How to save money on your tax return? – All our advice

Filing your taxes turns out to be a complicated process, especially if you're trying to do it without the help of one tax advisor professional. Additionally, the tax system in Switzerland is full of complexity, with each of the 26 cantons having their own tax laws and different tax obligations on income, wealth, inheritance and profits.    

At the end of this process, it is only natural that you ask yourself questions such as:

• Did I complete my tax return correctly?
• Have I done enough to optimize my tax obligations?
• What more could I have done to save taxes?

Saving taxes allows you to build up savings for a secure and comfortable retirement. Hiring a professional will help you optimize your tax return for the current year and save taxes.  

However, if you want to file your tax return without the help of a tax advisor, while saving taxes, read this article. Our team of experienced tax advisors shares important advice with you on tax planning taking into account Swiss tax laws.

In Switzerland, taxation is done at 3 levels: federal, cantonal and municipal, offering various possibilities for tax savings. Tax regulations differ from one canton to another. The amount of your taxes depends on several factors such as

• your income
• your heritage
• your foresight  
• if you are a tenant or owner
• your marital status
• your place of residence
• the number of children you have

With this in mind, we determine the expenses that can be deducted from taxable income and how you can build up your savings with minimal tax impact.

Deductible expenses in the context of foresight and insurance

Contributions to pillar 3a

To reduce your tax burden, private insurance or pillar 3a is the ideal solution. We already know that under Swiss income tax everything you earn is taxable. However, a large majority of people are unaware that Pillar 3a contributions can be fully deducted from taxes. By paying the maximum deductible on a 3rd pillar (currently CHF 6,883), you can considerably reduce your tax burden (up to CHF 3,000 per year). If you have private accident insurance or life insurance, you can also deduct the corresponding premiums from taxes depending on the canton of residence.  

Redemption in 2^e pillar or the pension fund or the professional pension (LPP)

Redemptions or additional payments into your professional pension fund (CP) can also be deducted from taxable income. Optional redemptions in 2^e pillar are useful if you have pension gaps. In this case, as you will not receive the maximum amounts once retirement age is reached, you can buy back years and pay them out on the 2nd^e pillar. Another advantage to this is the possibility of benefiting from a reduced tax rate when withdrawing capital

Good to know: In principle, the tax administration adds up the amount of withdrawals (from your CP assets, vested benefits and pillar 3a) made in the same year, including those made by the spouse, to determine the tax payable. Therefore, to limit the tax increase, we advise you to spread your withdrawals over several years rather than making them all at once, within the limits set by law.  

AVS contributions or 1^er pillar

In case of gaps in contributions AVS (old age and survivors insurance), these can be paid within five years and are also deducted from taxes.  

Tax savings in retirement

You can save taxes in retirement too, but the principle of tax optimization applies differently. To save on your taxes, you must first decide how you want to obtain payment of your retirement assets from your pension fund: in the form of capital or annuity. The capital payment with planned annual consumption is more favorable from a tax perspective. The annuity paid by the pension fund is taxed as income in its entirety. Capital payments, on the other hand, are taxed only once, separately from other income and at a lower tax rate.  

Some cantons grant an advantageous tax regime to other alternatives to the occupational pension.

It is always best to review your financial statements for your LPP plan with a seasoned financial advisor. Impact FE provides you with valuable advice on professional pension provision. Read our latest article on this topic.

Tax savings for property owners

If you own a house or apartment, you can deduct the costs of maintaining the home from your taxes.

Renovation costs are deductible either in the form of a lump sum fixed according to the age of the building (between 10 and 20% of the rental value for the Confederation and most cantons) or in the form of actual costs incurred. If the renovation work aims to maintain the value of the home or save energy or protect the environment, it is fully tax deductible. Some cantons are also more accommodating than others in accepting certain specific costs such as garden maintenance.

In the case of one mortgage, its amount is deducted from the fortune. What is also interesting is that mortgage interest can additionally be deducted from taxable income. It is therefore advisable to think about repaying your mortgage debt, as this would only increase your tax burden. On the other hand, it is important that the value of the debt is adapted to the level of income once retirement is reached. In the event of amortization of the mortgage debt requested by the creditor, indirect amortization or repayment via 3^e pillar is to be preferred. This will allow you to maintain a constant balance between mortgage debt and the amount of mortgage interest deductible from taxable income. For apartment owners, you can usually deduct amounts paid into the renovation fund from taxes.

For those considering sell their property, the tax on any capital gains will vary depending on the length of ownership. Sometimes it can be a good idea to wait a year to benefit from a lower tax bracket. For people who reinvest the gain in a new main home, a tax deferral may be requested.    

As for owners of an apartment or second home, the maintenance costs they bear are deductible. If you rent your accommodation, all costs incurred are deductible to the extent that they are linked to the acquisition of rental income.  

Deductible professional expenses

In Switzerland, there are many business expenses that can be deducted from taxes such as  

• travel costs between home and work (up to CHF 3,000 per year regardless of the mode of transport)
• meals outside (up to CHF 3,200 per year)
• the canteen or contributions by the employer (up to CHF 1600 per year)
• other professional expenses
• development and training costs

To benefit from this, it is important that you keep your receipts carefully, particularly for large amounts, and that you attach them to your tax return.

Tax savings in family relationships  

Child deductions

Swiss tax law provides for the deduction of a certain amount from your income to support your minor children. In addition, for children over 18, you can still benefit from tax rebates if they are still in training. Childcare costs by the family or nursery are also tax deductible within certain limits.

Taxation of married couples

Married couples or registered partners with two salaries often pay more taxes. For couples with more or less equivalent high incomes, the “marriage penalty” applies: the two salaries are added together for the calculation of the tax. The couple therefore suffers a greater tax increase than if they were taxed separately. The good news is that the Confederation provides a social deduction on income of CHF 2,600 for married couples, registered partners and single-parent families.

Estate planning

Another way to limit your tax progression is to make donations during your lifetime to your children who generally benefit from lower tax rates. This also allows, depending on the cantons, to limit inheritance tax if it is provided directly, for example in the canton of Vaud. In some cantons, there is a limit on the amount of donations to children that are tax-exempt (CHF 50,000). As with the withdrawal of the pension, it is recommended, under these conditions, to make donations spread over the life.

Other ways to reduce your tax burden

Donations: donations made to charitable organizations

Sickness or health costs: expenses paid by the patient himself, exceeding a certain percentage of income

In conclusion

As we've seen, there are many ways to optimize your tax burden:  

• by making redemptions from your pension fund. By doing so, you reallocate part of your savings from tax-exempt assets,  
• by contributing to the 3rd pillar and  
• focusing mainly on the terms of payment of your old age benefits, real estate or donations

By following these tips, it is therefore possible to have a significant impact on your tax bill. All it takes is careful financial planning to have a good vision.

If you have doubts and don't know how to take advantage of tax deductions and limit your tax progression, it would be wise to work with an experienced financial advisor like Impact FE.

We will carry out an overall analysis of your financial situation and your projects to guide your financial planning in a tax-efficient manner so that you can benefit from your savings and retire with complete peace of mind.

Contact us from now!