Financial Myth Busting: Eliminating Taxes

Clients sometimes ask about certain special investment tools they’ve heard of that can eliminate taxes. Please hear us when we say: this is not a real thing.

Uncle Sam is a professional when it comes to collecting taxes, with the full force of the law to wield wherever necessary. Think about it—some people go to prison for non-payment of taxes. There is no magical investment loophole that the government “doesn’t want you to know about.” You simply can’t avoid taxes.   

We recently discussed various ways to defer taxes or minimize your tax liability. The trick (and it’s not a magic one) is to avoid overpaying taxes. Think about a Roth retirement account, as an example. You certainly pay taxes on that money, on the front end. But as it grows, you do not pay taxes on your gains. Less of your money overall goes to taxes than with some other kinds of retirement accounts, but we’re not eliminating taxes entirely. And of course, a Roth is not a hidden secret.

There are several tools out there billed as offering tax-free income opportunities. We’ll talk about one of the worst culprits in our next feature. The wisdom to bear in mind is that in most cases, it’s actually cheaper to pay the taxes—because these allegedly “tax-free” investment tools are positively riddled with fees.

If taxes feel like an especially odious burden, here’s a helpful reframe. If you owe more tax, it follows that you also have a higher net worth. And that’s a position most of us would like to be in.

Taxes and investing can bring up questions, we’re happy to discuss your situation and where you want to go. Schedule a time with us to discuss your questions and goals.

Disclosure: The opinions expressed are not intended to be an investment recommendation or tax advise. Standing Oak Advisors and Centaurus Financial, Inc. do not offer tax or legal advice. The opinions expressed are for information and educational purposes only.