Taxation and financial planning – Part 2 of 2Ian Whiting
So let’s pick up where we left off last week.
Whether people recognise it or not, wealthy people do pay more total taxes than lower income earners – they like more toys, more vacations, more luxuries – guess what – there are taxes included in all of those items too – but then, to admit that would go against the current 1% versus the 99% protests! The simple fact is, there is no “tax freedom” day – everything we spend goes for taxes or raw materials – everything in between is taxes or becomes taxes in one form or another – but let’s not get depressed about it! How does this impact on financial and insurance/estate planning?
Projecting future tax rates that might apply to retirement income or tax credits that might exist for personal health care is a losing proposition. The same applies to the future impact of estate succession/capital gains or even inheritance taxes (which will come back in the future in one form or another – guaranteed!)
Most software programs in use today around the world for the financial services industry, add compelling statements such as “full income tax T-1 calculation done for each year of your plan” (pardon the Canadian influence – but I are one – and proud of it!!). What rubbish. The only thing that COULD accurately be said is the tax calculations are reasonably accurate for the PREVIOUS tax year – everything else is at best an estimate and at worst, a SWAG.
Canadians want more services paid for by “governments” so the governments have to get more $$ from the tax payers to pay for those services. Remember, there is only ONE taxpayer – that is each person. Businesses don’t actually pay any tax – never have and never will – they are simply conduits to get taxes from tax payers to the various levels of government. Some politicos say we are going to raise taxes on various businesses – how nonsensical! Does anyone seriously believe that the business is going to reduce profits to owners, partners and shareholders to pay the tax? Of course not – they just increase the cost of the item, good or service they sell to…….guess who……. tax payers!! But then, that isn’t nice to admit either! The same applies when businesses are charged royalties for accessing natural resources – the cost of those royalties are simply passed along to the consumer – who is also the tax payer – again! BOHICA!
In financial and insurance/estate planning, all we currently need to address are income taxes – and then only as a best estimate. It is my normal practice to include a large disclaimer relating to tax estimates and then I go further by increasing the projected costs by a further 10%. Why do I do that? I have never met a retiree in need of health care who complained about having too much money available to get the level and quality of care they want. I have never met a widow or widower or orphan or surviving business partner who ever complained about having too much tax-free cash available. And I know all governments are going to need more revenue in the future – and they can only get it from us!
BTW for those readers who may not be familiar with the words SWAG or BOHICA – they come from my past military experiences – SWAG – silly wild ass guess – BOHICA – bend over here it comes again! Cheers.
Posted: August 6th, 2012 under Asset Allocation, Cost of Living, Debt, Estate Planning, Finance, Financial Planning, General, Government, Guaranteed Investment Certificates, Insurance, Investments, MONEY®, Mutual Funds, Pension, Personal Finance, Saving, Software, Tax-Free Savings Account, Taxes.