Income Tax and Opportunity cost...
If you ask anyone in my office about my tax-saving habits, they'll burst out laughing. (If accounts are to be believed, I manage my money worse than George W Bush managed his presidency.) Every single person in my office offers me friendly advice on how to make more or save more or invest more. They think I'm stupid or naive or just misinformed. They are frustrated that I won't learn.
I don't plan my savings. I dont do tax calculations. I don't invest. I don't even send my bills to the office FINANCE department for reimbursement. Supposedly, I lose 1 lakh every year simply because I pay tax for money that should have been in the form of investments or reimursements and hence non-taxable.
I get their point (obviously)! But do they get mine?
My point is this: 40K in one shot is a bigger amount than 50K spread over twelve months because of the nature of our expenditure. And I'm the only guy I know who understand this.
I don't waste time every month trying to find bills so that I get my reimbursement money. I dont keep track of bills. I don't forge reimbursement claims. I don't fudge my tax amounts. I dont account for my investments, because i make no investments that can be accounted. I tell my finance team that I'm not looking to make any investments, so will you please deduct the appropriate tax amount from my salary every month?
Every month from June to December, I am the butt of office jokes on money management. And then the calendar turns over; the financial year-end is a quarter away; and the jokes have dried out.
I'm the only person in my company who draws the full regular salary for the months of Jan and Feb. Everyone else pays massive amounts of income tax (accrued over twelve months) for the investments that they had planned to make but couldn't. To add insult to injury I get extra pay in the month of March after my reimbursement-money has been taxed and the left-over given to me. I'm the only guy in my office who actually has a cash surplus on April 1st.
How much time did i spend thinking about tax-and-reimbursement this last year? Twenty minutes or so I guess, mostly while writing this post. How much time did you spend this last year on tax planning and reimbursements? I spent a lot of energy in ignoring all your advice. That effort was well-spent for me. How much energy did you put into your tax planning? Was it worth it?
It's true that, in reality, I made less money than I should have over the year. But THAT is a cost I'm willing to pay for the oppportunity of spending a mini-fortune every April. It's not how much you earn that counts. It's what use you put your money to.
I'm writing this piece from a beach resort in Mahabalipuram; with a glass of fine Australian wine in hand (I, and not the beach, being the possessor of said wine). Where are you now?
< sarcastic smile; as I plug my earphones back in to indicate the end of the lecture >
Zoom out to the music of GNR's Paradise City: man raises his glass to his lips and his eyes to the horizon.
Cut to credits...
I don't plan my savings. I dont do tax calculations. I don't invest. I don't even send my bills to the office FINANCE department for reimbursement. Supposedly, I lose 1 lakh every year simply because I pay tax for money that should have been in the form of investments or reimursements and hence non-taxable.
I get their point (obviously)! But do they get mine?
My point is this: 40K in one shot is a bigger amount than 50K spread over twelve months because of the nature of our expenditure. And I'm the only guy I know who understand this.
I don't waste time every month trying to find bills so that I get my reimbursement money. I dont keep track of bills. I don't forge reimbursement claims. I don't fudge my tax amounts. I dont account for my investments, because i make no investments that can be accounted. I tell my finance team that I'm not looking to make any investments, so will you please deduct the appropriate tax amount from my salary every month?
Every month from June to December, I am the butt of office jokes on money management. And then the calendar turns over; the financial year-end is a quarter away; and the jokes have dried out.
I'm the only person in my company who draws the full regular salary for the months of Jan and Feb. Everyone else pays massive amounts of income tax (accrued over twelve months) for the investments that they had planned to make but couldn't. To add insult to injury I get extra pay in the month of March after my reimbursement-money has been taxed and the left-over given to me. I'm the only guy in my office who actually has a cash surplus on April 1st.
How much time did i spend thinking about tax-and-reimbursement this last year? Twenty minutes or so I guess, mostly while writing this post. How much time did you spend this last year on tax planning and reimbursements? I spent a lot of energy in ignoring all your advice. That effort was well-spent for me. How much energy did you put into your tax planning? Was it worth it?
It's true that, in reality, I made less money than I should have over the year. But THAT is a cost I'm willing to pay for the oppportunity of spending a mini-fortune every April. It's not how much you earn that counts. It's what use you put your money to.
I'm writing this piece from a beach resort in Mahabalipuram; with a glass of fine Australian wine in hand (I, and not the beach, being the possessor of said wine). Where are you now?
< sarcastic smile; as I plug my earphones back in to indicate the end of the lecture >
Zoom out to the music of GNR's Paradise City: man raises his glass to his lips and his eyes to the horizon.
Cut to credits...
posted by Sriharsha Salagrama at
12:55 pm
6 Comments:
Tax Planning for 2009
Goody! Just the example I wanted. A random blogger - a stranger - pops in to give me "good advice" on how to plan my investments for 2009! This guy, Krishna, has supposedly written a book on tax planning. My stock seems to be rising, eh? First, it was just friendly advice from other fellow strugglers. Now, I've got the experts running after me. :)
Nice to see your thoughts about fiscal responsibility. Each has his own reasons to do what they do. So there is no conversion here.
I believe that each one may or may not be good at something. But if you are good at investments, then maybe the hours you spend this year will not only give you substantial profit but may even put you closer to the life of fiscal abundance.
Example stock of AAPL in the year Jan 2004 - Jan 2005 ran up 233%. You may say, oh you are timing the market, if you didnt exactly time the market but held on to the AAPL stock then you'd be doing pretty well too with about a 1000% gain (with any span of over 7 years, before 2002). Well the premise again was that you were good at picking stocks. If you are not soo great your returns may not be that great. If you outright suck, you probably shouldnt be investing for long.
Now if your post was just about the holding on to receipts and claiming back business expense then you are good as long as you dont pay a whole lot on business trips. Some people (read Sales and Business Development kind) may spend a ton of money and I am sure the part about spending the extra time to figure out the details of the trips is actually a part of their business role.
In the words of man, I consider wise, Mr. Buffet: "People should do what they are good at."
If you are not good at investing, dont do it yourself. Find someone who is good at it and give him the job. If you are not good at finding who is good at what, tough deal.
Like I said, the point of the comment is not conversion. I find it hard to digest that everyone who was meticulous with their investments has to pay a lot of income tax. ;) After all income tax is the tax on income, so if they have to pay more, it means they've earned more. Is the marginal monetary gain reflective of the effort. For some maybe not but for some maybe.
After all I do hear that some success stories of people retiring at the ripe age of 19. ;)
Ah Anon; my point wasn't that 'everyone who was [sic] meticulous with their investments has to pay a lot of income tax.' They all probably saved / made more than money. My point was merely one of value-for-effort.
As far as investment success stories go, I'll sign off with the memorable words of the Red Queen in the movie Resident Evil :'I don't deal in chance.'
Krishna's comment was the ultimate point in case for this post! :D It really cracked me up! :D
It was incredibly funny. :D If there ever was a case of walking right into a booby trap, THIS was it.
I wonder why he didn't follow up, though. Experience tells me that most financial advisors don't give up easily. Think I have a convert to my philosophy of anti-planning?
We'll know when "Tax Planning for 2010" does not get published, eh?
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