on your invoices to clarify there's no VAT involved here, and so it's easier. I feel like this whole segment sounds very scary. What would you say to people who are like: Hey I'm a a freelancer, I'm an artist? There's also this special thing about Berlin, there's the freelance artist visa, so like what would you say to people who want to come to Berlin, be an artist, make money by selling their art, you know, maybe people have lots of ideas. [Yeah.] It sounds scary.

Daniel:
[30:56] It does sound scary, and I think each individual has to kind of decide for themselves how they want to do it. I think everyone who's below €22,000 is like ... It's not that hard. It sounds much scarier than it is, right? So if you're just starting out, you're expecting to get under €22 000 in income, like you can do it yourself. Like it's not that hard, it's more daunting than it seems ... [Yeah.] Than ... [It's actually the other way around!] Yeah, it seems more daunting! [That was a Freudian slip!] No, it is daunting, but like, you can do it. [Okay.] Once you get into that whole, you know, VAT stuff, then you have to kind of decide for yourself how comfortable you are with it, right?

Tax Advisors

Daniel:
[31:51] There's still the option of going to a tax advisor who, you know, you can ... every month, every quarter, you just give a shoebox of invoices and they do it for you. You can ... That is an option. It will cost you more money.

Manuel:
[32:04] And from what I hear, it's really difficult to find tax advisors these days.

Daniel:
[32:09] It is difficult to find a tax advisor these days, but ...

Manuel:
[32:13] Why is that? No more people choosing to study to become tax advisors?

Daniel:
[32:16] That's exactly it. It's actually quite hard to become a tax advisor in Germany because there's a special exam for it, which is not easy. You have to know all the laws and everything. You have to be able to quote them, etc. etc. So it's a thing in Germany, tax advice. Like you could even call it a tax lawyer, yeah. [Interesting.]

Jae:
[32:42] Interesting. Yeah, I kind of, I think, registered, I think that's like the ... [Kleinunternehmer Regelung.] That one, yeah, it was actually very easy to do. Like I just filled out something online, I sent it to the  ... [To whom?] [What?] What do they call it?

Manuel:
[33:05] Finanzamt?

Jae:
[33:06] Yeah, Finanzamt. I sent it to them and I got my, like, thing back in. Yeah, it was a very easy process to do. [Yeah.] So it's not as difficult as ... Like, I was scared as well, but it actually is very easy.

Daniel:
[33:17] Yeah. I mean, the VAT is not ... it's not crazy difficult either, but it just ... it gets more into that whole accounting thing. And the example of the freelance artist visa, I can imagine that they have better [Better things to do!] things to do than accounting, right? So, I mean, essentially, it's easy for me to say, but I do think ... It seems very scary, but once you get into it a little bit, it's not that hard. And you can always, you know, like call the ... okay you need to probably know German for calling the Finanzamt.

Jae:
[34:01] You're better off having to find a friend.

Daniel:
[34:02] Yeah, find a friend who will ask for you yeah, but like ...

Filing Your Taxes Yourself

Manuel:
[34:08] Okay. So apart from making use of a Steuerberater, if you do it yourself, can you still do it in paper form? My mom always did her taxes on paper. I don't think that's even allowed and [Very discouraged.] very discouraged. [It's very discouraged.] They do still have the the forms at the Finanzamt, like near the entrance, but I think there it's like it's ... you know, if you've done it, if you're 80 years old and you've done it your whole life that way, maybe they [Yeah.] allow it. [Exactly.]

Daniel:
[34:31] Like, I mean, I have an uncle who was very proud of the fact that he was still able to do it by paper, but he was ... he's also ... yeah, he's special. So like you have to, you know, jump through hoops to get the tax forms. [Yeah.] Like they don't send them by post to you anymore, for instance, so they strongly discourage it because, for obvious reasons, right, they don't want to ... it's just easier for them.

Manuel:
[34:56] But then the kicker is, you can do it online and it's called ELSTER [Yeah.] - that's the name of the official website where you can file your taxes - but the official website is really just the print ... like the the form ... it's as if they scanned the forms and they're like: All right, here's the form. ["We're progressive, we ... "] Yeah, it's not very ... I mean it's great that you can do it online, but they're not helping you. Like they're not in the business of explaining things to you, or guiding you through it, or telling you this is relevant for you or this isn't. [No.] It's just all the forms in digital form. [Yeah.] And so that's where your company, and a few others obviously, decided: Hey, let's make this easier. [Exactly.]

Wundertax

Daniel:
[35:41] That's the idea!

Manuel:
[35:44] So tell us about Wundertax. How did it start? Like how does it work?

Daniel:
[35:49] So basically, I was telling you about the student ... you know the student times, where [Mm-hmm.] the guys are trying to sell you insurances, so they tell you that you can do a student tax return, but but they don't tell you how to do it. So fast forward a few years, of course, I knew about the seven years back, so I didn't do the tax return. So once I actually started working and tried to do the first tax return, I was like: Jesus Christ, like ELSTER is ... ! Well, that was a bad experience. And basically, me and a classmate from university, we actually were thinking: Okay, why can't we build a better UX, a better user experience, for students. Because even if you looked at all the tax softwares that were ... all the commercial tax softwares that were helping, you know, with the user experience, none of them had one that was tailored to students. So what we did is we launched Studentensteuererklärung. It's a big mouthful, right?

Manuel:
[36:56] Very focused at expats who couldn't pronounce the name!

Daniel:
[37:01] But those ... So that was, I mean, that was in the Facebook era, right? Like we started posting like: Hey, we built this tool. We started posting this in Facebook groups and it went completely viral. And it was ... the numbers were fantastic, because all the students, they've all heard of it, right, because of those said insurance agents, but none of them actually did it. So it went really viral, we had great user numbers. And then we started ... we were like thinking: Huh! this, you know, target group approach, this target group strategy, like it kind of worked. So we rolled out, you know, a tool for police officers, for soldiers, we did teachers. But then at some point, when we did engineers' tax return, the engineers were like: Why is there a special tool for this? So we rolled out, you know, just  the generic one. Of course, we translated it into English, and the generic one was the one that really took off. And then we were like: Okay, we kind of need a name now. So we ... Studentensteuererklärung doesn't cover it,  so we did Wundertax. And yeah, we we got some investment in, we scaled it up, and yeah, now we're helping hundreds of thousands of people getting their their tax refund back.

Manuel:
[38:30] And so basically it's ... How does it differ from ELSTER? It's also online. You can do it on your phone - maybe that's one one of the differences - but you can also do it on the browser, on the web.

Daniel:
[38:39] Yeah. And so actually this is this is an interesting ... Actually we just had that discussion before coming here. We started with a web application, because we were always like: Nah, like taxes, you know, that's serious stuff; I'm not going to use my small screen, I'm going to use my big screen to do my taxes! And it's interesting, because if I meet people and tell them about that I do a Wundertax, they're all like: Oh, cool! Like 20% or something have ... or 10% to 20% have used it, even. We do not have 20% market penetration like I thought. We would be huge if we had that, right? But what I noticed was we kind of built it for our bubble, right. We built it for our our needs. And I do serious stuff like reading a contract or tax returns, I do it on my laptop, so we were always like: Okay, laptop, our web application is more important. But nowadays, like you know, [You do a contract on your phone.] Yeah, if you look at Gen Z, they do everything ... A lot of people don't even have a laptop anymore. They only have their work computer or something, you know. So we have an app. I would recommend our web app. In let's say two months, we're relaunching the app, so that's going to be exciting - but basically, so that was a bit of an anecdote. But to get back to your question why you should use Wundettax and ELSTER, is basically because, you said it yourself, ELSTER is just the paper forms put online, and you have to click through everything to find your ... you know, it's a kind of a Where's Waldo with your ... Which of these ... for which of these cells is actually applicable to.

Jae:
[40:42] Yeah.

Daniel:
[40:43] With our tool, it's more like, okay, we show you in easy ... first of all, easy language. You start off by saying: Okay, this is my name. Yes, I can do that. You type in your Tax ID, you type in, you know, just your basics, your address, etc. And then you go into your income. You just, you know, copy what you got from your payroll office. And then we do things in natural language, right? Like one tax deductible is the commute to your work, and we have a Google Maps integration so you just type ... in the first step you type in your address, right? And then the second step ... or the third step you type in the address of your work, and then it just shows you the distance and kilometers. In ELSTER you have to type in, you know your, like, how much was that? 30 cents per kilometer up until 20 kilometers times the number of kilometers. If you had over 20 kilometers, it's 37 - don't quote me on that - but like ... And we do all the calculations behind the scenes, right? You don't ... At the end of the process, so you type in all the stuff, and at the end of the process, you get the tax form, the complete tax form that we're going to submit to the tax office, and then you can see all the calculations that we did behind the scenes.

Manuel:
[42:08] While you're doing all this there's a little ticker in the upper left corner that shows you: Hey, this is how much money you're going to get back.

Daniel:
[42:14] Exactly.

Manuel:
[42:16] And so that's a nice little motivator to keep going!

Daniel:
[42:18] Yeah, you don't have to wait for the letter from ELSTER, the activation letter. You can just do ... So we actually use ELSTER as well.

Manuel:
[42:28] How accurate is that prediction though, of how much money you get back? Because you can't really decide. Like the Finanzamt is going to make that decision. [Yeah.] It's an estimate, obviously.

Daniel:
[42:36] It's an estimate. It's pretty accurate already. The only thing is, though, that we can't predict what is wrong. [Right.] Like the example of the guy with the kitchen, right? [Right.] Like obviously he had a huge, huge refund because our calculator thought the kitchen is going to be accepted. But our calculator doesn't know that it won't be accepted. [Yeah.] So the calculator, and the tool itself, it does check for mistakes. It does check for illogical stuff. But we had one case where somebody was super pissed because we showed him a huge refund, and then he said: Yeah, you overpromised. And then we actually looked at the case because hey, we're not perfect, there could be mistakes in there. But that person deducted their holiday, you know, their flight home from their taxes, and it was just like: Okay well, yeah, obviously it's wrong!

Manuel:
[43:41] And so how do you make money? How does it work?

Daniel:
[43:43] At the end of the process - it's actually very simple - we take a fee, a fixed fee of €34.99, and then you can submit your tax return. So the thing is like you can fill out everything already, and you can see your potential refund, and then you get into the payment page to activate the sending of the tax return.

Manuel:
[44:08] Yeah, that's important to point out. You can try this out and just do it and you don't have to pay anything. And then at the very end, if you decide: Hey, it says I'm going to get back €1,000, I'm going to do this, you submit. [Yeah.] That's when you ask for a fee, which if you sign up through our URL: moving.wundertax.de - it'll be in the show notes - you get a €5 discount. [Exactly.]

Tax Classes & The Future of Taxes

Manuel:
[44:29] So to wrap up, can we talk about the future of taxes? Like why does it have to be so complicated? Can't we just do like a flat fee on it? I don't know, 'cause it feels so ridiculously complicated. Can't we just get rid of the whole system? I mean, I know it would destroy your business, maybe you're the wrong person to talk to, but ...

Daniel:
[44:54] No, no, I completely ... Like it's a very philosophical question, right? Like I think ... I mean there's ... For instance, right now there's a ... I mean, I haven't been following it actively anymore, but in Germany, we have a lot of tax classes. So depending on if you have a child ...

Manuel:
[45:13] We didn't mention that. Can you explain what are tax classes?

Daniel:
[45:15] Sure. So basically with the tax classes, it really depends on your situation: if you're married, if you have children, etc. But there's actually one tax class where you can choose, which is the Tax Class 4 and the Tax Class 3 plus5. So 3 plus 5 is if one spouse works and the other doesn't or has a much lower salary, you can do 3 plus 5. And then there's also Tax Class 4, which is just where both people have Tax Class 4. So without getting into the details, the mechanisms are just different, but essentially you can choose whatever is better for you. And that is debated right now to get rid of, because ...

Manuel:
[46:01] It adds so much complexity. [It adds so much complexity.] It doesn't really make a difference in the end, right? It kind of changes how much money the government deducts each month, and so if you choose a combination of three and five, if one person earns more than the other you may have fewer deductions throughout the year, but then in the end, when you do your taxes it should all equal out anyway. It doesn't really change how much money you owe the government, really, that choice. Like you shouldn't stress too much about that choice, I feel like, because it's not like you actually lose money in the long run.

Daniel:
[46:36] I mean, there are edge cases where it's like an extreme difference.

Manuel:
[46:40] Mm-hmm.

Daniel:
[46:41] Like if, you know, somebody earns €200,000 and the other person has a mini job, then it does make a difference when choosing. But essentially, it just adds another layer of complexity. Out of six tax classes - okay, plus the tax class zero - but out of seven tax classes to have two or three of them basically doing the same thing, right? So there are, you know, efforts to simplify the tax system, there definitely are by the government, because they also know how complex it is, but there is a certain ... like I was saying, there's a certain beauty to the German tax system. It is very complicated, yes, but the German tax system also allows a lot of things to be be incentivized or disincentivized. For instance, when I lived in Amsterdam, the tax return in the Netherlands was super easy, right? You just ... everything's pre-filled, you just hand it in, you're done [Beautiful.] because there are not that many deductibles.

Daniel:
[47:46] But like in Germany ... my favorite example is moving. So if you move closer to your work, to your employer, you can deduct that move from your taxes, so the government actively incentivizes you to move closer to your workplace. That is not possible, there's no mechanism for that in the Dutch tax system, for instance. Problem, of course, is the German tax legislation is extremely badly taught and badly communicated. So everyone's like, after they've moved, they're like: Huh, I can actually deduct this, this is great, I get the money back! But nobody actually does that preemptively. Nobody's like: Oh, maybe I should move to my employer because that gets subsidized. So the mechanism, the beauty of it is there's a lot of things that can be influenced. It's a tool by the government to incentivize certain things - or disincentivize, such as smoking, there are huge taxes on that. But there are efforts to simplify it.

Daniel:
[49:04] I think also like technological advancement will be a big lever. I mean, we're already a huge improvement to the whole paper and the whole ELSTER thing. But I think in the future, it's going to be very interesting, especially if you think about ... I don't think there's going to be ever like an AI tax return where, you know...

Manuel:
[49:25] That you can trust, at least. I mean, it probably already exists, but you should take it with a grain of salt shaker. [Yeah!]

Daniel:
[49:30] No, just as an example, like I mean, the move as an example: even if it could read your bank statement and they see: Oh okay, you transferred money to a moving company, like you don't know if it's actually tax deductible because you don't know if you're moving to ... Yeah, so I don't think that kind of AI tax return will ever work. But there will definitely be a lot of AI enablement for tax advisors, ideally for the people working at the tax office to be like, okay ...

Jae:
[50:09] To make it easier for them, but not ... yeah.

Daniel:
[50:10] Exactly. Like the whole processing. [Yeah.] The other thing I do think could make ... how to make it easier for the consumer is ... I think there will be at some point like an integrated tax return kind of thing. So if you buy like a laptop from MediaMarkt or something, that there will be like a pop-up saying like: Oh, you bought a ... [Is this for work, yes or no?] Is this for work, yes or no, and then it gets automatically into ... Like that's what I mean with integration. There's like a data sharing that you can send it over to your tax software and then it gets saved during the year ... at the end of the year.

Manuel:
[50:53] I kind of already do that. Whenever I buy something - I don't do it for Amazon because on Amazon it's really easy to just go back through the whole year and look at what you bought - but everything else that I buy, if it's for work, I put it in a special folder that's already named Steuer 2023 and then I don't forget about it.

Daniel:
[51:12] Exactly. But just imagine that Amazon ... you know, those Amazon purchases get automatically categorized into it. So I mean it happens a lot for business because invoice recognition works quite well already. But for the private person, that doesn't exist yet. And I think there's a lot of progress to be made.

Resources

Jae:
[51:36] And I have one question. So let's say that I am a private person wanting to do things on the tax app. Are there any resources out there that can help educate people on the process as they're going through it? Because I mean, they might still have questions and stuff as they're using it. But like, what would you recommend?

Daniel:
[51:57] To read up on it! Yeah, like I mean we have a blog where we actually also try to, you know, make it a bit more understandable. Every year we bring out a pdf saying like: Okay, this is the new tax guide for for this year. Like we try to make it more entertaining, because we're still talking about taxes. Like nobody's gonna be like ...

Jae:
[52:22] Making taxes funnier!

Daniel:
[52:23] ... on their lazy Sunday, reading the tax guide, right! But all in all, I mean, follow us on our socials, there are always like little infographics where we're like: Okay, we're trying to keep people up to date about, you know ... last year there was the Energiepauschale where everyone got €300. I don't know, this year for instance, if you turn 18 this year you get €100 voucher for cinema for theater etc. We try to, you know, like educate people a bit more about these these financial topics and the changes that that happen in the tax world or just, you know, yeah, these admin stuff. [Yeah] So we try to make it more palpable. We post on these things on TikTok, on Instagram, everything yeah. I think financial education is super important, and I think everyone should follow it more, just look out for yourself. And it doesn't have to be boring, right? You don't have to 'study' it. [As you demonstrated by joining us here today. Thanks, Daniel.] Thanks a lot. [Thank you.]