How to minimize your taxes on wealth
by Jakob
Jelling
Taxes on wealth or simply wealth tax is the tax
levied on the value of wealth owned by a person. As the term wealth carries
with it a broader meaning, generally capital transfer taxes (which include
inheritance tax and gift tax), property tax, and capital gains taxes are some
times invariably referred to as wealth taxes.
Taxes on wealth were first introduced in Europe,
aimed at reducing the growing wealth gap between the rich and the poor. It was
meant to raise revenue for addressing pressing social requirements and also to
discourage the attitude towards amassing wealth.
Still, in countries across the world, majority of
wealth is concentrated at the hands of fairly small number of people. Ideally
taxes on wealth cuts down the disparities in wealth rather than the income,
which actually is the determinant factor on how the scales are weighed for the
next generations. Also, taxes on wealth can bring about vertical as well as
horizontal equity, which income tax fails to achieve. For example, neither a
wealthy person nor a poor one with no income will pay income tax. But the
wealthy ones need to cough up wealth tax while the poor need not.
But, as critics puts down, taxes on wealth can
actually cause inefficiency by discouraging wealth producing economic
initiatives. Also, the revenue generated by imposing taxes on wealth may not be
that productive as the theory suggests. The wealthiest form only a small
percentage of the population and by nature they are adept at avoiding taxes
while remaining themselves within the contours of law.
Taxes on wealth comes in two forms - the capital
transfer taxes that are levied when wealth change hands and the annual wealth
taxes. Capital transfer taxes can occur either at death - also called
inheritance tax - or via donation (gift tax). Some people tend to believe that
Capital Gains tax to be a form of taxes on wealth. But in realty, capital gains
tax is the taxation on the income obtained on capital and not a wealth tax on
the capital.
Ideally, taxes on wealth should not be severe on the
tax payers even if they have lots of wealth. Instead, after the minimum slab of
no taxation, the taxes on wealth percentage should increase at increments,
depending on the value of wealth in dollars. Such a fairer taxation not only
increases the revenue but also goes a long way in bringing down the inequality
aspect as well.
But with intelligent investing, one can save a lot
that other wise goes as wealth tax. But that requires careful thought and
advanced planning. May be a tax professional could help one in this
regard.
About the Author: Jakob Jelling is the
founder of http://www.cashbazar.com.
Visit his website for the latest on personal finance, debt elimination,
budgeting, credit cards and real estate.
