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Taxes as percentage of portfolio value
Old 02-07-2015, 05:19 PM   #1
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Taxes as percentage of portfolio value

I am curious if anyone calculates their taxes as a percentage of their portfolio. So for tax year 2014, take your total taxes due for the year (federal, state, and real estate) and divide by your portfolio value on January 2014. I realize that income is taxed, not wealth, so it's not comparing apples to apples. Wouldn't this calculation yield the WR needed to pay taxes? What's a reasonable number to shoot for?

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Old 02-07-2015, 05:31 PM   #2
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There is no 'number to shoot for'. As you say, income is taxed, not wealth. Your NW might be in a tax deferred account that you are not yet drawing from, so not being taxed - another might be drawing from it, maybe even drawing it down, and having it all taxed as income.

Other than just curiosity over the number (which is fine, if that's all you're after), what is to be gained from this?

And then, we get into the 'fun stuff'. If someone has a pension, don't we need to calculate the 'phantom asset' value of that to determine NW? And so on...


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Old 02-07-2015, 05:37 PM   #3
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Not here. The amount of taxes has a dependency on what you are invested in, activity during the year, how much is taxable and tax deferred accounts, how much you have in embedded gains, etc. Yes you do have to come up with $ to pay the taxes.. but this could even come from cash that may not generate much in the way of taxable income.
if you don't have too much income, but all of it comes from qualified income... you could end up with 0 federal tax... however you may be pulling 2 to 4% distribution.

I'm not sure this will have a good correlation in many cases.

Someone who pulls all their spending income from Roths may have 0 federal and state taxes.
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Old 02-08-2015, 12:59 PM   #4
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Our pensions are taxed as ordinary income, so we have to regard our pension as the face amount minus taxes - just like a salary.

If we sell assets, we will be taxed on capital gains and (for deferred annuities) on deferred income. So again, the "face amount" of our assets is deceptive. They are only worth what we can get for them, minus taxes on gains and deferred income. When contemplating net worth, I generally subtract a third of the face value for taxes.

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Old 02-08-2015, 01:13 PM   #5
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I don't know what a reasonable number it is to shoot for. In the case where the retirement fund is all in taxable accounts, most folks might be able to stay under 0.5% of the portfolio value, but it totally depends on how tax efficient your mutual funds are. And this can be highly variable. Unfortunately mine went crazy last year and paid out large capital gains distributions.
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