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Dollar Doubled–Tax Consequences

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 TaxDollar Doubled 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 Dollar Doubled 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.

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