Why it is unwise to pay taxes early

(edit: the calculation is NOT about the tax-free allowance, this is not considered as it is not relevant for the statement)

Many have the habit of paying their taxes towards the end of the year by realizing gains and buying right back in at the same rate. In this way, one avoids an accumulation of tax debt that has to be paid in the future, but slows down the compound interest effect by reducing one's capital mass early on.

Of course, it makes sense to fully utilize your tax allowance, but beyond that, profits should always be allowed to run.

Here is a calculation example with and without annual tax amortization (tax allowance is not taken into account)

Assume you have 10k that you want to invest. After one year you have made 10% profit. Your capital has grown to 11k, you realize and pay on the 1000€ profit 250€ taxes. Your capital is therefore 10.750€. You make 10% profit again the next year, so 1075€ on which you pay 268,75€ taxes = 806,25 net profit in the second year. Your capital is now 11.556,25€ after taxes. In the third year you are lucky again and make another 10% profit, 1.155€ - 288,75€ taxes = 866,25€ + 11.556,25€ = 12.422,50€ after taxes.

Now the whole without annual amortization of the tax debt:

10k after one year 10% profit = 11k. After the second year +10% it is 12.100€. Year 3 it would be gross 13.310€. 3.310*0,25=827,5€ tax burden. 13.310-827,5=12.482,50€ after taxes.

If the calculation is too complicated for you, you will notice that 12.482,50€ is more than 12.422,50€, 60€ more to be exact.

Thus one has saved not only various order fees but also 60€ of taxes and this after only 3 years with 10k capital. Who is bored can calculate the whole thing with 100k after 20 years, spoiler the difference is exponentially more.

That was the word to Sunday, in the sense give the state nothing and KEEP FUCKING HOLDING!