Taxes make a huge difference in your long-term wealth. People don’t understand the real impact taxes have on their wealth. The impact can be illustrated by running two sets of numbers. Take a dollar and double it twenty times. The charts show the results. You’ll get over $1 million. But what happens if you tax each time you “make money” when the account doubles. Use a 40% tax. You’ll lose 40% of your million dollars, but is that all? Check it out on the charts:
Dollar Doubled Each Year With No Tax
| Beginning of Year | End of Year | |
| 1 | $ 1.00 | $ 2.00 |
| 2 | $ 2.00 | $ 4.00 |
| 3 | $ 4.00 | $ 8.00 |
| 4 | $ 8.00 | $ 16.00 |
| 5 | $ 16.00 | $ 32.00 |
| 6 | $ 32.00 | $ 64.00 |
| 7 | $ 64.00 | $ 128.00 |
| 8 | $ 128.00 | $ 256.00 |
| 9 | $ 256.00 | $ 512.00 |
| 10 | $ 512.00 | $ 1,024.00 |
| 11 | $ 1,024.00 | $ 2,048.00 |
| 12 | $ 2,048.00 | $ 4,096.00 |
| 13 | $ 4,096.00 | $ 8,192.00 |
| 14 | $ 8,192.00 | $ 16,384.00 |
| 15 | $ 16,384.00 | $ 32,768.00 |
| 16 | $ 32,768.00 | $ 65,536.00 |
| 17 | $ 65,536.00 | $ 131,072.00 |
| 18 | $ 131,072.00 | $ 262,144.00 |
| 19 | $ 262,144.00 | $ 524,288.00 |
| 20 | $ 524,288.00 | $1,048,576.00 |
Let’s see…Take a dollar and double it 20 times, and you’ll get a million dollars plus. BUT there is no tax on this sequence. What happens if you tax the dollar at a 40% tax rate (federal plus state)? How much do you end up with? A 40% tax should leave you with about 60% of the million dollars–or $600,000, right?
Dollar Doubled Every Year With Tax 
| Beginning of Year | End of Year | Gain | Tax | Year End Balance | |
| 1 | $ 1.00 | $ 2.00 | $ 1.00 | $ 0.40 | $ 1.60 |
| 2 | $ 1.60 | $ 3.20 | $ 1.60 | $ 0.64 | $ 2.56 |
| 3 | $ 2.56 | $ 5.12 | $ 2.56 | $ 1.02 | $ 4.10 |
| 4 | $ 4.10 | $ 8.19 | $ 4.10 | $ 1.64 | $ 6.56 |
| 5 | $ 6.55 | $ 13.11 | $ 6.55 | $ 2.62 | $ 10.48 |
| 6 | $ 10.49 | $ 20.97 | $ 10.49 | $ 4.19 | $ 16.79 |
| 7 | $ 16.78 | $ 33.55 | $ 16.78 | $ 6.71 | $ 26.85 |
| 8 | $ 26.84 | $ 53.69 | $ 26.84 | $ 10.74 | $ 42.94 |
| 9 | $ 42.95 | $ 85.90 | $ 42.95 | $ 17.18 | $ 68.72 |
| 10 | $ 68.72 | $ 137.44 | $ 68.72 | $ 27.49 | $ 109.95 |
| 11 | $ 109.95 | $ 219.90 | $ 109.95 | $ 43.98 | $ 175.92 |
| 12 | $ 175.92 | $ 351.84 | $ 175.92 | $ 70.37 | $ 281.47 |
| 13 | $ 281.47 | $ 562.95 | $ 281.47 | $ 112.59 | $ 450.35 |
| 14 | $ 450.36 | $ 900.72 | $ 450.36 | $ 180.14 | $ 720.58 |
| 15 | $ 720.58 | $ 1,441.15 | $ 720.58 | $ 288.23 | $ 1,152.93 |
| 16 | $ 1,152.92 | $ 2,305.84 | $1,152.92 | $ 461.17 | $ 1,844.67 |
| 17 | $ 1,844.67 | $ 3,689.35 | $1,844.67 | $ 737.87 | $ 2,951.47 |
| 18 | $ 2,951.48 | $ 5,902.96 | $2,951.48 | $1,180.59 | $ 4,722.37 |
| 19 | $ 4,722.37 | $ 9,444.73 | $4,722.37 | $1,888.95 | $ 7,555.79 |
| 20 | $ 7,555.79 | $ 15,111.58 | $7,555.79 | $3,022.31 | $ 12,089.27 |
Surprised? You only have $12,089–not $600,000. Are you getting a feel for how important it is to cut your taxes? A simple 10% or 20% tax cut today could mean millions of extra spendable dollars over your lifetime.
Learn how to effectively cut your taxes and build real wealth in my Advanced Tax Tactics.
