All this Tax Stuff...

… under private wealth management is hurting my head.

Rather than memorize the formulae, follow the money. What gets taxed now? How much is the tax? What’s left to grow in the portfolio? What gets taxed later? How much is the tax?

It’s a lot easier on your brain.

I just looked at each formula in terms of present value interest factors, paying special attention to whether returns are compounded before taxes are applied or not. Capital gains get taken out at the end. That way I didn’t have to memorize the formulae.

If you guys look at past exams you’ll notice that it doesn’t get tested all that often (even if it is very testable).

Hi Righteous, when will past exam papers be available please? and will they be on the CFA site? Thank you

I believe the last 3 are availble once you’re registered. I could be wrong there. However try google. It’s pretty powerful.

I took a gamble on sort of skipping that section. I realized there were just way too many versions of the same formula and just kinda hoped it didn’t come up. I am not saying what happened on test day.

My opinion is that if it does come up, it will be one small part of a morning question worth a few points. I think think your unlikely to get a whole question devoted to it.

Great managed to find them. Thank you

Take a look at this thread:

I give an example of how I’d approach a couple of tax problems.

Agreed… Lots of formulas but the concept is pretty straight forward… I’d focus on the concept versus memorizing the formula At its core, all you need to remember is FV = PV (1+R)^T

Absolutely right. I’m a CPA and the information is still a nightmare if you think about the formulas. Just work the problem out logically and you should be good. It winds up being a litlte more labor-intensive but its worth the time you save banging your head against the wall trying to understand their formulas.

One thing I did–I said “Scrw the formulas. I’m going with what I know.”

Instead of learning formulas, I used the old “subtract the basis” rule.

EG - A $100,000 taxable investment grows at 10% per year for five years. What is the “after-tax” value of the account?

Well, $100,000 investment becomes worth $161,051. Subtract out the $100,000 to find your GAIN. 161,051 - 100,000 = 61,051.

Then, take 61,051 * .3 = 18,315. This is your TAX.

Now, take $161,051 - 18,315 = 142,736. This is your AFTER-TAX VALUE.

Now, you know your basis (100k), your “tax-free” portfolio value (161k), your gain (61k), your tax (18k) and your “after-tax” value (142k). No matter what question they throw at you, you’ll have all the information.

Personally, I find this to be much easier than (1-((1.1^5)-1)*.3)*original investment) or whatever the formula is to find the after-tax gain. (See? I don’t even know the formula. I never knew it. Never plan to learn it.)

when i read the tax for the first time i was definitely overwhelmed, then i just ignore the formula and try to “make sense of it” it turns out it’s just very straight forward, tax now or let it grow and get taxed later (usually costing you more), you don’t need the formulas to do the calculations!!!

Not to mention it’s usually quite straight forward on the exam as to what they try to compare, they rarely make it extremely difficult with the tax questions, usually just compare the two or make you use that ratio where you put one over the other.

Don’t worry about it too much you will get it if it’s your own money! :slight_smile:

Thanks for the feedback, guys. I was just venting and wasn’t expecting the thread to “grow” :). Good to know I’m not the only one though. I’m sure I’ll be whining about something else in a couple of weeks as I progress through the material.

i remembered…cost basis is something that needs to be clear…

anything else…think i forgot all…