Only two certain things in life are death and taxes. Really? Are taxes certain? 100% certain? How about I show you how ‘uncertain’ taxes are? Contrary to the popular belief, you can control a lot about taxes. Specifically, you can control the magnitude or the timing or both.
Let us first talk about the magnitude – not all ‘income’ is taxed equally.
Think about it like this – you need $100 every day. If all of it comes from ‘wages’, then simplistically speaking you would need to earn wages of $166. But if the same $100 for your every day needs was coming from capital gains, you would only need capital gains of $125. So capital gains of $125 affords you the same $100 that $166 of wages do.
The above assumes that you are in the top tax bracket, where the wages tax rate is 39.6% and capital gains tax rate is 20%.
(Important note: how did I calculate the exact dollar numbers mentioned above? I used ‘Goal Seek‘ function capabilities within What-if analysis section of Excel – my favorite feature of Excel, a must-learn feature).