Save taxes on stock dividends – this is how it works

• Accumulations are a popular form of investment
• Adding distribution funds leads to tax savings
• Make the most of the savings allowance each year

Accumulating stock funds are a popular investment vehicle. Dividends are not paid out to investors; instead, they are automatically reinvested in the same fund shares – thus reinvested. By reinvesting the income, the portfolio value increases by the amount that would otherwise have been distributed. The resulting compound interest effect can significantly improve the performance of the investment.

Use exemption order

But from a tax perspective, it can also make sense to rely on distributing funds that regularly pay out the income generated. This is due to the fact that you can apply for an exemption order of up to 1,000 euros for individuals and up to 2,000 euros for married couples.

However, these amounts are only valid for one year and cannot be carried over to the next year or collected for even longer. In order to make the most of the savings allowance, it may be worthwhile to rely on distributing funds or ETFs to the extent that the assets in this distributing fund are so high that the distributions exceed the exemption amount.

Case study

Assume that a saver earns dividends of 1,000 euros every year with an accumulating fund, which are reinvested so that the fund value – without taking price increases into account – increases by this amount every year.

Over a period of ten years, the fund value increases by a total of 10,000 euros. If the fund is then dissolved, a one-off savings allowance of 1,000 euros will be deducted from this 10,000 euros. The remaining 9,000 euros are taxed at at least 26.375 percent (capital gains tax plus solidarity surcharge), meaning 2,373.75 euros must be paid to the tax office. In certain circumstances, church tax may be added, and the tax burden is even higher.

However, if the money had been invested in a distributing fund, the 1,000 euros per year would be within the scope of the saver’s flat rate. In this case, no tax would have to be paid at all.

Smart combination

So if you receive annual dividend payments of over 1,000 euros, it may make sense to combine distributing and accumulating funds so that you receive distributions every year exactly in the amount of the saver’s flat rate. In this way, the savings allowance is optimally utilized and you can save a lot on taxes and ultimately sustainably increase the net return on investments.

Editorial team finanzen.net