Which is more effective for increasing your family’s overall wealth:
A. An increase in your investment portfolio or
B. A reduction in your taxes?
The answer is often B: a reduction in taxes!
Investors tend to focus solely on their investment portfolio for increasing their overall wealth. However, a proper financial plan will always address tax mitigation strategies as a method of wealth enhancement.
Consider the following two examples. Individuals in the top income bracket may pay over a third of their earnings in taxes to the government each year. Families with a net worth of over $10 million face an anticipated estate tax of at least $3 million in 2014 and beyond. In both of these situations, large tax payments often exceed healthy gains made in an investment portfolio.
Lesson learned: The primary focus of financial planning should be to manage your overall wealth – not just your investment portfolio. Tax mitigation strategies must be included in a well-crafted financial plan.