Step 64: Tax Planning

Step 64 of the 100 steps to financial independence: Tax Planning
Step 64 of the 100 steps: Tax Planning

Wow okay, I know, tax planning might sound even more boring or complicated than our previous “introduction to taxes”. But what’s the point knowing about taxes if you don’t use that information to your advantage? And if you think that tax planning is again for the rich and famous only, you’re wrong … Most legislations are designed is such a way to even give the ordinary man and woman some tax relief in certain areas. You should use those as that is what they are for.

Now let’s start with the single most important first requirement for this step: never, ever, not in a million years avoid paying taxes or try to mislead the tax authorities. Don’t ever even think of it. The tax authorities are smarter than you and you’ll end up in jail and that is NOT worth the extra money you might be getting or think you might be getting. Besides that, it’s morally wrong. Just don’t do it.

Good, now that is sorted, let’s have a look at some very basic tax planning principles you might be able to apply to your own life, that might help you save some bucks.  Just keep an eye on that fine line between tax planning and tax evasion though as if you get carried away with it too much, you might end up on the wrong side of that line. Continue reading

Step 63: An Introduction to Taxes

Step 63 of the 100 Steps to Financial Independence: An Introduction to taxes
Step 63: An Introduction to taxes

So you might have thought pensions and insurance sounded boring. Well then taxes sounds probably even more dull to you..Yet in order to manage your money well and plan for a secure financial future, you need to have at least a basic understanding of taxes. And with basic I mean a little more than just, “yeah I know the government takes out some money on whatever I earn”. Eh… right, but that’s not enough to use that information to your advantage.

In this step we will look at a quick overview of the various taxes that you are most likely liable to at the moment or potentially in the future. Every country varies tremendously in terms of which taxes apply, how high they are, whether they have a flat rate or a scale and what the exclusion terms are. This step is therefore only meant to provide an overview of possible taxes around the world: you’ll have to do some work afterwards yourself and find out the rates for your country or state.

Taxes are of course meant to fund the main expenditures of the government, such as national security (police and army), infrastructure (roads and sewage), legal system, health care, education system and also to pay anybody working for the state. Now let’s look at the most common taxes that exist:

Income tax

Income tax is charged on the income of individuals and companies. Many countries use a scaled tax system in which the more you earn the higher the percentage you pay. Income tax can be divided into the following categories: Continue reading