This series is uncompromising on tax: you cannot outsmart your tax authority. They have been hunting unpaid tax for longer than you have been alive.
That is not a reason for fear. It is a reason to stop wasting energy. This is level 5 of the Wealth Principles pyramid: being tax efficient. It comes after your behavior and before investment selection, and it closes the series.
Quick check. Your salary rises from €39,000 to €41,000 and crosses into a 30% tax bracket. Do you take home more or less than before?
Many people think "less". The answer is in the next section.
Myth 1: "A raise will push me into a higher bracket"
Most income tax systems are progressive: the higher rate applies only to the part of your income above the threshold, never to all of it.
Take illustrative brackets: 10% up to €10,000, 20% up to €40,000 and 30% above that.
| Income | Tax | Take-home |
|---|---|---|
| €39,000 | €6,800 | €32,200 |
| €41,000 | €7,300 | €33,700 |
Crossing into the 30% bracket, you take home €1,500 more, not less. Only the €1,000 above €40,000 is taxed at 30%. Worth saying directly: much of the fear around tax comes from not understanding basic tax mechanics.
Myth 2: "I won't sell, I don't want to pay the tax"
This one is expensive. The rule, in capitals: do not avoid gains just because you don't want to pay tax. You either want the money or you don't.
Say you hold a position worth €20,000 that cost €10,000, so your gain is €10,000. At an illustrative 12% tax on gains:
- Sell now: tax is €1,200, so you keep €18,800.
- Hold to dodge the tax, and the price falls 15%: the position is worth €17,000 and the gain is €7,000. Tax is €840, so you keep €16,160.
You lost €2,640 to avoid a €1,200 bill. Tax is a share of the gain. Refusing to take the gain can cost you far more than the tax ever would.
The decision to sell or hold should depend on your plan and the investment, not on avoiding a tax bill.
The principle: pay it, understand it, optimise it legally
Think of tax as the subscription fee for the country you have chosen to live in. Some people do move to low-tax countries. That is a life decision with consequences far beyond tax, not an investment strategy.
What you can do, legally and calmly:
1. Know your holding-period rules
Many countries tax long-term gains more lightly than short-term ones. Two examples:
- Croatia: gains from disposing of financial assets are taxed at 12%, and gains on assets held more than two years are not taxed.
- United States: gains on assets held more than one year are taxed at lower long-term capital gains rates than short-term gains.
Rules change and every country differs, so check your own before acting on a holding period.
2. Keep records by account and wallet
Group your records per account or wallet. That gives accurate accounting, especially with several brokers or crypto wallets. Which cost method you may use (for example FIFO) is set by your country's rules, not by preference.
3. Use tax-advantaged accounts where they exist
Pension and other tax-advantaged accounts are often the simplest legal relief available. Check what your country offers.
4. Don't make tax the strategy
Tax optimisation is not an investment strategy. It is housekeeping. The big money is decided at levels 1 to 4: your goal, your saving rate, your mix and your behavior.
Your checklist
- Find your country's capital gains rate and any holding-period rules.
- Note the purchase date of each position you hold.
- Set up one record per account or wallet: date, amount, price, fees.
- Check whether you use any tax-advantaged account available to you.
- Before your next sale, ask whether you would hold without the tax. If not, the tax shouldn't stop you.
The series is complete
You now have all six levels: the map, your freedom number, your behavior, your saving rate, your allocation, investment selection and taxes. Next on the blog: hands-on tutorials on the tools that measure a strategy, from time value of money to the Kelly criterion. Want to see how a rules-first system runs on your own numbers? Here is how Pace works.
Sources
- Porezna uprava (Croatian Tax Administration). Dohodak od kapitala po osnovi kapitalnih dobitaka. Link
- Porezna uprava. Oporezivanje kapitala. Link
- Internal Revenue Service. Topic no. 409, Capital gains and losses. Link
Educational content, not tax, legal or financial advice. Tax brackets and rates shown are illustrations or examples that can change. Check current rules in your country and consult a tax adviser before acting.