Early Retirement Extreme Forums

With gold, cash, and long-term bonds making up 75% of the Permanent Portfolio-why aren't taxes in the portfolio talked about more?

Interesting topic.

In austria, gold is complettely tax free (at the moment)

What options do US citizens have for offshore gold storage/ownership ? I guess not a lot ? And then you still have to pay taxes on it ?

In a permanent portfolio, there isn't enough tax-efficient asset allocation to offset the gains.

The reason its not discussed specifically in the context of the permanent portfolio is that its no different from taxation issues pertaining to any other portfolio or appreciating asset. Neither the concept of capital gains taxes nor rebalancing are unique to the permanent portfolio.

It isn't different in that it is a subset of different taxation fields but the promise of the Permanent Portfolio is stable returns but these stable returns seem on par with near the lowest of equity returns after taxes.

My point is that it's horribly tax inefficient when I look at it and I feel I have to be missing something:

Gold has no returns and is purely a hedge. Put in a taxable account as taxes only come when selling
Long term bonds put in a tax advantaged since it throws off the most income in the least efficient way
Cash taxable because of its utility in being easily accessed
Stocks will likely end up in both buckets

So if returns are 4% pre tax, doesn't that leave me with the same 3% post tax swr of many other portfolios?

The permanent portfolio promises stability but don't taxes have a high chance of destroying the returns at the very time they're most needed?

In addition to what Dragline said, many Americans (dunno how it works elsewhere) do most of their saving and investing in retirement accounts where there aren't any incremental taxes on inter-account transactions/distributions. It's not taxed until withdrawal from the account when the withdrawal is taxed either as simple income or not at all (depending on the type of retirement account it was withdrawn from). So in a sense it doesn't matter from a tax perspective how you manage the money once it's inside the account.

It's probably largely a function of which taxing authority you fall under whether a PP can be implemented tax efficiently.

For gold, you would only pay the collectibles rate (28%) if your income tax bracket was 28% or above. If your taxable income is less than 28%, you'd owe taxes on the gold's capital gains based on whatever your income tax bracket is. So 10%, 15%, or 25%.

To avoid it completely, you'd need to have no taxable income (staying under the standard deduction and personal exemption).

If I were so unfortunate as to owe a lot of taxes because my gold is now worth 100x what it used to be, I'd probably move to a state with no income tax and rebalance there.

Bonds and stocks are included in other portfolios like Dragline said so that's moot.

In my experience the PP is actually one of the more tax efficient portfolios out there. Gold has no dividends and cash has very low interest (these days). So only half of your portfolio is regularly throwing off taxable income, and because of the very different assets you usually have opportunities for tax loss harvesting to offset that income. Rebalancing is also pretty rare in accumulation, as you can perpetually rebalance simply by topping off the low asset with new income.

When dealing with hyperinflation, the worry about taxes on huge gold gains seems like a feature rather than a bug. Everyone else will be broke and wishing they had profits to pay taxes on.

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classical_Liberal wrote: ↑

Thu Jul 20, 2017 9:08 pm

Kriegsspiel wrote: ↑

Thu Jul 20, 2017 7:36 pm

For gold, you would only pay the collectibles rate (28%) if your income tax bracket was 28% or above. If your taxable income is less than 28%, you'd owe taxes on the gold's capital gains based on whatever your income tax bracket is. So 10%, 15%, or 25%.

I did not realize this! This is actually actionable information for me and counter to what my original researched showed (or at least what I thought it showed). Are you stating this with certainty? can anyone else confirm golds gains are taxed as income vs collectible gains in lower tax brackets?

Sorry if this side tracks discussion.

Yep -- can confirm. Just think of gold as being taxed as ordinary income with a cap of 28%.

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classical_Liberal wrote: ↑

Thu Jul 20, 2017 9:49 pm

Felipe wrote: ↑

Thu Jul 20, 2017 2:50 pm

These gains are taxed at the marginal rate and if hyperinflation happens, harvesting unrealized gains comes with a huge tax bill.

In hyper inflation you could just file for an extension, by the time your tax is due it would cost you next to nothing . IOW, hyperinflation does not usually occur within stable governments. The greater fear would be the government deciding to grab all of it's citizens gold at a significantly reduced, fixed price point vis a vis 1933 US.

You - are correct, Sir!

@Tyler9000 & Kriegsspiel
You effectively changed my thinking about this. It makes a lot more sense now so thank you.

@classical_Liberal
You blew my mind there.