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Old 27.06.2012, 18:03
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Ways to Optimize Our Tax Exposure (Smart+Legal Ways to Pay Less Taxes)

Hello people,

I did search for "tax exposure" and "tax optimization" before posting and do believe there are a lot of people with profound knowledge that could be os benefit to us all. It is important to note - this thread will hopefully include only legal ways to do things.

We are just half way through this fiscal year, meaning that we can all prep well

Allow me to start with what I do, hopefully setting the right tone:

Since I could afford to set some money aside after paying student loans, personal debt and what-nots, the first thing I did based on advice of fellow members here was to open a 3rd Pillar Pension Account. Each year, normally in January I deposit the full tax-deductible amount to my 3rd Pillar. This way, I "win" the full 12 months of interest for the current year *and* get to deduct it at the end of the year from my tax base.

I also hear that in addition to 3a, one can deposit also 3b (~1000 CHF) which is also tax deductible. Combined, the 3a+3b should shave off ~7,800 CHF from your tax base (per person) for 2012.

So, what is the story you can share to help others reduce their tax base and save money long term? Thanks
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Old 27.06.2012, 18:24
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Re: Ways to Optimize Our Tax Exposure (Smart+Legal Ways to Pay Less Taxes)

Well, one very effective way to reduce your tax liability is to move to a tax favorable canton/Gemeinde. Depending on one's situation, the differences are huge.

For instance, at some levels Genevans might pay more than double Schwzyers. Or within canton ZH, there could be a difference of some 25%. (Differences by Gemeinde assumes one is taxed normally, not on Quellensteuer. If on Quellensteuer, only a change of canton will mean a change in tax.)


(Whatever tax optimization plan one considers, Americans need to take into account the total tax liability, to both Helvetia and Uncle Sam. Strategies that might be beneficial under one regime may have consequences under the other.)

Last edited by meloncollie; 27.06.2012 at 18:41.
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Old 27.06.2012, 18:26
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Re: Ways to Optimize Our Tax Exposure (Smart+Legal Ways to Pay Less Taxes)

Additional Pillar 2 pension contributions will also reduce your tax. You can claim this back, the same as Pillar 3a.

The other ways to reduce tax are listed below. Note however, that they may reduce your tax burden, but they can also increase your costs
  1. Get married.
  2. Have lots of kids.
  3. Buy a property in CH - interest is tax deductible.
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Old 27.06.2012, 18:28
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Re: Ways to Optimize Our Tax Exposure (Smart+Legal Ways to Pay Less Taxes)

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Additional Pillar 2 pension contributions will also reduce your tax. You can claim this back, the same as Pillar 3a.

The other ways to reduce tax are listed below. Note however, that they may reduce your tax burden, but they can also increase your costs
  1. Get married.
  2. Have lots of kids.
  3. Buy a property in CH - interest is tax deductible.
Buy a ramshackle property in CH - renovation costs are tax deductible (sadly, renovation costs for a ramshackle wife or husband are not tax deductible)
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Old 27.06.2012, 18:29
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Re: Ways to Optimize Our Tax Exposure (Smart+Legal Ways to Pay Less Taxes)

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Well, one very effective way to reduce your tax liability is to move to a tax favorable canton/Gemeinde. Depending on one's situation, the differences are huge.
But do your figures carefully before comitting.

Rents are often higher in low tax comunities, and depending on your income this could negate much of the advantage.

Also, some of these places have low taxes for a reason. They are often incredibly dull. So if you come back here in half a year and complain about your neighbours and your complete lack of social interaction, don't say you weren't warned.
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Old 27.06.2012, 18:40
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Re: Ways to Optimize Our Tax Exposure (Smart+Legal Ways to Pay Less Taxes)

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But do your figures carefully before comitting.

Rents are often higher in low tax comunities, and depending on your income this could negate much of the advantage.

Also, some of these places have low taxes for a reason. They are often incredibly dull. So if you come back here in half a year and complain about your neighbours and your complete lack of social interaction, don't say you weren't warned.
Also mention that the move to a cheaper tax rate place has to be done prior the end of the year, ie if you move after 31st december you'll be stuck for the same tax rate for the entire year (true in Vaud Canton).
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Old 27.06.2012, 18:55
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Re: Ways to Optimize Our Tax Exposure (Smart+Legal Ways to Pay Less Taxes)

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But do your figures carefully before comitting.
But of course.

One needs to work out strategies that are effective for one's individual situation. As with everything in Switzerland, YMMV. Especially when it comes to taxes.

So I guess one of the best tax optimization tips is 'Engage the services of a qualified professional.'




Dull suits me just fine, btw..

---


Another FYI for Americans: make sure you understand the US tax implications of your pillar 2 and 3 contributions - for some, those contributions might not make sense.
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Old 28.06.2012, 12:51
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Re: Ways to Optimize Our Tax Exposure (Smart+Legal Ways to Pay Less Taxes)

Piggybacking... does anyone happen to know a good tax advisor who understands how Americans should position themselves smartly for US/Swiss taxes?

All the usual tax advice in Schweiz seems moot for Americans once you get past a certain earning point. I'm considering asking employers not to give me a raise if it means paying US tax on my whole income...
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Old 28.06.2012, 13:16
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Re: Ways to Optimize Our Tax Exposure (Smart+Legal Ways to Pay Less Taxes)

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Piggybacking... does anyone happen to know a good tax advisor who understands how Americans should position themselves smartly for US/Swiss taxes?

All the usual tax advice in Schweiz seems moot for Americans once you get past a certain earning point. I'm considering asking employers not to give me a raise if it means paying US tax on my whole income...
It is indeed hard to find someone outside the big firms who is adept at both. But even back when we used one of the big firms we had one person doing our CH taxes, another doing our US - and getting the two to talk to one another required something of a herculean effort.

Given that there are not many options in the CH tax code, and as you rightly point out these might not be appropriate for an American, we really only focus on the US side, where the complexity lies.

(This is one of the reasons we are happy to live in a lower-tax canton.)

ETA:

Don't turn down that raise!
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Old 28.06.2012, 13:25
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Re: Ways to Optimize Our Tax Exposure (Smart+Legal Ways to Pay Less Taxes)

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Given that there are not many options in the CH tax code, and as you rightly point out these might not be appropriate for an American, we really only focus on the US side, where the complexity lies.

(This is one of the reasons we are happy to live in a lower-tax canton.)
Ha, yeah I suppose more tax should usually equal more money too. Hopefully! But I would be really pissed if tipping over the limit meant paying the difference in a raise and more to the IRS.

So if you don't mind me asking, you're American but it still makes sense for you to live in a low-taxed canton here? Does that not increase your US liability?
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Old 28.06.2012, 13:38
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Re: Ways to Optimize Our Tax Exposure (Smart+Legal Ways to Pay Less Taxes)

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So if you don't mind me asking, you're American but it still makes sense for you to live in a low-taxed canton here? Does that not increase your US liability?
On the contrary - it decreases our total tax liability, when compared to what we were paying when living in in canton Zürich.

The reason is the AMT.

The higher taxes we paid in ZH meant a larger deduction against US tax - which threw us into the AMT, resulting in an increase in total tax liability.

There is a threshold below which the difference is negligible - but above that threshold the effect on total tax can be significant. One should play with the numbers a bit, for one's own individual situation.
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Old 29.06.2012, 10:40
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Re: Ways to Optimize Our Tax Exposure (Smart+Legal Ways to Pay Less Taxes)

Yey, so much good stuff!!! Moving to a cheaper canton is easy - I live in the most expensive of them all In any event - not something that is coming any time soon.

The only trouble I have with additional 2eme Pillier is the fact this is part of a large pool/bucket shared by all in the company. There are still horror stories circling about the SwissAir folks who worked 30+ years and ended up with a finger up their pension accounts.

From what I gather, the *main* difference between 2nd and 3rd pillar is who "owns" the cash in the account. In the case of 2nd Pillar, the money is managed and under the control of your employer (this is why you transfer funds each time you change jobs), whereas 3rd Pillar is like a classic bank account -- all the cash in it belongs to you. This is especially important when considering the family finances in case of accident or early departure. Should either unlucky event take place, all funds 2nd Pillar go toward the "greater good" of the community (feeding the jobless), while all funds 3rd Pillar are inherited by next of kin.

Above was why, when offered to buy back 2nd Pillar "years" missing from prior my moving to Switzerland I kindly declined. Why would one take liquid cash/savings and pour them into a pool? Makes no sense whatsoever.

So, ramshack property you say... Hmmmm... Interesting, most interesting...
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Old 29.06.2012, 11:22
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Re: Ways to Optimize Our Tax Exposure (Smart+Legal Ways to Pay Less Taxes)

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The only trouble I have with additional 2eme Pillier is the fact this is part of a large pool/bucket shared by all in the company. There are still horror stories circling about the SwissAir folks who worked 30+ years and ended up with a finger up their pension accounts.
Can yon you give an links? Even unpaid pension contributions are insured in CH. The company does NOT control pension assets, I don't beleive this 'story'
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Old 29.06.2012, 11:41
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Re: Ways to Optimize Our Tax Exposure (Smart+Legal Ways to Pay Less Taxes)

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Can yon you give an links? Even unpaid pension contributions are insured in CH. The company does NOT control pension assets, I don't beleive this 'story'
Exactly. The pension money is only administrated by the company but it is ringfenced and independently supervised and the company cannot access it for their own purposes, no matter how dire their financial situation. If the company goes bankrupt, the pension money passes into a state administrated fund, and as the employees find new jobs, the moneys are transferred to the pension funds of those new employers.
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Old 29.06.2012, 11:58
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Re: Ways to Optimize Our Tax Exposure (Smart+Legal Ways to Pay Less Taxes)

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This is especially important when considering the family finances in case of accident or early departure. Should either unlucky event take place, all funds 2nd Pillar go toward the "greater good" of the community (feeding the jobless), while all funds 3rd Pillar are inherited by next of kin.
Can anyone verify this? I had understood that funds held in Pillar 2 are inheritable - but as this is OH's account I've never seen any documentation.

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So, ramshack property you say... Hmmmm... Interesting, most interesting...
Although there may be limits. For instance, when we renovated our ramshackle property only that which was a direct replacement of non-functioning items was deductable - deductions for things that were deemed to be additions were not allowed, and deductions for upgrades were considered on a depreciation schedule.

For instance, renovating the kitchen was deductable for those things that were a one-to-one replacement: the 20 year old cook top for a new one, a new fridge for a broken one, etc. However, adding a grill was not deductable, as this was not a feature of the old kitchen.

Renovating the old bathrooms was deductable - but adding a new one was not.

Replacing the old boiler is deductable - but changing from an oil system to an other type of heating is debatable.

Partial deductions for the cost of repairs to the roof and facade were allowed, according to a depreciation schedule.

Before you look to this as a tax strategy, sit down with your accountant.


And for Americans - do consider the US tax implications when you sell your property. Uncle Sam sees it as a currency transaction as well as a property transaction. Your capital gains is figured against the dollar value on the date of purchase against the dollar value on the date of sale. Which means a bit of a shock for those of us who bought when the Franc was low against the dollar and are looking to sell when the Franc is high... We expect the exchange rate difference will likely eat up the entire US capital gains on property allowance, leaving a rather painful bill.
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Old 29.06.2012, 12:10
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Re: Ways to Optimize Our Tax Exposure (Smart+Legal Ways to Pay Less Taxes)

The info shared is from numerous discussions among friends and few occasional visits/chats with the bank where I opened 3rd pillar accounts. Unfortunately I am unable to back this up with links or quotes at this stage. If anyone can supply links to the contrary, it would be nice to clear this confusion.
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Old 29.06.2012, 12:11
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Re: Ways to Optimize Our Tax Exposure (Smart+Legal Ways to Pay Less Taxes)

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The only trouble I have with additional 2eme Pillier is the fact this is part of a large pool/bucket shared by all in the company. There are still horror stories circling about the SwissAir folks who worked 30+ years and ended up with a finger up their pension accounts.
This is certainly not true with my employer. The 2nd pillar assets are held by a third party insurance company for each individual. As others have stated, Swiss law does not allow the employer any access to these funds.

Any links to substantiate your assertions?
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