Benjamin Franklin once wrote “in this world nothing can be said to be certain, except death and taxes”.
He was not wrong. Another certainty is that residing in the tax authority’s good books is preferable to appearing on their shit list. Experiencing a tax audit is slightly less fun than being examined by a proctologist who has cold hands!
Adam Smith wrote in “The Wealth of Nations” that taxes were necessary so governments could provide services for the general benefit of the public. In return for those services members of society benefiting from those services should contribute to the cost of their provision. Every day we rely upon schools, hospitals, roads, firefighters, trade agreements and infrastructure. All are provided in one form or another by the government.
Smith proposed four guiding taxation principles to ensure taxes were fair and equitable:
“The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities.”
“The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person.”
“Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay.”
“Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury of the state.”
However Smith was a realist at heart, shrewdly observing that “There is no art which one government sooner learns of another than that of draining money from the pockets of the people.”
From an individual perspective we know we should be paying some taxes to contribute to society.
Logically we want to minimise the taxes we pay. Chances are pretty good that we would put our own money to better use than any government would!
The tax authorities also want to see us paying a fair amount of tax. To illustrate why look no further than the recent backlash against the likes of Apple and Amazon about their tax minimisation arrangements, or the periodic witch hunts against high profile celebrities using tax shelters.
Maximise investment returns by not paying more tax than is necessary. Penalty tax rates, withholding taxes, or failing to use double taxation treaties are all common examples.
Possessing a unique tax identifier, such as a social security number or national insurance number, is key to correctly paying your taxes. To apply you will need both identity and address verification documentation.
A tax refund isn’t a bonus nor a reward, it was you providing a low interest loan to the government by paying too much tax!
- Obtain a tax identifier if you don’t already have one.
- Supply your tax identifier to your employer, banks, and brokerage.
- Structure your affairs to minimise your tax obligation.
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