Cost reduction: Taxes

Imagine you have a taxable income of 100’000 per year and you happen to live in the city with the highest tax tariff (Arbon TG) = you will be taxed 20’753 in the same year.

Having 79’247 left, the wealth tax of approximately 0.5% per year will reduce that amount over 20 years to 71’688.

If you die after 20 years and the person (a friend) who will inherit the money lives in the city with the highest inheritance tariff (Basel Stadt, BS) it will be taxed at 22.5% reducing the amount to 55’558.

As your friend uses that money to buy a tesla, the VAT of 7.7% will kick in and reduce your initial 100’000 to 51’280 – cutting it almost in half.

Long story short: Taxes are brutal to your wealth and comes in various forms and shapes. The better you are aware of them and how they work, the easier it will be to reduce your exposure.

In Switzerland we have:

1. Income tax
   • Cashed in by the federal and cantonal institution based on your yearly tax declaration
   • Can be up to 38%
   • Can be reduced by
     
     • Moving to a place with a low(er) tax tariff (big difference can be just a few km away)
       
     • Doing all available deductions (check for cantonal differences):
       • Commuting expenses
       • Care costs
       • Childcare costs
       • Fees from your depot / wealth manager
       • and so on -> check online for lists like this one or this one
         
     • Maxing out tax advantaged savings plans:
       • 3a, up to 7056 for employees and 35’280 for self-employed
       • Pension fund, evaluate to do buy backs if they are available
         
     • Pay the tax bill ahead or at least on time, otherwise you will be charged 4% interest.
       
     • Opt-out from Churches who invoice through the tax system (if you don’t plan to use their services in the future)
       
2. Inheritance tax
   • Cashed in by the cantonal institution based on your yearly tax declaration
   • Can be up to 49.5%
   • Can be reduced by
     • Moving to a place with a low(er) tax tariff
       
     • Maxing out the tax free amounts when the person is still alive. For example 200’000 to a child is tax free in the canton of Zurich.
       
     • Use calculators like this one before you plan to gift / attribute an inheritance to loved ones.
       
3. Wealth tax
   • Cashed in by the cantonal institution based on your yearly tax declaration
   • Can be up to 1%
   • Can be reduced by
     
     • Moving to a place with a low(er) tax tariff
       
     • Since the tax advantaged savings plan do not count in your wealth tax, maxing them out works for the wealth tax too:
       • 3a, up to 7056 for employees and 35’280 for self-employed
       • Pension fund, evaluate to do buy backs if they are available
         
4. Property taxes
   • Cashed in by the cantonal and municipal institution based on your yearly tax declaration
   • Can be up to 70% of the amount you could rent your property out
   • Can be reduced by
     
     • Doing all available deductions for property owners like
       
       • Investments into the property
         
       • Mortgage interest (consider an indirect amortisation over 3a to keep the interests high)
         
       • and so on -> check online for lists like this one or this one
         
     • Disclaimer: I don’t have hands-on experience on property taxes.
       
5. Valued added taxes (VAT)
   • Cashed in by the company where you consume and is part of the declared price
   • Is mainly 7.7% reduced options apply for special goods like food, drugs and books.
   • Can be reduced by
     
     • You can’t reduce it if you buy stuff in Switzerland
       
     • If you buy stuff abroad, there are tax free amounts where you can import them without Swiss VAT and you can get the VAT of the country you imported from back – like in Germany for example
       
     • Stop buy shit you don’t need and save 100% 😉
       
6. Social security taxes
   • Cashed in by the cantonal institution directly as salary deductions (AHV, IV, EO, ALV)
   • Is approximately 5.3% paid by the employee and 5.3% paid by the employer = 10.60% in total
   • Can not be reduced.
     
7. Stamp tax
   • Cashed in by the financial institution you deal with
   • Is 5% on insurance premiums and 0.15% for Swiss and 0.3% for foreign securities (stocks, bonds, etc.)
   • Can be reduced by using a foreign broker to trade foreign stocks. If you are interessted you can check it out here.
     
8. There are even more taxes…
   I didn’t go into real estate gains tax, lottery tax, tobacco tax, alcohol tax, road tax, fuel tax, highway tax and so on because my exposure to them is very limited. Feel free to explore further and share your learnings here in the comments.