In most western countries, the way people are taxed is almost similar. Of course, there are key differences. For example, the United States doesn’t have a national sales tax like Australia’s Goods and Service Tax (GST).

Many governments can be stringent and aggressive with their tax policies. After all, taxes greatly help economies and make up a good chunk of a country’s gross domestic product (GDP). 

For reference, the tax collected by Canada, the United States, the United Kingdom, and Australia comprised 9.7%, 9.9%, 11.9%, and 16.8% of their GDPs, respectively.

Because of that, it’s always in your best interest to pay your taxes accordingly, even if you only wish to avoid harsh penalties. To do that, you must plan how you’ll pay for them. 

Due to the differences in the tax policies between nations, there’s no single way to approach tax planning. Nonetheless, you can still do it through nondescript methods. Being well-informed about the most common taxation policies can also help you stay on the good side of the authorities.

Here are the basic steps you should take.

  • Know Your Country’s Tax System

Most first-world countries have comprehensive and intricate tax systems. Forget about planning your taxes if you don’t know why you’re being taxed, where your money is going, and what things you should be aware of. If you find yourself at a loss during your research, you can work with a licensed tax accountant.

A considerable percentage of your tax is based on your income—aptly named income tax. As of now, only 23 out of 195 countries don’t collect income taxes for various reasons. But it’s highly likely that you’re not in those countries if you’re here worrying about them.

See also  How to update bank account details in EPF Account?

Going back to the topic of income tax, there are four common avenues most governments consider income. These are:

  • Income from employers, counting tips, allowances, benefits, and bonuses
  • Money from the government, including allowances, welfare, pensions, and others
  • Profit from investments, including dividends, rental income, interests, crypto, and others
  • Earnings from businesses

In some countries, you won’t need to pay income tax if you don’t exceed the income tax threshold or are outside tax brackets. 

For example, if your total income in one tax year in Australia exceeds AUD$18,200, you won’t need to pay income tax. In India, the income tax threshold goes higher once you hit 60 and will increase again once you hit 80. This can result in many being almost tax-exempt as the threshold will be too high for retirees and elderly people with no other income streams.

If you have taxes withheld, don’t forget to pay them even if you’re supposed to be tax-free in the current tax year.

  • Be Aware That Your Retirement Fund Can Be Taxed

In countries like the USA, retirement funds or pensions can be taxed. The rate can increase if they exceed a certain amount. 

Meanwhile, some countries may provide tax breaks to both local and foreign retirees. Some of those countries include Panama, Portugal, Ecuador, Greece, and the Philippines. Retirees from countries with aggressive taxation often go to these places to make the most of their retirement money.

  • Claim Your Deductibles

Most governments provide their citizens the chance to claim deductibles and tax credits. Some may offer them if taxpayers send some of their money to charities. Meanwhile, tax credits can be given for expenses related to work and housing.

See also  How To Fill PF Form 15g

In Australia, many employees had to work at home during the pandemic. If you’re one of them, you may be eligible for a home office expenses deductible. The Australian Taxation Office (ATO) provides taxpayers a deductible of AUD$0.80 (previously AUD$0.52) for every hour they’ve worked at home.

Similarly, the UK also gives tax relief to people working from home.

Of course, most tax collection departments will limit the type of work-related expenses you can use to write off from your income tax. These include company reimbursements and personal expenses (e.g., coffee, tea, etc.). 

Don’t get ahead of yourself when you’re trying to deduct as much as you can. Instead, take note of everything you can claim first before filing your tax returns.

  • Keep Accurate Records

Keeping accurate records of all your income and expenses may be obvious advice. Yet many people often forget it. Doing this can make preparing and planning your tax returns a breeze. It can also help you keep track of the deductions you are entitled to.

Speaking of which, one of the most essential things people neglect to keep track of is receipts. Many countries, like the US, Canada, the UK, Australia, and Germany, have tax rebate systems that require them as proof. Think twice before throwing away any proof of purchase.

  • Watch Out For Capital Gains Tax

Most governments impose a capital gains tax (CGT) if you profit from selling your assets. 

Of course, not every asset you own can be subjected to it. But the ones that count include real estate, collectibles, vehicles, foreign currency, and even personal things like household items, electronics, and furniture.

See also  TDS Return Forms 24Q, 26Q, 27Q, 27EQ: Download Online

On the flip side, you should also be aware of capital losses. When you sell an asset for an amount less than what you paid to buy it, that counts as a capital loss. 

Selling assets that can accrue capital loss may help you reduce the taxable amount of your capital gains. Just be smart if you plan to bank on this.

  • Beware Of Tax Avoidance Schemes

There are many companies and individuals out there who promise to reduce the amount of taxes you need to pay. That’s obviously too good to be true.

Many tax avoidance schemes have grown in popularity lately. If you don’t like legal mishaps, avoid them like the plague. The last thing you want is for you to get into a mess with your country’s taxation office or revenue service department.

Know Your Taxes

Those are just some of the things you need to do and consider when planning for your taxes. Every case and country will have its own caveats. Still, you’ll find these tips useful if you’ve just started paying your taxes. Remember to be smart when dealing with these things.

LEAVE A REPLY

Please enter your comment!
Please enter your name here