Let’s face it: the topic of taxes is just… plain… boring! Boring, but IMPORTANT. Here’s the most important rule to remember about taxes in your personal financial planning in the least boring way I could muster.
From The Financial Crossroads Chapter Thirteen of, Wag the Dog:
There is an alien in our house. Even though we willingly invited this being into our midst when it was very young, it’s become abundantly clear that it does not fully understand the cultural norms of the human realm. For example, when left to its own devices, it will pillage our human food stores even though it subsists on its own specialized alien food. It seeks to re-create the style and substance of our outdoor landscaping by relocating the dirt and mulch of our purposefully designed flower beds onto our sidewalks, and creating anew trenches and holes in parts of our yard that were previously flat and covered with grass. And despite our munificent creation of an alien habitat inside of our home, it seeks to live in, and often bring destruction to, our human habitat, furniture, and creature comforts. It’s...a dog.
Tim’s dog can’t catch a Frisbee with her mouth, but tries with her paws!
She is, as much as it pains me to say it, our dog, and unless she hears Jack London’s Call of the Wild, she will be for quite some time because she’s still only a puppy. She was a shelter puppy—an adorable, lovable mix between a German Shorthaired Pointer and a Labrador Retriever (at best guess). An especially strong case can be made for the pointer, because as she grew, she became so tall and lanky that her youthful coordination simply couldn’t keep up with her growth. The result was an hysterical few months of physical comedy.
After a February winter storm, she looked like Bambi scrambling to find her footing on the ice-covered snow. If she made it up a flight of stairs, she’d have to be carried down to avoid tumbling over her stilt-like legs. And her tail grew to a point where it seemed to double her overall length. That tail is a weapon capable of clearing off an entire coffee table. And she’s so annoyingly happy that her tail is always in motion. I have, on more than one occasion, seen her lose control of her overjoyed tail, collapsing her entire awkward frame into a heap on the floor.
“Don’t let the tax tail wag the dog.” In college, I heard that quote for the first time from the professor that made the greatest impact on me in those years, Dr. Daniel Singer. He was—and is—that professor that unnerves students because he’s not predictable. One semester, he’d teach a class with three tests and two quizzes in between; the next semester, your entire grade was based on only one presentation. But it was his unpredictability, his passion, and his depth of conviction that drew me to him, and I aimed to take as many of his classes as possible. It is now my privilege to teach alongside Dr. Singer as an adjunct faculty member at the university from which I graduated.
Dr. Singer would not claim to have been the first ever to say, “Don’t let the tax tail wag the dog,” but to me, in my junior year of college, it was groundbreaking, and it still is. Too many people, too often, make poor economic decisions because their judgment is clouded by tax concerns. In most financial decisions, the tax consequences are a secondary or tertiary—at best—consideration. Drew Tignanelli, a Certified Public Accountant and Certified Financial Planner™ practitioner with 30 years of experience balancing tax planning within the framework of good financial planning put it to me this way: “First, forget about taxes!”
How could he make such a claim? It’s not because he sees taxes or tax planning as irrelevant or unimportant. He simply recognizes that in the realm of personal financial planning, you should make decisions first based on the wisdom of the investment, insurance, retirement, or estate planning strategy, and then take a look at the taxes.