Illustrate the increasing balance of the compounding account along with its associated increasing tax burden. Use the slider to change the displayed values. |
Let's go through the years slowly watching the account grow on the left, which represents the money; you have in your account. The account on the right represents the taxes, which you must pay in order to maintain the account on the left. What is your first reaction to seeing this happening to your account? Where are you getting the money to pay the taxes due each year earned on your investment account? (current income or lifestyle) If I can show you some opportunities which would allow you to avoid transferring those taxes to the government each year it would have a dramatic impact on your Circle of Wealth. This screen is not the whole picture because we have not even considered the opportunity cost. |
All compounding is performed annually. Net opportunity cost rate of return = Investment rate of return * (1 - tax rate). [The investment rate net of taxes.] The calculation is performed in a worksheet defined as follows: Column 1: Annual Investment at the beginning of the year. Column 2: Account balance at the beginning of the year. Column 3: Annual interest earned: (Column 2 * Investment rate of return). Column 4: Account balance at the end of the year: (Column 2 + Column 3). Column 5: Cumulative interest earned: (cumulative sum of Column 3). Column 6: Annual taxes paid: (Column 3 * Assumed Tax Rate). Column 7: Cumulative taxes paid: (cumulative sum of Column 6). Column 8: Account Balance at end of year minus cumulative tax: (Column 4 - Column 7). Column 9: Cumulative opportunity cost of tax: (previous year Column 9 * net opportunity cost rate of return + Column 6). Column 10: Account Balance at end of year minus cumulative opportunity cost of tax: (Column 4 - Column 9). |