Taxation of a loan – How should you declare your private credit?

declare your private credit

Are you wondering about the tax advantages of declaring your private credit in Switzerland? Let’s take a close look at the tax aspects related to this approach. This guide offers you detailed insight to better understand how declaring your private credit can help you optimize your tax returns and potentially reduce your taxes.

How to declare your private credit to benefit from tax deductions

The trick to reducing your taxes with a private loan lies in how you report it. Understanding how to report your private credit can open the door to significant tax advantages. So what are the deductible items in the context of a loan?

When you take out a loan, you agree to repay a specified amount over a specified period. This amount is broken down into two main parts:

  • Borrowed capital, i.e. amortization;
  • the interest generated by the loan.

It is important to know that this interest is deductible from your taxes. To benefit from them, it is crucial to include them correctly when declaring your private credit. The interest on your loan have the effect of reducing your taxable income, which, in turn, can potentially reduce the amount of tax you pay.

Declare your private credit: Deduct the debt in addition to interest

Indeed, deducting the interest paid from your credit will allow you to reduce your income and deduct the amount of your debt, will reduce the amount of your fortune.

Less income and less wealth = less tax!

Here is concretely how to declare your credit in the software “ VaudTax » which is valid for taxpayers taxed in the canton of Vaud.

In the “Debt” section, complete the information requested by the software in the “Other private debts” tab. Here is a screenshot that shows you a concrete example of a declaration.

When you use the VaudTax system to declare your loan, certain key information is necessary to benefit from the tax savings related to your loans. Here are the details to provide:

  • The name of your creditor (either the bank, financial institution or private lender);
  • the address of the creditor;
  • an account number or that of the loan contract;
  • the total amount of interest you paid during the tax year;
  • the remaining amount of your debt as of December 31.

Once you have provided this information, the VaudTax software will guide you through the rest of the process to optimally declare your private credit.

Declare your loan: How to identify the amount of annual interest paid

declare your private credit

For effective tax management of loans, it is essential to know how much interest you pay each year. Indeed, in certain credit contracts, the separation between interest and repaid capital is not always obvious. We advise you to carefully review your loan contract. If you have any questions or need assistance, please do not hesitate to contact Lica for advice.

In addition, between January and March, your bank must provide you free of charge with a certificate of interest paid for the past year. If she fails to do so, do not hesitate to claim it at no additional cost. The procedures for obtaining this certificate are generally simple. However, if you encounter difficulties with your bank, Lica is at your disposal to help you with these procedures.

Is the tax saving important?

It is natural to wonder about the significant impact of declaring your private credit on your taxes. In reality, the savings made depend on several factors specific to each taxpayer. These criteria include tax rate, tax domicile, family situation and the amount of interest on your credit.

Regardless of the size of the reduction, declaring your loan is always advantageous. Even a small tax saving is beneficial and should not be overlooked.

For a precise estimate of the savings you could achieve, Lica is at your disposal to perform a free simulation. This personalized analysis will help you understand the potential impact of your situation on your tax savings.

The taxation of private credit VS that of leasing

declare your private credit

Let's take a concrete example: purchasing a vehicle with the choice between a loan or a leasing. Leasing certainly offers attractive rates, but it differs from private credit on one crucial point: its interest is not tax deductible. Thus, unlike private credit, leasing does not offer tax advantages linked to interest deduction.

It is essential to understand that leases are generally treated as rentals rather than loans. As such, they do not offer the possibility of tax deductions. By choosing a private loan, you become the owner of your vehicle upon purchase. In addition, you benefit from the tax advantage linked to the declaration of the interest paid on this credit, which can reduce your taxes.

Gain flexibility with private credit!

Choosing a private loan gives you more freedom. You manage everything, from insurance to the resale or rental of the car. On the other hand, leasing has constraints. It often requires specific insurance and limits your resale or rental options.

An additional advantage of private credit is the absence of additional costs in the event of excess mileage or early termination of the contract. These aspects are crucial and to be considered when choosinga private loan or leasing. An in-depth analysis of your needs and the conditions linked to each option will guide you towards the choice best suited to your situation.

Declaring your private credit – Our conclusion about taxation

Although taking out a private loan represents an additional financial commitment, it offers the advantage of being a competitive loan solution, with the possibility of deducting interest from your taxes.

However, many people neglect to declare their private credit, often due to lack of knowledge or fear of making mistakes. Sometimes even experts such as fiduciaries can omit this crucial step.

If you have any questions regarding the declaration of your private credit, our specialized team remains at your disposal 7 days a week to answer your questions. Do not hesitate to contact us for detailed advice; we will be happy to assist you.

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