Why All Women’s Investment Decisions Must Consider Taxes

Common Mistake # 13 Failure To Make Every Financial Decision With Taxes In Mind

“Anyone may arrange his affairs so that his taxes shall be as low as
possible; he is not bound to choose that pattern which best pays the
treasury. There is not even a patriotic duty to increase one’s taxes.
Over and over again the Courts have said that there is nothing sinister
in so arranging affairs as to keep taxes as low as possible. Everyone
does it, rich and poor alike and all do right, for nobody owes any
public duty to pay more than the law demands.”
(1872-1961), Judge Learned Hand, U. S. Court of Appeals

“The hardest thing to understand is the income tax.” – Albert Einstein

As the old adage goes, “It’s not what you earn, but what you keep that matters.” The IRS has a job and that is to take as much money as it can from you.  As a wealthy woman that wishes to remain wealthy, your job is to pay as little as legally allowed.

The government gets you coming and going.  You pay, Income taxes on what you earn, capital gains taxes on your investments, estate taxes when you die and we won’t even get into sales tax, gas tax, luxury tax, excise tax, etc,.

If you want to hold on to your wealth, than you’re going to need to spend a fair amount of time thinking about how to pay as little in taxes as possible.

You’re going to have to utilize such tools as retirement plans, LLC’s, FLP’s, tax efficient investments, charitable remainder trusts, 529 plans, life insurance, living trusts and more.  Obviously this means that you will have to speak with a tax professional on these matters and what tax minimizing strategies will work best for your situation.

How Taxes Kill Investment Returns

Paying taxes has a devastating effect on the power of compounding returns in your portfolio. Each investment you make has potential tax consequences. Some investments produce dividends. Some generate interest. Still others appreciate and result in capital gains. Changes within your portfolio can have tax ramifications as well.

Since long term investments (one year or longer) are taxed at the lowest rate (currently 15%) you need to be a long term equity oriented investor.  Keep in mind that the short term capital gains rate tops out at 35%. 

Deferred capital gains are lke interest free loans. And as long as you hold on to the investment, you never have to pay capital gains taxes.

 If you lose money on an investment, they loses can offset the gains from another.  So the government actually gives you some downside risk protection.

Rather than selling a stock and paying capital gains on it, you can donate it to a family foundation or a non-profit organization and take a tax deduction.  It’s a win-win because you get a deduction on the amount that would have gone to the government in taxes and the non-profit can sell the stocks and help their efforts.

As you can see, taxes and investing go hand in hand.  Always consider both sides of the equation before proceeding.

 

 

 

If you’re want to see some real numbers as to how taxes and inflation will impact your net returns, then click here to see  How will Inflation and Taxes Affect Your Investments?