PROLOGUE

On Halloween night, a little boy dressed in a suit and tie knocks on the door of a house.

The resident asks him:
- But what are you dressed as, little one?
– As Mr. Tax Officer.

And the boy leaves with a third of the candy, without even saying thank you...

 

INTRODUCTION

Few investors think carefully about tax issues when selecting their investments.

In this article, I will try to explain to you why it is absolutely essential to take taxation into account. The numerical explanations that follow could well be a real electroshock for many readers.

To tell the truth, although I have always been particularly sensitive to tax aspects, I must admit that in carrying out the research necessary for writing this article, as well as in studying my own tax returns and carrying out other numerical simulations, I myself was bluffed. The results turned out to be even more spectacular than I had imagined...

But let's take things in order and start this tax journey at the beginning.

 

STOCK EXCHANGE AND TAXATION

Every investor who has ever bought bonds or shares will have quickly discovered that on a coupon or dividend of 100 francs, after the visit of our friends from the tax administration, he ultimately had much less than 100 francs left.

Autopsies what is happening with your Nestlé dividend: While you thought you were going to receive 100 francs, you meet a new friend called withholding tax. And bam, you only get 65 francs.

Well, it's annoying, but nothing too dramatic, you might say: When you declare your Nestlé dividend in your tax return, you will be reimbursed these 35%.

That's true, but I would add that it's still not very practical when you want to live off your dividends: You only receive 65% of your passive income in April or May, the rest will arrive... almost a year later at the time of reimbursement of this advance tax (Civil servants are known for their many qualities, of which speed is undeniably one.). This is the first Kiss Cool effect of the joys of imposition.

It should be noted in passing that the right to reimbursement of the withholding tax is extinguished if the request is not submitted within three years.

The second Kiss Cool effect soon follows when you discover that your Nestlé dividend (this time, of course, is the gross dividend of 100 fr and not of net dividend of 65 fr...) has been added to your salary and is taxed in a very unpleasant way, which I will dissect later in this article.

This is broadly what happens with taxable dividends, also called ordinary dividends.

 

CAPITAL GAINS

Fortunately, you might say, there are the stock market capital gains which are not taxed (as long as it is not professional stock market trading). If you buy Nestlé shares at 75 francs and sell them at 80, the price gains go straight into your pocket.

The problem, besides the brokerage fees, is that capital gains are not as predictable than dividends. So it is more speculation than investment. If you bought Nestlé at 75 francs and the stock is now worth only 70, it is already more delicate, especially if you were planning to live off the stock market by regularly successfully selling capital gains.

Very disillusioned after discovering how your dividends are taxed and destabilized by the unpredictability of capital gains, you soon hear about the untaxed dividends...

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