Paying no taxes on investment gain? Solution to a problem or a problem itself?

by Nick on April 28, 2011

OK – It looks like I’m back up and running and caught up, so I can be a little more present here at SAFTM.  And for those who are eagerly anticipating the redesign (I believe that includes me and my mom….) I sent a message to my designer and am still waiting.  I’m still also not trying to be pushy because I’m all about the content anyhow.  I’m here to talk.  Although I admit it’s not pretty… anyhow, onto the post.

What would you do if someone asked you if there was a way to pay no taxes on investment gains?  Well that’s what happened with this article over at USA Today.  And Mr. Krantz gave an accurate answer.  But jeez – why ignore the elephant in the room?  Yes, there are ways to reduce tax liabilities.  Yes there are legal strategies like selling losers when you sell winners to offset gains.  But why not turn around the question to the person who asked it?  Why not ask why he doesn’t want to maximize the taxes you pay?  Sounds silly, right?  Yeah, it probably is.  But my point is that generally the more you pay in taxes the more you end up with at the end of the day.

I am not a tax expert for sure, but I’m not aware of any income that’s taxes at more than 100% (at least in the U.S.).  So every year, while I certainly wouldn’t tell you not to try and legitimately minimize tax liability based on your income, I would encourage people not to be afraid of taxes.

I hate paying taxes.  I know they’re necessary.  But I hat paying them.  I hate working 4 or 5 months per year just to pay to the government.  But I know a lot of Americans get valuable services from the taxes no matter who you are and how much you make (police don’t only protect broke people, right?).  So every year I inevitably have a conversation with a few people about how much money we paid in taxes the past year.  And at the end of the conversation someone inevitably says something to the effect of “my goal is to pay $1 million in taxes per year.”

We all get a good laugh, but everyone agrees that if we’re paying $1 million in taxes (and unless something dramatically changes in the tax code) then we’re making at least $2.5 million per year.  I’ll let you in on a little secret: I don’t make $2.5 million per year (yet).  So yes, it would be good to pay $1 million in taxes on a system not too dissimilar from the one we have now.  Fair?  Not sure.  But with $1.5 million left at the end of the day, I’m sure I could survive.

OK, about the title of this post, paying no taxes on investments is not the solution to a problem (paying taxes).  It’s more likely the problem itself.  It means generally you either didn’t pull money out to enjoy (i.e. didn’t sell), had losers that offset any money you did pull out (i.e. sell losers to offset winners sold), didn’t have any gains to worry about, or made too little to be taxed.  So you tell me what the problem is – “paying taxes” or any of the other possibilities.  I know I would rather be pulling in so much cash that I absolutely had to pay taxes. 

So next time you’re thinking about ways to reduce taxes ask yourself if you’re trying to avoid a problem or if your mindset is the problem.  And I’m not going to get into any of the waste or other political issues here because that’s really not my point.  But ignoring those issues for the moment, “paying taxes” is not the problem.

Until next time, put your credit card down and slowly step away from the mall!

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