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The 10 Countries With the Highest Income-Tax Rates

By Sean Williams - Nov 10, 2013 at 12:20PM

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In a study involving 96 countries, these 10 offer the most unfavorable income tax rates. Did the U.S. make the list?

We're less than two months away from rolling over into 2014, which can mean only one thing -- it's time to start thinking about taxes once again.

Source: Philip Taylor, Flickr.

Taxes are a necessary evil that help to pay for life's basic necessities, such as education and transportation. They also help to fund Medicare and Social Security, which provide health care and income security for us when we get older and retire from our jobs. But they're also a burden that, if we had our choice, we'd rather not pay at all.

Today, courtesy of a CNBC report, we're going to look at 10 countries around the world that have the highest marginal income tax rates. We'll see where the United States stacks up on that list, and then afterwards I'll offer up some suggestion you can possibly implement that'll help you lower your taxes come April.

Here are the 10 countries with the highest income-tax rates: 

Country

Highest Marginal Tax Rate

Kicks In At ...

Aruba

58.95%

$165,000

Sweden

56.6%

$81,000

Denmark

55.4%

$76,000

Netherlands

52%

$72,500

Austria

50%

$80,000

Belgium

50%

$46,900

Japan

50%

$217,000

United Kingdom

50%

$231,000

Finland

49.2%

$91,000

Ireland

48%

$43,900

Source: CNBC, KPMG.

Notice a trend?
The big observation to make here is that Europe is the hotbed for income taxation among the most industrialized countries in the world. According to the 96-country study of highest marginal tax rates, eight of the top 10 countries are in Europe.

Why Europe, you might wonder? A lot of Europe's higher tax rates have to do with its austerity measures instituted over the past couple of years. Taxes are a constraint on European citizens -- ergo the tepid growth rates we've witnessed in the region -- but higher taxes are needed to balance certain European countries' budgets that were heavily in the red before the recession. In all likelihood, Europe's high taxes are here to stay for a long time.

Honestly, Aruba is the only anomaly on this list, with the world's leading income-tax rate of nearly 59%. However, residents of Aruba enjoy an above-average standard of living and generally low unemployment rates, which can make up for what appears to be a very high marginal income tax rate.

We have it made by comparison
The United States ranked only 23rd, according to KPMG, which conducted the 96-country study last year. Since then, marginal tax rates for the wealthiest individuals, those bringing in more than $400,000 per year, have risen from the 35% threshold that KPMG calculated to 39.6%. Still, this is well off even Ireland's 48% marginal tax rate in 10th place.

Source: Tax Credits, Flickr.

In other words, we may loathe paying our taxes, but we really have no cause to complain, given that many European countries require a higher tax rate from their citizens and at a considerably lower threshold -- like Belgium, which kicks in a 50% marginal tax rate at just $46,900. Our investment income taxation is also considerably lower than certain countries. Whereas we can pay 15% on long-term capital gains, residents of Denmark will pay anywhere from 28% to 42% on capital gains, and in some special situations even as much as 51.5%!

Ways you can lower your taxes
For those of you who don't agree and believe you're being taxed to the hilt, there's good news: There are ways you can lower your taxes. Obviously, everyone's situation is going to be unique, but here are a few methods to consider as we near 2014 for you to lower your taxable income.

  • Open or add to a Traditional IRA or Roth IRA. Individual retirement accounts are not only crucial to building wealth over the long-term so that you can retire comfortably, but they come with their own unique tax benefits, as long as you don't make any withdrawals before age 59 1/2. Traditional IRAs will allow you to deduct your full contribution (up to a maximum of $5,500 in 2013) on your upcoming year's taxes, but note that you'll have to pay taxes on the gains in your IRA when you begin making withdrawals. A Roth IRA gives you no upfront tax benefits, but the money in the account, again assuming no withdrawals before you're allowed, will grow completely free of any further taxation.
  • Maximize your 401(k) contribution. Contributing to a 401(k) is especially important if you work for an employer that matches your contribution up to a certain limit. Some shining examples would be IBM and Weyerhaeuser, which match employee contributions dollar-for-dollar up to 6% and 3%, respectively.
  • Make a donation. Sometimes the best reductions to taxable income are the ones that make you feel the best, like making a donation to your favorite qualifying charitable organization. And of course, remember to document your donation!
  • Go green. Through 2016, homeowners can purchase alternative-energy solutions for their home for which they can then claim a 30% write-off. Examples of an alternative-energy upgrade would be the installation of solar panels or geothermal heat pumps. The best part of all: Labor is included in your total cost for the project(s), and there's no tax credit cap!
  • Sell off your portfolio losers. In a perfect world, we'd never lose money on any stock trades we make; but this isn't a perfect world and you probably have some red ink sitting in your stock portfolio. As Fool Dan Caplinger reminds us, instead of waiting until the last second, when other investors are thinking about doing the exact same thing and dumping their losers for the year, you should consider taking tax losses now (for companies that no longer meet your investment thesis), which can partially be used against your taxable and investment income.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of IBM. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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