Why Do I Owe Money?

[MsTabbyKats]

The mantra...at least once a day.

 

The stock market was good.  Non-active traders...those with managed accounts etc....are unaware that their managed accounts have capital gains etc.  They just see the value going up.  And, I have to explain...over an over.  And I tell them they should be celebrating because they made money. (But they don't see it this way....since they didn't take possession of the cash.)

 

When they want to know how to avoid this in the future....I suggest investing in a long term CD...where they will be guaranteed .00000001%....and have a minimal tax liability.

[Jack from Ohio]

"Why is my refund $30 less than last year?"  1460 vs. 1430.  $6,000 extra W-2 income...

[JohnH]

Or they could invest in a low-cost, tax-efficient mutual fund such as Vanguard's Total Stock Market Index. They get a 100% guarantee that they will do as well as the entire US stock market - no better and no worse. They also get the benefit of keeping their investment earnings rather than paying outrageous commissions to a financial advisor who is exposing them to unknown risks while raking off 1.5% to 3.0% of their principal, and in some cases additional commissions on the transactions, even in years when he fails miserably.

They could also invest some money in Berkshire Hathaway B shares, which reinvests all profits and never pays dividends. That way, their entire investment increases tax free (assuming BH does well), and they get to control when they receive a distribution by selling shares. They also get the benefit of capital gains treatment on all their gains this way, while controlling the timing of the tax liability.

The only reason people get surprised by taxes on Dividends and CGD's is because they are too lazy to pay attention to what's happening with their hard-earned money.

Edited February 25, 2015 by JohnH