Legally reducing your tax: the most effective strategies

'10 tax tips for your tax return' — lists like these mix the trivial (commuter allowance, a tradesperson's invoice) with real levers and rank both side by side as equals. For someone in the top tax bracket that is the wrong resolution. The relevant question is not 'how do I get €200 back', but 'how do I legally restructure a five- or six-figure tax burden'. This article ranks the strategies by exactly that yardstick — the actual leverage for high earners, employees on a high income, the self-employed and business owners.

Why most tax tips don't move the needle

Three terms help separate the wheat from the chaff. First, the size of the lever: does it move a few hundred euros or a substantial share of your taxable income? Second, the type of effect: are you merely shifting tax into the future (deferral), reducing it permanently, or building a real asset along the way? Third, the prerequisite: does the lever work with your type of income? Many of the most effective instruments require business income — that is, income from a trade, self-employment or agriculture. Anyone who earns only employment income has to create that access structurally first.

By these three criteria the ranking is clear. Levers that move a lot, build a real asset and repeat year after year sit at the top. Levers that are reliable but small sit at the bottom — they belong in every tax return, but they don't decide the order of magnitude.

1. Entrepreneurial real-asset investment with §7g EStG

The strongest legal lever for high earners is the entrepreneurial direct investment in a depreciable asset — such as a large battery storage system or a photovoltaic plant — combined with the investment deduction (IAB) and the special depreciation (Sonder-AfA) under §7g EStG. The reason for first place is the order of magnitude: IAB (50 %), Sonder-AfA (40 % on the reduced base) and declining-balance depreciation together deliver more than 70 % of the investment volume as depreciation in the first year — at a 47.5 % top tax rate that equals a tax relief of around 40 % of the deployed volume, pulled forward into year one. No pure deferral lever reaches this force.

The second reason is the type of effect. You don't just save tax — you end up holding a real asset with ongoing revenues, not an insurance policy or a deferral effect that reverses later. The exact mechanics — IAB in the prior year, Sonder-AfA and declining-balance depreciation in the acquisition year, with a worked €300,000 example — are broken down step by step in IAB under §7g EStG: example calculation for battery storage.

Who does it work for? §7g requires business income — and the actual leverage arises because the investment is held in a tax-transparent structure: the IAB and depreciation then work directly against your personal top tax rate, not against a lower corporate rate. The self-employed and business owners with business income already have this access. And employees? They can use the lever too: the holding itself creates its own business income, against which the IAB and depreciation work. Which structure is the right one, and how the resulting loss offsets against your other income, is a question for the individual case that your tax advisor clarifies up front.

Two further aspects make the lever attractive. First, the equity: because a substantial part is carried by bank financing and the pulled-forward tax refund, the effective equity outlay often sits in the low single-digit percent of the nominal volume — the calculation is in How much equity is actually required?. Second, repeatability: the IAB can be formed afresh every year, so a diversified portfolio of holdings is built over several years — how that works is shown in Using the investment deduction every year: building a portfolio over multiple years.

2. Property depreciation

Property was the standard tax-saving model of German private investors for decades. The most effective levers are listed-building depreciation (§7i/§7h EStG) on the renovation share of heritage-listed objects, the special depreciation for new rental housing (§7b EStG) and the declining-balance residential-building depreciation (§7 (5a) EStG, 5 % declining for new builds started within the eligible window). The principle resembles strategy 1: high depreciation in the early years, tied to a real asset.

The maths has shifted, though. Listed-building and new-build special depreciation are capped in volume and scarce on the supply side; residential yields in attractive locations are often below 3 %; and the operational burden — tenancy law, maintenance, regulatory intervention — keeps growing. For many high earners property remains a sensible building block, but it delivers a smaller early tax effect per euro deployed than the §7g structure. Who is it for? Those seeking a real asset with a long horizon and active management who can keep larger amounts tied up.

3. Pension provision with immediate deduction

The basic pension ('Rürup') allows a special-expenses deduction up to a five-figure ceiling (2025: around €29,300 for single filers, double for jointly assessed couples; adjusted annually) — fully deductible since 2023. For employees there is also the company pension via salary conversion, which stays free of tax and partly of social-security contributions within the limits. Both levers are at heart a shift: you save today at a high marginal rate and tax the pension later — typically at a lower rate.

Strength: reliable, predictable, accessible to almost anyone on a high income — especially for the self-employed without other provision. Weakness: capped and tied up long term (payout only in retirement, no access to the capital beforehand). A solid foundation, but not an instrument for noticeably lowering a six-figure tax burden in a single year.

4. Investments & profit timing in your own business

Anyone running an active business has several levers inside their own company. The IAB and Sonder-AfA under §7g also apply to operationally necessary acquisitions (machinery, vehicles, IT). Low-value assets can be written off immediately, larger ones on a declining basis. The cash-in/cash-out timing of the income-surplus accounting lets you smooth profit between years. And the retained-earnings relief (§34a EStG) allows profits left in the business to be taxed at around 28.25 % instead of your personal top rate.

5. Corporation & holding structure

Anyone who does not draw profits but wants to reinvest them can lower the burden structurally via a corporation. In the GmbH, profits are taxed with corporate plus trade tax of around 30 % combined — instead of a personal marginal rate of up to 47.5 %. In a holding structure (a holding GmbH above an operating GmbH) the participation exemption of §8b KStG applies on top: dividends and capital gains between corporations are around 95 % tax-free. That makes the structure strong when profits stay within the group and keep working.

The flip side: the advantage exists only as long as the money stays in the company. On distribution to you privately the second layer of taxation follows (flat withholding tax or partial-income method). On top come formation, advisory and ongoing administration costs. Who is it for? Business owners with substantial, durably retained profits and a long horizon — not a solution for a quick effect in a single year.

6. Optimising investment income

At the level of investment income there are reliable if limited levers: fully using the saver's allowance (€1,000 for singles, €2,000 for couples) via an exemption order, actively using loss-offset pools, applying for the favourability check (if your personal tax rate is below 25 % — rarely the case for high earners) and distributing allowances within the family. For top earners this level usually moves modest amounts, but it costs nothing and should be taken.

7. Small, reliable levers

Finally the levers that belong in every tax return but don't change the order of magnitude:

• Donations as special expenses (deductible up to 20 % of total income).
• Household-related services and tradesperson services (§35a EStG): 20 % of labour costs, up to €4,000 or €1,200 a year.
• Energy-efficient renovation of your own home (§35c EStG): 20 % of costs over three years.
• Spousal income splitting and the full claiming of provision expenses.

These levers are safe and risk-free — but they save hundreds to a few thousand euros, not five-figure sums. They are the foundation, not the strategy.

How to choose — and what the strategies have in common

Three questions lead to the right combination. First: do you have business income — or can you create that access via an entrepreneurial holding? That decides whether the strongest levers (1, 4, 5) are open to you at all. Second: what time horizon? Pension provision and a holding tie up capital long term, while the §7g investment works immediately. Third: do you want only to defer tax, to reduce it permanently — or to build a real asset along the way?

What the strongest strategies have in common: they combine a high tax effect with a real asset — they are not a pure deferral that reverses later. That is exactly why the §7g investment ranks first for high earners: it delivers the largest early effect and, at the end, an asset with ongoing revenues. In a non-binding first call we map out which levers fit your income and income-type situation — and work the §7g structure through on your concrete numbers.