Archive for the ‘Finance, Financial Analysis’ Category

Financial math: Capital gains tax rates are going up 8.8% … So, how much will after-tax capital gains go down?

January 8, 2013

This is a relatively simple financial math question that most people I’ve asked have gotten wrong.

Answers have ranged from less than 8.8% – since only capital gains are being taxed (huh?) … 8.8% – because that’s how much the marginal rate is going up … to more than 8.8% – “otherwise you wouldn’t be asking the question”.

First, what’s magic about 8.8%?

Well, Obama did what he promised and jacked capital gains tax rates from 15% to 20% … and, don’t forget ObamaCare has a 3.8% non-payroll payroll tax on investment income starting in 2013.

So,  the effective capital gains tax rate is going from 15% to 23.8% … a delta of 8.8%.

That 8.8% increase will cut after-tax capital gains by 10.35% !

If you don’t believe me, here’s he math …


Don’t count on that inheritance …

June 29, 2012

According to the U.S. Trust Insights on Wealth and Worth Survey

Only 55% of boomers (those 47 to 66 years old) consider it important to leave a financial inheritance to their children or other heirs.

The top reasons cited for not leaving an inheritance to children were:

  • “Each generation should earn its own wealth.”
  • “It’s more important to invest in my children’s/heirs’ success while they’re growing up.”
  • “I worked hard for my wealth and will want to enjoy it myself.”
  • “I would rather give the money to charity.”
  • “My children/heirs will have enough money and don’t need an inheritance.”
  • “My children (heirs) can’t handle wealth.”

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Does Warren Buffett really think pre-tax returns should guide investment decisions?

August 25, 2011

From the “Everything You Learned in Business School is Wrong” file …

Anybody who has taken a b-school finance course has learned to evaluate investments on an after-tax basis.


Well, apparently Warren Buffett thinks finance profs are spewing garbage.

In his recent “coddled” op-ed, Buffett said:

…  the notion that high taxes discourage hiring and investment is false.

I have yet to see anyone … shy away from a sensible investment because of the tax rate on the potential gain.

People invest to make money, and potential taxes have never scared them off.

So, the Oracle of Omaha thinks pre-tax is the way to evaluate investments.


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