Taxes, Although Serious, Are Second

Income taxes are a rather complicated subject, and are discussed here only to suggest how they may affect investing.

A major difficulty in writing about the income-tax aspect of investments is that people can own investments exactly alike, but the Federal income tax they pay can vary any where from zero up, depending upon the owner’s total tax able income. Suppose each of two men has a $10,000 savings deposit in the same bank, each deposit paying $300 annual interest. One depositor’s taxable income is zero, so that his net income from this investment is $300. The other man has such a big income that if his top-bracket tax rate of 91 per cent is applied to this $300 income, he has left after tax just $27. Conceivably one man can experience both of these ex tremes, in different years of his life.

Only the income taxes assessed by the U. S. Government are considered here. A majority of the states, and some local governments, also have income taxes, and for some taxpayers those taxes can be larger than the Federal. The considerable differences among states and local governments in their rules and rates make it impractical to include them in this book. But when an investor figures taxes, he needs to remember to include both the Federal and whatever state and local taxes apply to him. And if he has investments in other countries, that brings him under still other rules not covered here. Certified Financial Planner - Read More.