tax deductions

[Der_Neugierige]

I didn't know that we have a very unique tax system here in Switzerland.

 

You can lower your taxes if

 

1. You have children

2. You use childcare or a nanny

3. You are married and both parents work

4. You donate to a charity

5. You donate to a politcial party

6. You are a disabled person

7. You have to pay alimony

8. you have interest on savings deposits(that is actually almost nothing in these times)

 

And some more tax deductions...

 

 

My father told me we are the only one in Europe who has such a liberal tax system, what about USA.

 

In Germany, Italy or France the taxes are automatically paid with the income, they have not the possibility for tax deductions.

 

And in the USA?

 

 

A month ago I bought stocks. 1500 CHF for Swiss RE and 3000 CHF for Nestle. I our tax system we have to pay taxes for our stocks we own.

 

And in the USA you also have your stocks taxed?

Edited April 5, 2016 by Der_Neugierige

[swansont]

Some of those are also deductions in the US. Interest on deposits is not — that's considered income and is taxed, as are dividends. Being married can push your taxes up if both spouses have income, as opposed to them filing as two single people. Also, political donations are not deductible.

 

OTOH, interest paid on a home mortgage is often deductible.

[imatfaal]

In Germany, Italy or France the taxes are automatically paid with the income, they have not the possibility for tax deductions].

 

 

Are you sure about this bit - we have PAYE in the UK (pay as you earn - a deduction by the employer on the employees behalf so most people never have to do any sums ever) - but you can always elect to make a tax return at the end of the financial year and of course claim any rebate. I make a tax return every year (I am a Company Director so I have to - it is not voluntary) - and can claim back on some of those things above, others are automatically included in my tax code (which how much money before I start paying any tax), and I can claim back for quite a few others not on that list most importantly pension contributions.

 

We pay tax on purchase of stocks - and there is a dividend tax

[Strange]

Some of those are tax deductible (or, equivalently, give you extra tax allowances) in the UK. But not 3, 5, 7(?) and 8.

 

Income from pretty much all investments, including pensions, is taxed (although they are about to introduce a fairly generous allowance of the first £1,000 interest being tax free).

 

They got rid of tax relief on mortgage interest years ago. And, as far as I know, there is no longer any tax benefit to being married.

 

For most people tax is taken directly from the salary by the employer.

[Der_Neugierige]

 

 

For most people tax is taken directly from the salary by the employer.Exactly this is not the case here in Switzerland.

 

Exactly this is not the case here in Switzerland.

We get each year tax records we have to fill out. My father normally sits 30 min until 1 hour for filling out the documents. Its annoying but you can save money.

But I know the Germans and French do not have tax deductions.

 

It goes even more weird in Sweden health care is paid per taxes and paid directly by the employer. As a Swiss I am not fan of their system.

 

 

 

OTOH, interest paid on a home mortgage is often deductible.

That's also the case here in Switzerland. As far as I know they are currently very low, almost zero procent.

Edited April 5, 2016 by Der_Neugierige

[CharonY]

 

 

But I know the Germans and French do not have tax deductions.

 

 

This is clearly wrong. You have tax deductions in Germany, and I am pretty sure also in France. While you pay taxes with your salary as an employee (it works differently if you are self-employed). This is known as withholding tax at source and is used also in the USA. You then fill out your income tax, claim deductions and usually get paid back some of the taxes.

Also note that in Switzerland foreign workers are taxed with the same system, i.e. with withholding at source (Quellensteuer), whereas Swiss citizens only pay at the end of the year. Overall the only difference is when you pay your taxes, but the principles of deductions is pretty much universal.

[Strange]

It sounded pretty implausible. A quick check on-line shows that in France, there are allowances for (at least): mortgage interest, child’s education, adult children, domestic help, nursing/residential care, charitable donations, alimony, investments ...

 

Similarly for Germany: home office, travel to work, professional memberships, student loan, child care, education, church tax, insurance, alimony, charitable donations, mortgage, pensions, investments, …

 

And if anyone really cares about exactly what allowances are available in every country, this may be a good resource: http://taxsummaries.pwc.com/uk/taxsummaries/wwts.nsf/ID/tax-summaries-home

[CharonY]

Yeah, especially as the German system is quite famous to be one of the more complex ones.

[DrmDoc]

I didn't know that we have a very unique tax system here in Switzerland.

 

You can lower your taxes if

 

1. You have children

2. You use childcare or a nanny

3. You are married and both parents work

4. You donate to a charity

5. You donate to a politcial party

6. You are a disabled person

7. You have to pay alimony

8. you have interest on savings deposits(that is actually almost nothing in these times)

 

And some more tax deductions...

 

 

My father told me we are the only one in Europe who has such a liberal tax system, what about USA.

 

In Germany, Italy or France the taxes are automatically paid with the income, they have not the possibility for tax deductions.

 

And in the USA?

 

 

A month ago I bought stocks. 1500 CHF for Swiss RE and 3000 CHF for Nestle. I our tax system we have to pay taxes for our stocks we own.

 

And in the USA you also have your stocks taxed?

 

Over the years, I've prepared various forms of city, state, and federal tax returns and schedules here in the US for both businesses and individuals. The US government (federal) allows us certain deductions against our taxable income and credits against our taxes to reduce our yearly income tax burden. For example, we can reduce the income subject to taxes via a Standard Deduction Allowance or Itemized Deduction Allowances. The Standard deduction allows the reduction of our taxable income by one of three standardize amount according to our filing status, which is either Single, Married, or Head-of-Household. Itemized deductions allows for the reduction of our taxable income by an array of expenses that exceed the standardized amounts. Including in these types of deductions is the ability to claim a deduction for city and state taxes paid, extraordinary medical expenses, charitable contributions, certain investment, gambling and uninsured losses, unreimbursed business expenses and much more. Our federal government also allows an array of credits, which can change from year-to-year, against the taxes we owe according to various circumstances. For example, our government allows what's called an Earned Income Credit (EIC) for low-income taxpayers. This credit invariably results in the claimant receiving a return of taxes paid in excess of what the payer may have had deducted from his/her taxable income.

Edited April 5, 2016 by DrmDoc

[Der_Neugierige]

It sounded pretty implausible. A quick check on-line shows that in France, there are allowances for (at least): mortgage interest, child’s education, adult children, domestic help, nursing/residential care, charitable donations, alimony, investments ...

 

Similarly for Germany: home office, travel to work, professional memberships, student loan, child care, education, church tax, insurance, alimony, charitable donations, mortgage, pensions, investments, …

 

And if anyone really cares about exactly what allowances are available in every country, this may be a good resource: http://taxsummaries.pwc.com/uk/taxsummaries/wwts.nsf/ID/tax-summaries-home

They have tax deductions but not so "open" as we have in Switzerland.

 

Per child you get tax deduction of 6500 CHF. This means if you have 5 children, you theoretically don't pay any taxes.

 

If you use the public transport system and you buy general abonnament, which costs 6000 CHF, you can indeed deduce these 6000 CHF from the taxes.

 

If you buy a bicycle(because in summer you take your bicycle) for 3000 CHF and you also buy a general abonnament in the same year, you can deduce both cost from the taxes.

 

It's more liberal and "open" compared to Germany or France.

[CharonY]

That does not make any sense to me. Do you mean that if you have a higher deduction for something then somehow the system is more liberal? How does that work? How is a tax deduction of 6500 more open than, say 4500? Also you are completely neglecting the tax brackets, if you really want to compare systems.

 

While I discourage self-made definitions I would also like to add that in Germany the tax deduction in Germany for children is `7200 euros. So I assume that Germany is now suddenly more open? Also, if you use your bike for work you can also deduct costs from your taxes. However, in Switzerland as well as in Germany there is a limit you can deduct, and I am pretty sure it is lower than 6000 CHF.

 

The real difference is that in Switzerland the taxes are paid at the end of the year. But other than that I am still not sure what your point actually is (other than that you probably have not prepared many/any taxes yet).

Edited April 6, 2016 by CharonY

[Strange]

Per child you get tax deduction of 6500 CHF. This means if you have 5 children, you theoretically don't pay any taxes.

 

Only if your tax liability was less than CHF32,000. I imagine there are a lot of people who pay more tax than that.

(And I think I might rather pay tax than have five children!)

[swansont]

I think a clarification is needed here. In the US a tax deduction means the amount is deducted from your gross income. If you have an income of $50,000 and $15,000 in deductions, it means you have a taxable income of $35,000 and you'll pay about $4800 in income tax. If an amount is applied directly to the tax paid it's known as a tax credit.

 

You would need deductions in excess of your income to reduce your liability to zero, and there is something called the alternative minimum tax that's in place to make sure that people of a certain income can't reduce their liability too much. (The very high income people have other rules they can exploit, because they have an outsized influence on government tax policy, but that's a separate issue)

[Sirona]

Superannuation tax deduction, negative gearing and capital gains tax.

[Strange]

I didn't know that we have a very unique tax system here in Switzerland.

...

8. you have interest on savings deposits(that is actually almost nothing in these times)

 

I find this one a little hard to understand / believe. Do you really get an allowance for interest received? In most places income from interest is taxed similarly to any other source of income.

 

Does this mean you could avoid tax completely by having your salary replaced by an equivalent amount of interest from a savings account that the company sets up in your name?

Edited April 6, 2016 by Strange

[DrmDoc]

Superannuation tax deduction, negative gearing and capital gains tax.

 

If I understand tax equivalency between Australia and the US correctly, Superannuation tax deduction is called an IRA (Individual Retirement Account or, by some, Arrangement) deduction in the US. Negative gearing expenses are recouped in the form of depreciation and loan interest deduction as a business expense over a preset period, and Capital Gains tax are applicable here to the profit gain beyond the original purchase expense of an asset after it's sold, which isn't a tax deduction. In addition to the other deductions I mentioned earlier, the US government also allows what's called "Exemptions" ($4000) of income from taxation for every taxpayer and each of his/her dependents.

Edited April 6, 2016 by DrmDoc

[Sirona]

 

If I understand tax equivalency between Australia and the US, Superannuation tax deduction is called an IRA (Individual Retirement Account or, by some, Arrangement) deduction.

The idea is the same, the implementation is different.

Edited April 6, 2016 by Sirona

[DrmDoc]

The idea is the same, the implementation is different.

 

Interesting, how so? Also, for those who have interest, here's a link to a US Form 1040, which is the long form taxpayers file for return of excess taxes paid. It will give you some idea of what our government terms income, exemption, deduction, and credit. It is one of a multitude of forms and schedules our government produces for tax return and payment purposes.

Edited April 6, 2016 by DrmDoc

[Strange]

The UK version is 10 pages longer but only has 1/3rd the questions.

[Sirona]

 

Interesting, how so? Also, for those who have interest, here's link a US Form 1040, which is the long form taxpayers file for return of excess taxes paid. It will give you some idea of what our government terms income, exemption, deduction, and credit. It is one of a multitude of forms and schedules our government produces for tax return and payment purposes.

So although the idea is the same, the rules are different. Although I am not an expert in US taxation (you guys are notorious for your complex system ) but with superannuation employers must make a compulsory (9.5%) contribution on top of your salary/wage. We have a marginal tax rate (https://www.ato.gov.au/Rates/Individual-income-tax-rates/) so basically the more you earn, the higher your tax bracket is. If you're a higher income earner (you earn over 37, 000), it makes sense to 'salary sacrifice' (pay money into your super before tax as you're taxed at a fixed rate of 15%). If you're under 50, your yearly contribution is capped at 30, 000 (before tax contribution) and 35, 000 for those over 50. If your contributions exceed this amount, then you're taxed at the highest income bracket which is 49%. However, your employer might restrict how much you salary sacrifice and income you've already earned can't be sacrificed.

[Der_Neugierige]

Only if your tax liability was less than CHF32,000. I imagine there are a lot of people who pay more tax than that.(And I think I might rather pay tax than have five children!)

We have in our neighbourhood a religious family, who has 5 children. Only the father of this family works. He is gardener and you can guess gardener do not earn a lot of money.

 

My father said this family doesn't pay any taxes or only a little.

Edited April 6, 2016 by Der_Neugierige

[DrmDoc]

So although the idea is the same, the rules are different. Although I am not an expert in US taxation (you guys are notorious for your complex system ) but with superannuation employers must make a compulsory (9.5%) contribution on top of your salary/wage. We have a marginal tax rate (https://www.ato.gov.au/Rates/Individual-income-tax-rates/) so basically the more you earn, the higher your tax bracket is. If you're a higher income earner (you earn over 37, 000), it makes sense to 'salary sacrifice' (pay money into your super before tax as you're taxed at a fixed rate of 15%). If you're under 50, your yearly contribution is capped at 30, 000 (before tax contribution) and 35, 000 for those over 50. If your contributions exceed this amount, then you're taxed at the highest income bracket which is 49%. However, your employer might restrict how much you salary sacrifice and income you've already earned can't be sacrificed.

 

Although the income, contribution and percentage caps differ, the US does permit forms of retirement contribution through salary withholdings by employers, which employees can elect to have withheld before or after applicable taxes. This is in addition to the IRA deduction I mentioned earlier, which is a retirement deduction separate from that withheld by the employer. The primary distinct between the two employer income withhold systems as I perceive, seems to be your government's mandatory compliance for employers. In a small way, our government enforces a Social Security Tax on employers and employees, which supports a fund for retired, elderly, and disabled individuals. Yes, our tax system is exceptionally complex with a purpose to squeeze every penny out of the working middle-class while requiring as little contribution as possible from the wealthy--in my opinion.

Edited April 6, 2016 by DrmDoc

[Strange]

Because in Switzerland it's possible to pay zero taxes, because of tax deductions, in Germany that is not possible they have a limit.

 

It is possible to pay zero (income) tax in the UK as well. Obviously some taxes (e.g VAT) are unavoidable.

Edited April 6, 2016 by Strange

[Der_Neugierige]

That does not make any sense to me. Do you mean that if you have a higher deduction for something then somehow the system is more liberal? How does that work? How is a tax deduction of 6500 more open than, say 4500? Also you are completely neglecting the tax brackets, if you really want to compare systems.

 

While I discourage self-made definitions I would also like to add that in Germany the tax deduction in Germany for children is `7200 euros. So I assume that Germany is now suddenly more open? Also, if you use your bike for work you can also deduct costs from your taxes. However, in Switzerland as well as in Germany there is a limit you can deduct, and I am pretty sure it is lower than 6000 CHF.

 

The real difference is that in Switzerland the taxes are paid at the end of the year. But other than that I am still not sure what your point actually is (other than that you probably have not prepared many/any taxes yet).

Exactly that is not the case in Switzerland. Our system doesn't know a limit for deductions. In Germany they have a limit. In Switzerland it is possible to be a "tax free citizen". That is why our system is more liberal and open.

 

There even was a article on tages anzeiger online with the title Tax deductions until to be a tax free citizen. In this article tjey wrote that 1/3 of the citizen living in Geneva do not pay any taxes because of tax deductions.

Edited April 6, 2016 by Der_Neugierige

[DrmDoc]

 

It is possible to pay zero (income) tax in the UK as well. Obviously some taxes (e.g VAT) are unavoidable.

 

For the US government, zero income tax is also possible; however, not for some state and most city governments that enforce income taxation.