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Tax time
Dividends and Tax
Hi, I’m on a path towards a generating a passive income through dividends. I’m finding every time my tax return is due I always owe thousands. Makes me question what the point of investing is when I’m not reaping the rewards but actually the opposite! Is this a regular occurrence for others on the same path? Thanks Sam
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If you owe thousands in tax it either means one of two things:
- You’re earning a decent level of dividend income and your portfolio is expanding nicely
- You are invested in funds which have high income or high turnover and pay out large amounts of capital gains
Keep in mind that you are likely also getting a decent amount of capital growth in your portfolio which remains fully untaxed until you ever sell. So you’re still far ahead overall -tax may be frustrating but it’s unfair to say you aren’t reaping any rewards or aren’t better off.
If it’s a big concern for you though, you may want to look at options which produce lower levels of income and higher growth. US focused funds tend to do this. And Aussie funds tend to not be that bad due to franking credits, so there’s that too.
There’s no magic way to enjoy a growing income stream and a greatly expanding portfolio in any asset class while paying no tax.
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Thanks Dave, appreciate the response. You’re right – I am enjoying capital growth. I guess my frustration is because my portfolio is just a number on a screen and tax time actually takes money from my pocket. Must stay patient… Long term.. etc!! Thanks 🙏
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