Taxes
Knowing what taxes you do and don't have to pay is critical in building wealth. We're not saying that you evade taxes,
but there may be some ways to pay less taxes than you usually would. First of all, you will need to know what the latest
(South African) tax rates are: Click here (right click, save as) to download a
copy of the latest SA Budget Pocket Guide containing the latest tax rates.
(If you're not from South Africa, then you could try your country's own revenue services site for a copy of the Budget
Guide or similar tax guide where you will find the latest tax rates. For America, the tax return form is the 1040 form
and there will be an instruction booklet detailing the tax rates and how to calculate them on the
IRS website.)
You may also find it useful to visit the South African Revenue Services (SARS)
website to learn more about the types of taxes you pay. Your taxes depend on whether you are an individual or a business
, what type of business you have (partnership, close corporation, company etc.), and the type of business that you do.
It is very difficult to give a generic guide to paying taxes and we suggest that you visit the SARS website to gain
a much deeper understanding of taxes and tax rates.
For individuals, you will find the Budget Pocket Guide most useful. It will outline the types of incomes that you need to
pay tax for (but more importantly, those that you DON'T need to pay tax for), the tax rates for individuals (and trusts),
the thresholds below which no tax is payable and the items which are tax deductible. If you want to be a good investor,
you will at least need to know the basics of taxes. You will probably need to pay tax on all your investment returns above
a certain threshold amount. The threshold and the rate of tax on your investments may change from year to year and may have
a significant impact on your investments, especially over the long term. An important tax rule to note is that for South
Africans, the Capital Gains Tax rate is 10% whereas the Income Tax rate starts at 18% (in 2009/2010) and may go up to 40%
depending on what income you earn. When it comes to shares, a general rule is that a share must be held for at least 3
years before being sold for the gain to be considered as capital gains. Otherwise, the gain will USUALLY be classified as
Income Tax and it will be taxed at your highest marginal tax rate (i.e. the rate of tax you pay in your income band). We
say "usually" because SARS has the right to exercise it's discretion when classifying your returns as capital gains or
income. This is one of the reasons we promote a long-term (i.e. 10 years or more) investment strategy. We're not saying that
you shouldn't sell your shares when they're overpriced, rather, we're suggesting that you should consider the tax implications
when selling in order to determine the ultimate effect on the performance of your portfolio.
