Author Topic: getting FI with 25% tax???  (Read 4813 times)

schoenbauer

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getting FI with 25% tax???
« on: October 26, 2013, 07:12:49 AM »
Dear forum,

I happen to live in a country (germany) with a 25% taxation on capital gains (+1.375% solidarity tax). Does that basically mean that my total stache should be 25 times my yearly spending PLUS 26.375 PERCENT?!?!? And thatīs not even accounting for future tax increases.

Is FIRE in whole possible with such high taxes? Do you take a tax increase into account when planing your financial future?

Would love to hear your oppinions and your capital gains taxation by country. :)

Thanks and enjoy your sunny weekend.

matchewed

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Re: getting FI with 25% tax???
« Reply #1 on: October 26, 2013, 07:41:31 AM »
schoenbauer this thread may be helpful to you (it may not either i don't know German). https://forum.mrmoneymustache.com/mustachianism-around-the-web/mustachianism-applied-to-german-way-of-life-deutsche-mmm-ratschlage/

That being said it depends on sources of income. Are there forms of income that you have that would not be taxed? In the US we have a Roth version of retirement investment vehicles. These Roths are contributed with money that has already been taxed and won't be taxed upon withdrawal. Also using other tax deferred accounts mean that you don't get capital gains tax but income tax and reducing your spending is a great way to reduce your future income tax.

Also capital gains taxation by country - http://en.wikipedia.org/wiki/Capital_gains_tax

iamlindoro

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Re: getting FI with 25% tax???
« Reply #2 on: October 26, 2013, 09:01:59 AM »
Per:

http://en.wikipedia.org/wiki/Taxation_in_Germany

Germany has a progressive income tax, like us here in the USA.  The idea is to reduce spending, AND by eliminating debt, in retirement your income drops only to the minimum you need to maintain your lifestyle, so you are in a lower tax bracket.  Some further research shows that the lowest bracket in Germany is 18.9%.  It's not great, but it at least gives you an idea of what you might be able to get it down to.  If you can move to a low COL area (perhaps somewhere rural) you might be able to reduce your spending by a bit versus living in a city.

capital

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Re: getting FI with 25% tax???
« Reply #3 on: October 26, 2013, 11:02:09 AM »
That extra 10% capital gains tax goes into paying for things like a comprehensive public transportation system that means you're less likely to need to pay to maintain a car (many American cities have bike and transit infrastructure far worse than MMM's Longmont), as well as a highly subsidized university tuitions meaning that you won't have to save money to pay tuition for any children. I don't know how German healthcare and pensions are structured, but you might get more money back from the state in those departments as well.

Just to keep things in perspective.

dmn

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Re: getting FI with 25% tax???
« Reply #4 on: October 26, 2013, 11:20:09 AM »
[...] Just to keep things in perspective.

Thank you, I am glad that you brought these things up. When a German starts working, he has already benefitted from the free infrastructure and free education before he paid even a single cent in taxes - financed by courtesy of his fellow citizens. Why not pay some taxes to finance free education for the next generation in return?

Besides, I think that 26% is a pretty low tax rate. Sure, one has even lower capital gains taxes in the USA - but then in the USA one has to save 6-digit figures to pay off student loans before one's net worth even approaches zero.

dragoncar

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Re: getting FI with 25% tax???
« Reply #5 on: October 26, 2013, 06:05:18 PM »
Yes it's possible

Reepekg

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Re: getting FI with 25% tax???
« Reply #6 on: October 26, 2013, 09:33:03 PM »
According to Wikipedia, I hear the Isle of Man is lovely this time of year. No capital gains tax and you can reside but not work there without restriction as an EU citizen.

Bulgaria and maybe Switzerland also sound nice.

schoenbauer

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Re: getting FI with 25% tax???
« Reply #7 on: October 27, 2013, 03:17:14 AM »
Thank you all for your replies.

Especially ehgee. When Iīm wrapped up with thinking of my stache I tend to oversee the benefits of taxes to the society! You are absolutley right. Pretty much free education and affordable healthcare are great things to have.

@reepekg...interessting ;). It might make some sense when paying taxes really starts cutting deep. In this case I think itīs better to open a foundation and give directly to those whom one considers needy (currently I would give away scholarships for musical school and/or university).

And Bulgaria...hm. They might have low taxes in some areas but at the same time I think the country has an enormous potential. And I dont want to be caught conflicting with some bs-laws of a "under-developed" country (I know that Bulgaria is not part of the third world!!! I know many friends who have been there on vacation).

@dmn: 26% is low to you? Wow. I just think itīs "interessting" that capital gains are taxed at about 26% whereas earnings from "traditional labour" (Iīm lacking the proper english term) are taxed at almost 50%...isnīt that ironic?

@iamlindoro: Great advice!

dmn

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Re: getting FI with 25% tax???
« Reply #8 on: October 27, 2013, 08:02:17 AM »
26% is low to you? Wow. I just think itīs "interessting" that capital gains are taxed at about 26% whereas earnings from "traditional labour" (Iīm lacking the proper english term) are taxed at almost 50%...isnīt that ironic?

Yes, a 26% tax rate seems low to me. It pays for roads, police, fire service, education, our political and legal system, consumer protection etc. I am left with 74% disposable income mostly for rent, food, travel and insurance. And the 26% tax subsidizes even these essentials in important ways: it is government agencies that guarantee that my landlord will keep his contractual obligations, that supermarkets only sell food which is free of dangerous chemicals, that the roads on which I travel are built and repaired, that the insurance companies can find well-educated workers capable of organizing a dependable insurance system.

It is true that income tax is higher if you earn over ~50k EUR per year, but even for very rich people it is less than 50%. (Social security contributions are not taxes, but mandatory insurance: they pay for your health care, state pensions and unemployment benefits.) In my opinion, even those higher levels of tax, which you must only pay if you are well-off, deliver great value for your money.

CorpRaider

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Re: getting FI with 25% tax???
« Reply #9 on: October 28, 2013, 11:31:41 AM »
People here did just fine back in the Clinton and prior eras with much higher taxes.  Some might argue that overall we did better.