Taxes are designed as a means for government bodies to collect revenue that finances public services. Politicians intend for tax code proposals to redistribute wealth throughout the population and balance the economy. Higher tax rates, however, may result in greater wealth inequality at the municipal level, as capital and jobs flow towards near tax-free zones, such as the State of Texas, or even offshore principalities, such as the Cayman Islands. Onyx Investments frequently monitors global tax law, in order to propose viable recommendations that improve client real returns. A real return is the true measure of bottom line performance, as this statistic subtracts taxes and inflation away from nominal calculations.


Financial planning clients are primarily concerned with the tax ramifications of trading investments, managing businesses, and owning real estate. Onyx Investments remains aware of the fact that tax law is currently structured to reward long-term investments that build wealth. For example, homeowners who choose to itemize may avail themselves to mortgage interest deductions. Further, the U.S. Treasury classifies investment income according to interest, capital gains, and dividends. At the moment, long-term capital gains and qualified dividends are granted special tax treatment. Lower long-term capital gains tax rates apply to investments held for longer than one year – before being sold.

Deductions Versus Credits

The U.S. tax code is progressive, which means that higher levels of income are subject to higher tax rates. The Internal Revenue Service taxes each successive bracket of income at higher rates. Tax tables ease the calculations somewhat, as these tables present a cumulative tax bill based upon taxable income. A tax deduction will subtract away from taxable income, prior to the IRS ultimate calculation of total tax. A tax credit, of course, generates more savings, as it directly reduces your tax bill upon a dollar for dollar basis. Over the years, tax deductions and credits have emerged for real property ownership, retirement savings, student loan debt, and home office space. For savings efficiencies, the goal remains to proactively study changes in tax law, before actually sitting down to complete your 1040 forms.

Retirement Plans

For a comfortable retirement, individuals and families may need to amass hundreds of thousands, if not more than one million dollars, in savings before leaving the work force. To meet these retirement ends, 401(k) and IRA plans are popular vehicles that feature tax breaks for long-term savers. Pre-tax money funds 401(k) and Traditional IRA plans, while the Roth IRA is a ready vehicle for after-tax contributions. All retirement plans are notable for tax-deferred growth. The Roth IRA offers tax-free withdrawals, while 401(k) and Traditional IRA withdrawals trigger ordinary income taxes upon the effective retirement age 59 1/2. At age 70 1/2, 401(k) and Traditional IRA participants must take required minimum distributions that will be taxed. Early withdrawals made from retirement accounts are typically subject to severe tax penalties.


Tax law is dynamic and heavily politicized. Views upon which industries should be rewarded or restricted by tax policy change over time, according to the economy. Onyx Investments encourages clients to remain politically active, informed, and up to date in regards to tax policy. We do recognize that the U.S. Government is now effectively strangled beneath the burden of more than $100 trillion worth of deficit and entitlement obligations that include Social Security and Medicare. Furthermore, individual states including Illinois and California are now ad hoc situations with seemingly infinite pension liabilities. In this environment, the investment class is likely to bear the burden of higher tax rates.