May 5

Coffee With Mike- Being Surprised By Taxes



Being surprised by taxes is no fun for any of us, especially when we're writing the check. Now, of course, if it's a surprise that we're getting a check back from the IRS and we're thrilled at how big it is, well, then awesome! I'm happy for you. But being surprised and having to write a check is something that we all want to avoid. We will at least want to be prepared to write the check when we need to write it. 

The thing that we need to think about from an investment perspective: we're going to move from being an employee or retiree, and move from the TSP account to a different type of account that we call a "personal account," or as some call an "individual account," or some just simply call it a "taxable account." It's where we have investments inside of the account that are not sheltered for retirement. They don't have any tax advantage as an account itself, as far as the titling of the account is concerned. 

Which brings me to the fact that if the account itself does not offer you any tax advantages, then is it possible that the assets within the account can bring you some tax advantages? So, it's really important for us to understand what we have inside the investment account. What it's going to produce for us in terms of taxable income, what it can produce for us in terms of capital gains. Then understanding that creating taxes inside an investment account is a good thing. It's a good thing because it means that our money is growing as long as we accept the fact that there's always a price to pay for success. In financial terms and in America, that means that we're going to pay taxes on it. Then let's just be aware of that. 

We're all hoping to grow our investment accounts no matter where they're situated, no matter what kind of title they have on it, so we ought to be prepared to pay taxes on it as we go. Let's just be more aware of what the assets are inside those accounts and make sure that we understand what the tax implications of having those assets there are going to create for us. hen as we accept that or we decide that that's appropriate then let's just be aware to accept the liability and be ready to pay it when its due. 

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