With a loss carry-forward (“Verlustvortrag”), you can carry forward costs you had in one tax year to the next and claim these costs for tax purposes. Here we explain what you need to consider.
By the way: Loss carry-forwards can also result from special types of income such as capital gains or private sales transactions. In this case, the losses can only be offset against the same type of income.
In this article, we will only deal with the general loss carry-forward from high income-related expenses that can be offset against positive income without restriction.
Loss carry-forward: this is how it works
You make losses if your annual costs exceed your income or you have no taxable income at all. You can claim these costs in the coming year via a loss carry-forward - but only if they are income-related expenses (Werbungskosten).
If the tax office determines a loss carry-forward, you will receive a notice ("Bescheid über die gesonderte Feststellung des verbleibenden Verlustvortrags"). You can then declare the loss determined in this notice in your tax return in the following year and thus reduce your tax burden.
This means that a loss carry-forward is not being paid out by the tax office, but it will be taken into account in your tax return in the next year. To put it simply, the tax office remembers the amount of the loss carried forward and deducts it from your income when you next file your tax return. By this, your taxable income is reduced and you can expect a higher tax refund - provided that you paid income tax that year.
Example: Loss carry-forward explained
Tina had no income in 2020, but incurred income-related expenses of 1,500 euros. She carries these expenses over to the next year as a loss and therefore receives a notice from the tax office about the remaining loss carry-forward of 1,500 euros.
In 2021, Tina has more income than expenses. The loss of 1,500 euros from the previous year is now deducted from her income. This reduces her taxable income in 2021 and she has to pay less income tax.
Income minus expenses
Loss of previous year
If Tina could not take the loss into account in 2021 because, for example, she again had more expenses than income, then a loss would again be determined for 2021 and carried forward to 2022.
Losses carried forward for students
Students often have higher expenses than income during their studies and thus make a loss. By carrying forward losses, they can claim these costs later and thus save taxes when they start their careers.
However, a distinction must be made between initial and secondary education. This is because expenses for first-time studies are not considered income-related expenses, but rather special expenses that cannot be claimed as losses. Special expenses therefore only have an effect on taxes in the same year in which they were incurred and only if taxable income existed.
This is why normally only students in secondary education can benefit from a loss - because only then can the expenses be recognised as income-related expenses.
We explain the difference between initial and secondary education in more detail in our article "Tax return for students".
Determining losses retroactively
You can apply for a loss carry-forward in your tax return. You can have a loss determined retroactively for up to seven years, as long as you have not yet received a tax statement (Steuerbescheid) for the tax year. However, this period does not apply to the submission of the income tax return in general: you can only submit this retroactively for four years.
Please note that you cannot have a loss determined separately with Taxfix, but only with your tax return, i.e. retroactively only for the last four years. If you want to apply for a loss carry-forward for previous years, you can do so via ELSTER, for example.
What is a loss carry-back?
In addition to the loss carry-forward, there is also a so-called loss carry-back (Verlustrücktrag).
The loss carry-back corresponds to the loss carry-forward, but the loss is offset against the previous year and the tax burden is recalculated retroactively. This can lead to a tax refund.
A loss carry-back is rather rare. If your tax office determines such a carry-back in your tax statement, you have the option of applying for a loss carry-forward instead, if this seems more favourable to you. This is possible within the objection period.
Loss carry-forwards in the Taxfix app
If you make your tax return using the Taxfix app, you will be shown your expected tax result after entering all the data. If our calculation results in a loss carry-forward, this will also be displayed. Our app therefore automatically calculates and applies for a loss carryforward for you.
If you would like to claim costs from the previous year via a loss carried forward, you can also indicate this in the Taxfix app. Please note, however, that you will need the special notice of the tax office to be able to enter your loss.
In order to be able to enter the loss in our app, first indicate in the category "Income" that you have already received a tax statement (Steuerbescheid). Then you will be asked if one of your tax statements contains a special item. Please select "Loss carry-forward (Verlustvortrag)" and enter the amount of the loss certified by the tax office.
Loss carry-forwards when submitting several tax returns
If you want to claim loss carry-forwards, it makes sense to submit your tax returns one after the other and wait for the respective tax statement. This way, you can include the loss determined by the tax office in the subsequent tax return.
If you want to file several tax returns at the same time, you should not declare any losses in the returns until you have received a tax statement. However, a loss carry-forward is usually automatically taken into account by the tax office in the following year and does not have to be applied for separately. In case of doubt, you can contact your tax office and ask them to process the submitted declarations chronologically.