The last quadrant is Investor. As an investor, it is all about having your money work for you. As an investor, you can spread your investment money around to achieve greater income diversification, while lowering overall risk through less investment concentration. There is an investment continuum related to taxes. On one end of the investment continuum is interest income, where income comes from sources like money markets, bonds, and T-bills. Ordinary dividends (like you receive as a business owner) and short-term capital gains are also on this same end of the continuum. All these investments do not receive any special tax treatment.
However, moving along the continuum, there are qualified dividends and long-term capital gains that benefit from special tax treatment. Rather than being taxed based on how much you make, these investment vehicles are taxed for most investors at a fixed 15% rate. One exception is for the ultra rich, who pay 20%, which is far less than most investors’ marginal income tax rate. Next on the continuum is federal income tax-free interest income known as municipal bonds. Beyond that, there is income from real estate, which allows for depreciation to lower taxable income. Further capital gains, which are normally taxed when the property is sold, can be deferred indefinitely using what is known as a 1031 exchange. This allows the investor to grow their assets without paying capital gains on each successive transaction.
Finally, there is direct participation in oil and gas programs. Investing in oil and gas programs allows the investor to write off most of his investment against other sources of income, such as wages. Also, a depletion allowance makes only 85% of the income subject to taxes. However, to play in this game, most investors need to be accredited. This means that they have a net worth in excess of one million dollars or earn in excess of $250,000.00 per year.
Since being an investor means your money works for you, what are your plans to generate more income from this quadrant?
