Author Topic: Passive Income After Taxes or Before Taxes?  (Read 2326 times)

tlg1983

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Passive Income After Taxes or Before Taxes?
« on: December 06, 2013, 02:57:17 PM »
Hi All,

I'm very new to and love the MMM blog.  I've just started on my way to becoming a mustacian, and have high hopes for myself and my wife.  I completely understand investing and passive income, and understand that you can "retire" when your yearly passive income is greater than your yearly expenses.  However, what is not clear to me on the MMM blog, is whether or not he is talking about passive income before taxes or after taxes.  MMM always seems to say that yearly expenses are "X" and he's getting "Y" in yearly passive income from investments, but the number he gets from "Y" must be after tax passive income, correct?

I guess the whole reason I am asking this question is becuase my passive income target (and retirement date) need to reflect an after tax dollar ammount that exceeds my yearly spending, is that correct?  Am I missing something?  It's just a little confusing when MMM explains it the way he does.  I understand this may be a REALLY dumb question, but just want to make sure I'm not missing something here.

Thanks for the help!

gimp

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Re: Passive Income After Taxes or Before Taxes?
« Reply #1 on: December 06, 2013, 03:28:19 PM »
Yeah, income less taxes should be greater than or equal to spending.

Or if you were to lump taxes into spending, then incomes should be greater than spending.

Having said that, if your income is under 30 or 40K, you often end up paying very little in the way of income tax. Certainly nowhere near the marginal rate at 30K or 40K.

Also, you may have already paid taxes on the income when you invested the money, or it may have been a pre-tax investment and if you're old enough you don't pay tax on withdrawing it. So in some situations the tax liability is a flat zero.

tlg1983

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Re: Passive Income After Taxes or Before Taxes?
« Reply #2 on: December 06, 2013, 03:32:16 PM »
Awesome, makes complete sense, thanks gimp.

arebelspy

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Re: Passive Income After Taxes or Before Taxes?
« Reply #3 on: December 06, 2013, 06:38:37 PM »
Yes, net passive income, not gross must be greater than expenses.  :)
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