Saving tax as a high-earning employee: the §7g lever alongside your salary

Senior employees, division heads and board members pay up to 47.5 % tax on every additional euro of salary, bonus or share-based pay, withheld with every payslip before the money even arrives. At the same time, the strongest investment instrument in German tax law, the investment deduction (Investitionsabzugsbetrag, IAB) under §7g EStG, seems not to exist for them at all: it requires a business, and an employee does not have one. That is where most guides stop. The complete answer is different: an energy direct investment establishes that business, and the resulting loss is offset against the salary. How that works, in order.

Why is so little left of salary and bonus?

Because employment income is the most seamlessly taxed type of income there is. Salary, bonus and share-based pay are income from employment (§19 EStG); wage tax is withheld monthly at source, with no decision of yours in between. From around €68,000 of taxable income the top rate of 42 % applies, from around €278,000 the surcharge rate of 45 %, each plus the solidarity surcharge; at the top, around 47.5 %. A €50,000 bonus shrinks to around €28,000 net at the top rate. Unlike for a business owner, the tax does not arise with the assessment notice but with every payslip; what you can negotiate is the gross, not the deduction.

Why do the usual tax tips for employees barely help?

Because they fail on order of magnitude. Work-related expenses above the lump-sum allowance, household services, the commuter allowance: those are amounts in the hundreds to low thousands, set against a five- to six-figure annual tax bill. The serious instruments are pension instruments: the Rürup base pension allows a five-figure special-expenses deduction, and occupational pension contributions remain tax-free within tight caps. Both are, at their core, a deferral into retirement, not a reduction of the running burden, and both are capped. The portfolio does not help here at all: investment income runs in parallel under the flat withholding tax and lowers your taxable employment income by not a single euro. Where the individual strategies for high earners rank by effect is set out in Legally reducing your tax: the most effective strategies; the gap at the top is filled there by an instrument that requires a business: §7g EStG.

Can I use the investment deduction at all as an employee?

Yes, as soon as you have a business of your own, and that access is something you can create. The investment deduction allows up to 50 % of a planned investment to be deducted for tax before it is made; but it attaches not to your employment status, rather to a business with profit income whose profit in the year of formation does not exceed €200,000. Employment income is not profit income; an employee without a business therefore does not meet the basic requirement. An energy direct investment changes the starting position: you found a business of your own, typically a sole proprietorship, which acquires and operates a battery storage system or a photovoltaic plant. This business generates profit income, it starts without legacy profits, its profit cap is reliably met, and your salary does not count towards that cap. How the IAB works in detail is shown in The Investitionsabzugsbetrag explained simply: how the IAB works; all requirements are covered in Investitionsabzugsbetrag: all §7g EStG requirements, and who can use it.

Is a business on paper enough?

No. The business must be set up in earnest: with an intention to generate profit and a robust, documented investment plan that promises a total profit over its lifetime. A trade that only seeks the tax saving and never invests does not survive scrutiny by the tax office; the IAB is then reversed retroactively, with interest. In an energy direct investment, that earnestness is built in structurally, because at the end stands a real, electricity-producing asset with long-term revenues. What the tax office uses to measure the intention to generate profit, and where the line to a hobby activity runs, is covered in Liebhaberei and profit intention: when the tax office cancels the tax lever.

How does the tax relief arrive against my salary?

Through loss offsetting in your income tax return. The IAB, special depreciation and declining-balance depreciation deliberately produce negative income from a trade or business in the investment business's first years. These losses are offset in the same year, without any cap on the amount, against your income from employment: your taxable income falls, and the wage tax already withheld is refunded with the assessment notice. The monthly deduction you had no influence over thus becomes a refund whose size you have shaped. If the loss in a given year exceeds your salary, the remainder is not lost but carried back into the previous year; the stages and their limits are explained in The loss created by an investment deduction (IAB): offsetting it against salary, carrying it back and carrying it forward.

If you do not want to wait for the notice, the relief can be brought forward: negative income from a trade or business can, on application, be entered as an allowance in the monthly wage tax withholding (§39a EStG); your monthly net pay then rises immediately, instead of the refund arriving in one sum after the assessment. Whether the application is worthwhile in your case is for your tax advisor; with profit income alongside a salary, a tax return has to be filed anyway. Where the IAB and depreciation are entered in it is shown in The IAB in your German tax return: where and how to actually claim it.

Does the investment become a second job next to the real one?

No. The direct investment is deliberately set up as a passive capital and tax structure: professional asset management handles the technical and commercial operation of the plant, from direct marketing of the electricity through maintenance and insurance to the annual reporting for your tax return. Your time commitment concentrates on the decision phase: project selection, financing, subscription. How that path runs from the first conversation to closing is shown in From first enquiry to closing: how a direct investment works step by step; what happens after closing across a 20-to-30-year term is described in What happens after closing: reporting, asset management and why a partner is not a broker. Nor does the financing have to come entirely from savings: energy projects are typically 60 to 75 % debt-financed through the asset itself; how bank loans and development loans can be combined is shown in Financing a direct investment: bank loan, KfW 270 and the pitfalls.

What does it deliver in concrete tax terms? The worked example

Starting position: an employee with taxable income of €200,000 from salary and bonus, marginal tax rate 44.3 % including solidarity surcharge, without church tax. She invests €300,000 in an energy direct investment that acquires a grid-scale battery storage system; the IAB is formed in the year before acquisition, special depreciation and declining-balance depreciation apply in the year of acquisition:

A good 40 % of the investment volume flows back as tax relief in the first year in this constellation; the individual positions and the pitfalls behind them are broken down in IAB under §7g EStG: example calculation for battery storage. Thanks to project financing, the actual equity commitment is far below the nominal amount; how tax refund and debt financing net out to the effective commitment is shown in How much equity is actually required?. Whether special and declining-balance depreciation are taken in full in year one or stretched is a question of individual tax planning; the trade-off is covered in Sonder-AfA §7g (5) vs. declining-balance AfA §7 (2): which combination, when?.

What applies to board members, employed managing directors and married couples?

For board members and employed managing directors, nothing changes in the mechanics: board remuneration and bonuses are employment income too, and access to the §7g lever runs through the investment business of your own. Anyone who additionally holds a stake in the company faces one more trade-off, namely whether to invest privately or through the company; that is covered in Saving tax as a business owner or managing director: the §7g lever alongside your company. For jointly assessed married couples, the loss works against the joint taxable income; the business can sit with one partner while both incomes benefit from the offset. For doctors, lawyers and other professionals with a practice or firm of their own, a different starting position applies, covered in Saving tax as a physician or dentist: the §7g lever alongside the practice and Saving tax as a lawyer or law-firm partner: the §7g lever alongside the firm.

One thing deserves a look: the employment contract. Many contracts require secondary activities to be disclosed or approved. A passively held direct investment without operational involvement is usually uncritical, because the operation of the plant sits with the asset management; when in doubt, disclose it anyway, and anyone subject to compliance rules as a corporate officer clarifies the question up front. For tax purposes the point is irrelevant; under employment law, disclosure creates clarity.

How does this fit bonus years, job changes and severance?

Well, because the IAB can be dosed anew each year. Employee incomes at the top fluctuate more than they appear from the outside: a large bonus, a share package vesting, a move with a signing bonus. The IAB can be formed deliberately in such years and skipped in quieter ones; over several years this can grow into a diversified energy portfolio, a strategy described in Using the investment deduction every year: building a portfolio over multiple years. The biggest special case is severance pay: it meets the top tax rate in its year of receipt, and an IAB formed in the same year works directly against that. How the one-fifth rule and the IAB can be combined is shown in Investing a severance payment tax-efficiently: the fifth rule, the IAB and the energy investment; a first impression of the magnitude is given by the severance calculator.

Whether the structure fits your situation depends on income, liquidity and life planning, and on a project that is viable even without the tax effect. That is exactly what we examine in a no-obligation initial consultation: tax effect, effective equity commitment and project risk, talked through on your numbers and in coordination with your tax advisor. We make no return promises in doing so.