When signing a credit contract, the borrower commits himself to pay each month a fixed amount. This cost depends on the loan borrowed, the repayment duration, and interest rate. Yet, this amount can be split into two distinct parts:
If this split isn’t explicitly noted, it is nevertheless relevant. Indeed, the total amount of interest paid during the year can be deduced from the taxable income. In some case, this deduction can lead so significant savings.
Legally, taxpayers have no obligation do declare their borrowing. However, it is strongly advised to do so: this declaration has no drawback and saves money on taxes.
Usually, the money lender (bank or financial institution) sends the interest certificate every year in january. The deduction can made directly on the tax declaration, which should be sent with a copy of the interest certificate. If the lender forget to send this document, it is possible to ask for it normally without cost.
Legally, it is possible to deduce every paid interest related to a debt. This includes, among others, the following:
Leasings are sometimes regarded -wrongly- as a type of loan. Is is important to know that leasing costs are not taxe deductible.
In Switzerland, taxes are subject to scales of contribution. The amount saved will depend on the customer’s situation (income) as well as the amount of paid interest. For example, a 20,000 Chf loan over 24 months can represent a total interest paid of 1,200 Chf fot the first year. On average, a 1,200 Chf income deduction can lead to a saving of roughly 120 Chf!.
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Article written by Multicredit.