Why to Defer Tax Payment on Investments
Tax planning is a sometimes complicated task if you’re an investor. If you’re like most tax payers, you want to get your taxes filed right and paid on time to avoid the headache of an audit and the consequences of planning your estate incorrectly. However, there are legitimate reasons to legally defer payment of taxes when it comes to your investments, either your private ones or for your business.
More Capital to Invest
Deferment isn’t the same as never paying those taxes. You definitely will have to acknowledge the capital gain in time and pay what’s owed. However, by not taking the profit as income and instead reinvesting it, you have more capital with which to work. For example, if you make a $1000 profit and you cash out, you owe taxes on that capital gain and then only have a fraction of the total to invest in your next venture. Perhaps you’ll even miss out on an opportunity because you won’t have enough funds. If instead you invest the entire amount, you stand to make even more profit in the long run.
Tax deferment allows you more time to make greater profits. In the end, you’ll owe even more taxes simply because you earned more, but you’ll also have more money in your pocket.