What is an effective tax rate, and what is its relevance to you?
This concept refers to the total percentage of income that an individual or a corporation pays in taxes.
It is calculated by dividing the total tax paid by you on your taxable income.
For individuals, the effective tax rate includes all sources of income, such as wages, dividends, and interest.
The benefit here of calculating your effective tax rate is to gain a better idea of your actual tax burden compared to your marginal tax rate.
By knowing your effective tax rates, you can then make more informed decisions about tax strategies, investment planning, and financial management to optimise your tax liabilities.
Tax rates can vary significantly within countries, let alone around the world, so taking note of your effective tax rate can help you take advantage of local tax benefits to try and mitigate your tax burden.