IOpportunity costs on taxes paid are a cost to be considered when compounding interest in a taxable investment. |
Paying Expenses from Lifestyle: Taxes can be considered the maintenance fee or cost for an investment that yields 1099 income. Opportunity cost is another cost, which must be considered. If you give away a dollar unnecessarily, you have also lost what that dollar could have earned for you had you been able to keep it. Paying Expenses from Investment: Taxes can be considered the maintenance fee or cost for an investment that yields 1099 income. Opportunity cost is another cost, which must be considered. When you take money from your investment account to pay a tax that could have been avoided it not only costs you what you took out but what those dollars would have earned for you had you been able to leave them in your investment. |
Future Value of an Ideal Investment = FV(Total Rate of Return, Years of Accumulation, Annual Contribution, Initial Balance, Contributions at Beginning of Period) Amount Invested = Initial Balance + sum of contributions Opportunity Cost of Ordinary Taxes = Sum of Cumulative Annual Ordinary Taxes Paid * Investment Total Rate of Return Ordinary Income Tax = Sum of Annual Taxable Growth * Ordinary Tax Rate Total less expenses = Future Value of an Ideal Investment - Amount Invested - Ordinary Income Tax - OC of Ordinary Taxes. A year-by-year illustration of this solution is displayed in worksheet form by clicking the Documentation button. |