We delve into a topic of great interest to many: how to reduce your French income tax burden, even if only by a small margin. While there’s no magic solution, every little reduction counts!
Who Can Deduct Expenses from Their Income Tax?
Primarily, only French tax residents can benefit from tax reductions, credits, or expense deductions from their taxable income. Non-residents typically don’t have access to these mechanisms unless they meet the criteria of “Schumacker non-residents.” These individuals, residents of an EEA country, derive 75% of their worldwide income from French sources and lack tax reduction mechanisms in their country of residence.
Understanding Deductions, Tax Reductions, and Tax Credits
Before delving into deductible expenses, it’s crucial to grasp the distinctions between deductions, tax reductions, and tax credits. Deductible expenses diminish the taxable base of income tax, reducing the amount subject to taxation under the progressive scale. Tax reduction involves a sum subtracted from the final tax due, without refund if it exceeds the tax owed. Conversely, tax credits also reduce the final tax due but are refundable if they surpass the tax owed.
Deductible Expenses from Income Tax
Frais Réels and 10% Deduction: Employees, company managers, and retirees enjoy an automatic 10% deduction from their salaries or retirement pensions, reflecting professional expenses. However, employees have the option to choose “frais réels” if they find it more beneficial. This entails declaring actual professional expenses such as travel and meals.
It’s worth noting that the deduction is capped at €13,522 for employees and €4,123 for retirees. This provision offers flexibility for individuals to optimize their tax situation by either taking the standard 10% deduction or opting for the frais réels method to accurately account for their professional expenditures.
Family Support: The Civil Code in France stipulates an obligation to provide support to family members in need. Consequently, you can deduct from your taxable income the amounts disbursed to specific family members, depending on their circumstances.
- Parents and Grandparents: The deductible amount varies based on the needs of the recipient. You can deduct the actual amount provided or opt for a lump sum deduction of €3,786 per needy ascendant residing under your roof, without requiring justification.
- Adult Children: Assistance extended to adult children is deductible up to €6,368 per annum.
It’s essential to retain documentation proving the actual disbursements, whether in monetary form or in kind.
Alimony: Alimony paid for minor children you do not have custody of or for your former spouse is deductible from your taxable income.
Deductible CSG (Contribution Sociale Généralisée): A portion of the CSG paid on the previous year’s income can be deducted. While this amount is typically prefilled in box 6DE of your 2042 form, it’s advisable to verify it for accuracy.
Retirement Savings: Certain retirement savings products offer deductions for contributions made during the fiscal year. These include PER, PERE, PERCO, PERP, among others. A deduction limit is computed annually based on your income and automatically carries over for the subsequent four years. Look for this information at the bottom of your tax assessment notice under the “PLAFOND EPARGNE RETRAITE” section.
Losses from Certain Activities: You can deduct losses incurred in other activities from your total income. Professional losses from BIC or BNC activities, as well as a portion of rental income losses, are deductible from your total income. Non-professional losses can be offset against income of the same category for a period of six years.
These deductions offer avenues for reducing your taxable income and potentially lowering your overall tax liability. Remember to maintain proper documentation to substantiate your claims and consult with tax professionals for personalized advice tailored to your circumstances.
Tax Reductions
Donations: Contributions made to associations or organizations of general interest offer a tax reduction of 66% of the donation amount, up to a maximum of 20% of your taxable income. Any surplus can be carried forward for up to five years. This provision encourages philanthropy by allowing individuals to support causes they care about while reducing their tax burden.
Schooling Expenses for Children: Taxpayers with children enrolled in school are eligible for fixed tax reductions based on their educational level:
- €61 for middle school
- €153 for high school
- €183 for higher education
These reductions provide financial relief to families covering educational expenses for their children. It’s important to note that only specified schooling expenses qualify for tax deduction or reduction, as outlined above.
Tax Credits
Childcare Expenses: Taxpayers with children under 6 years old as of January 1st of the tax year qualify for a tax credit for childcare-related expenses. This credit amounts to 50% of the amounts paid, up to €3,500 per child per year, resulting in a maximum tax credit of €1,750 per child annually. Eligible expenses may include costs for a nanny, daycare, or leisure center, providing valuable support to families with young children.
Employment of a Domestic Worker: Employing a domestic worker for home services, such as housekeeping, gardening, childcare, or tutoring, enables taxpayers to claim a tax credit of 50% of the total cost. This credit is capped at €6,000 per tax household per year, based on expenses up to €12,000 annually. This credit acknowledges the contributions of domestic workers while providing financial relief to households availing of their services.
Installation of an Electric Vehicle Charging System: Taxpayers who install an electric vehicle charging point in their primary or secondary residence between January 2021 and December 2025 qualify for a tax credit. This credit amounts to 75% of the expenditure, up to €300 per charging system. Encouraging the adoption of environmentally friendly practices, this credit incentivizes investment in electric vehicle infrastructure.
Real Estate Investment Tax Credits: Certain real estate investments offer tax credits calculated based on the total investment amount. These investment schemes, including Denormandie, Pinel, Malraux, and historical monuments, provide tax incentives to individuals investing in designated real estate projects. These credits aim to stimulate investment in specific sectors while promoting preservation and revitalization efforts in historical areas.
While this overview isn’t exhaustive, it covers the primary deductions, reductions, and credits commonly utilized. For further assistance with your income tax return or inquiries on this topic, don’t hesitate to reach out to us—we’re here to assist you!