Are Your Investments Taxing?

Understanding and effectively using Time-Tax Buckets

By Jared Thompson

You can pay taxes now, later and never.

Yes, you can pay taxes “never” and remain a free person.

Before I explain completely, ask yourself this question: Are my investments taxed?
The answer should be “Not always, if you know the strategies.”

Are your investments taxing on you? The stress and complexities of taxes seem daunting to many. If you’re one of those people, you’re not alone!

But with the right plan in place, this topic can be simple. Below, you’ll discover a simple tool that the savvy dentists use to manage their taxation without peace-of-mind being taxed.

Time-Tax Buckets
Our dentist clients through PersonalCFO learn that taxes can generally be managed in three Time-Tax Buckets:

  1. Taxed Now Bucket
  2. Taxed Later Bucket
  3. Taxed Never Bucket

By properly segmenting your savings and investments strategy with these three Time-Tax Buckets, you may find simplicity and tremendous financial benefits.

Lower Taxation for High Earners
If you earn an income greater than $100,000, which is likely if you’re reading this article, chances are you’re going to have to pay more taxes now than you ever have. Dentists all over the country are concerned about rising tax rates. Federal and State income tax rates are on the rise. That’s no surprise.
What most don’t realize, however, is that you can avoid most of those tax increases. But it’s not easy… unless you know what you’re doing.

My goal is to show you a few of the many strategies we use with our clients by the end of this article.
Fortunately, we have multiple strategies in each of the three Time-Tax Buckets to accomplish the best tax avoidance.

Avoidance vs. evasion
Tax evasion is illegal, but all clients of PersonalCFO learn that tax avoidance can be smart and prudent. We advise our dentist clients how to pay the appropriate amount of taxes and avoid paying taxes that aren’t necessary. The problem is that most dentists don’t know about the strategies that can help you keep the most in your pocket. The strategies we use are all above board.

While the advice I share is my opinion and used by my dentist clients, any dentist who is not a PersonalCFO client should discuss this with their CPA or accountant to see if it is right for your particular situation.

Taxed Now Bucket
The first bucket is used for investment accounts that are taxed on an annual basis.
These accounts may include checking or savings accounts, bank instruments like CDs, or various non-qualified accounts that could be filled with stocks, bonds, or mutual funds. It’s easy to spot these accounts: if money grows inside of them over the calendar year and we receive a 1099 for that growth, it’s likely a “Taxed Now” account.

I’m often asked the question: “How much money should I keep in my Taxed Now Bucket?”

Great question. Because this money is typically liquid, the funds kept in this bucket are to be used for emergencies and other short term objectives. This is not money you’ll touch for vacations or bills – this bucket is your safety net. Many advisors suggest keeping 3-6 months of living expenses on hand, but I strongly suggest 12 months.

Why so much?
Friends, dentistry is changing. Quickly. These changes demand that dentists have a properly funded Taxed Now Bucket. Twelve months gives dentists a wide safety net.

The overbearing influence of PPOs, the pervasive rise of patient apathy and surely the industry’s massive shifts being caused by corporate dentistry are all major reasons to give us pause. Each of these topics create uncertainty and uncertainty in the economy will almost always affect a dentist’s income.

Economic conditions are still fragile and health care (including dental care) is full of questions. Countless possibilities of accidents or mishaps threaten our stability. A strange phenomenon I like to call the “Dental Doldrums” also knocks on the door of many of our clients each year — almost every fall season.

In order to be prepared for the unpredictable, have 12 months of living expenses saved in your Taxed Now Bucket. But no more than 12 months. More than 12 months of expenses sitting in your Taxed Now Bucket may be too much. There are two reasons why.

First, you’ll likely earn dividend and interest income on this bucket. As a result, you’ll be taxed and, as mentioned earlier, taxation is on the rise. Therefore, having too much money in your Taxed Now Bucket may yield more than just a little more money — it may yield issues with taxes. The taxable income that you receive on 12 months of living expenses will become part of your complete tax strategy.

Second, any amount above 12 months of living expenses should be “put to work” on greater wealth building opportunities. You’ll capture those wealth building opportunities in the Taxed Later and the Taxed Never Buckets. But beware: missing out on those chances to grow your wealth can be a painful opportunity cost.
Once your Taxed Now Bucket is funded properly, we’ll decrease your opportunity cost by putting additional funds to work for you, all in hopes of greater wealth and a higher net worth.

For both of those reasons, keeping too much of our money in this bucket is not advisable.

Now that we’ve covered your Taxed Now Bucket, you can begin to understand the first step to keeping your taxes low while keeping your safety net high.

In upcoming articles we’ll help you understand how you can transform your future wealth with proper strategies in the other two buckets:

  • a) The Taxed Later Bucket – Learn the little known Circular Tax that can cripple your retirement comfort and how to avoid it.
  • b) The Taxed Never Bucket – Uncover the surprising strategy that can propel your wealth more quickly than nearly any other.

The next two buckets may change your perspective and your future net-worth.

For an article about all 3 Time-Tax Buckets, email for a free copy: [email protected]

Any tax advice contained herein is of a general nature.
Please seek specific advice from your tax professional before pursuing any idea contemplated herein.

Securities offered through ValMark Securities, Inc. Member FINRA, SIPC
Investment Advisory Services offered through ValMark Advisers, Inc.,
a SEC Registered Investment Advisor
130 Springside Drive, Suite 300 Akron, OH 44333-2431* 1-800-765-5201
Wealth Partners Financial Services, LLC is a separate entity from ValMark Securities Inc. & ValMark Advisers Inc.

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