Tuesday, January 31, 2012

How to Keep Your Wealth - Know your Tax Position

Income tax is something that all investors are faced with every day of their investing lives. As governments are struggling to make ends meet, increases in their funding are likely coming in the not so distant future.

It is therefore more important than ever to know exactly where you are when it comes to how much you are currently paying for income tax.

                                                           Real Costs to Investing 

There are two major obstacles that everyone faces in everyday life. These are inflation and taxes. Inflation is not a major factor these days as interest rates etc. are very low. However, taxes are currently a major factor you must consider with every investment you make.

For instance, do you know how much of your income your government will take from you before you file your yearly tax return? If you don't, you should. How else can you determine where to invest your hard earned money to get the best return.

                                                                 How Taxes Work 

Governments calculate taxes in many different ways. Different forms of income can attract different levels of tax. Each country is different and somewhat unique based on their political ambitions. However, they all have one thing in common. Their main goal is to stay in power and they often use the tax system to enable then to do so.

                                                                   What To Do 

Individual investors must learn to position themselves to pay the least amount of income tax possible. In order to do this, one must first know all of the tax rules of their particular area. You must be able to estimate how much tax you will have to pay on your investment income before you make the investment. Otherwise, you may find yourself unpleasantly surprised by the amount of income you actually keep at the end of the year.

At first you may have to enlist the services of a qualified tax advisor to explain the various forms of taxation in your particular area. This will be money well spent as the tax rules vary from country to country and even from state to state or province to province.

A strategy that works in one place may not be suitable in another. Do not do your planning on word of mouth or what you read on the internet. Do your own research and get help if necessary from a qualified individual in your own area.

                                                                   Goal of Investing

The goal of investing is very simple. You must try to make the most amount of money with the least amount of risk. As a part of this goal, you must try to make the highest level of income with the least amount of tax payable.

You do not have to be a tax expert yourself to know your tax position. You simply need to know how to access this information and have it explained to you in a way you can understand.

Of course, taxes are ever changing and you must keep up to date on all of the changes that effect you as well.
Do not rely 100% on your advisor. It is best if you truly understand the tax system in your area.

As always, I welcome your comments and suggestions for future topics.


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