Wealth tax: what is it, how it works and calculation

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A wealth tax is a tax on equity, which is usually the difference between a person’s assets and liabilities. Governments can impose a wealth tax once, sporadically or regularly, depending on their laws and policies.

Here’s how a wealth tax generally works and how it differs from an income tax.

A wealth tax is generally a tax on equity (the difference between a person’s assets and liabilities). For example, if someone has $ 500,000 in assets and $ 300,000 in debt, that person’s wealth (or equity) is $ 200,000 and a 2% wealth tax would generate a tax bill. of $ 4,000.

Richness is the value of a person’s assets (cash; savings and investments; houses, cars and other property; insurance and pension plans, for example) minus the value of that person’s liabilities (mortgages, credit card debt or loans in progress, for example). In other words, it’s what’s left if you sell everything you own and use the money to pay off all your debts.

Returned, on the other hand, is money received over a period of time, usually in exchange for a person’s time and expertise through their work, or in the form of interest or dividends. Paychecks are income. Money from renting a property or dividend payments from a stock you own are other examples of income.

Conceptually, an income tax is not the same as a wealth tax. Income taxes are taxes on money received over a period of time, usually in exchange for a person’s time and expertise (through work) or in the form of interest or dividends.

A wealth tax is generally a tax on equity. Use our calculator to find your net worth.

»Ready to work with a financial planner? The form below will put you in touch with an advisor from Facet Wealth, a fee-only online trust planning company. They are not tax preparers, but can help you with tax and estate planning.


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