312: Why Paying More in Taxes Can Actually Make You Wealthier

[00:00:44] Hilary Hendershott: You could pay more in taxes and still end up with more money. Wait, what? That sounds wrong because most people assume the goal is to pay as little tax as possible. But for high earners with appreciated assets, that instinct can actually cost you millions over time. Let me show you what I mean. Imagine you have $4 million in company stock.

[00:01:09] That stock has done well. Now, though, your wealth is really concentrated. If you sell today to diversify, you might trigger over a million dollars in taxes. So, now you’re investing 3 million instead of 4 million. You have 25% less to spend on the things that are important to you. Diversifying feels responsible, but disappointing, and it comes with another cost because from that point forward, your growth is happening on a smaller base.

[00:01:39] Now consider a different approach. Instead of realizing the gain all at once, you use a tax-aware strategy to defer and manage it over time. Now your full $4 million stays invested. At a 7% annual return, that grows to about 15.5 million over 20 years. Yes, the eventual tax bill will be larger. In this example, keeping the cost basis consistent, it could exceed $5 million.

[00:02:05] But here’s the part most people miss. Even after paying those higher taxes later, you still end up with more, more than $10 million compared to about 8.4 million. If you paid taxes up front and invested the rest, you paid more in taxes, and you still kept more money. Why does this work? Because compounding happened on a larger base for a longer period of time.

[00:02:31] That’s the meaningful lever. This isn’t about avoiding taxes. It’s about timing them and coordinating your decisions so more of your capital stays productive longer. Now, this kind of strategy is not appropriate for everyone. It requires sufficient scale and careful implementation, because the difference between a valuable outcome and an expensive mistake often comes down to execution.

[00:02:58] But for the right investor, especially someone with significant gains in company stock or really any other taxable asset, this can meaningfully change the trajectory of what you get to keep over time. At Hendershott Wealth Management, we call this Ultra Tax Efficient Wealth Management^SM. It’s not a product.

[00:03:18] It’s a trademarked ongoing process that integrates tax strategy directly into how portfolios are built and managed. If you’re starting to think about your own situation differently, and you want to understand whether you’re structuring things as efficiently as you could be, you’re in the right place.

[00:03:36] This is exactly the kind of work we do every day with clients who have meaningful gains and want to be more intentional about how those gains are managed over time. And if you reach a point where you just don’t want to figure it out on your own anymore, and you’d like help thinking through your specific situation, you can schedule a conversation with our team.

[00:03:57] Thanks for being here. If you’re thinking about your next financial chapter and want a partner who looks at the full picture, not just your investments, we’d love to connect. We’re a fee-only fiduciary team focused on after-tax outcomes and long-term planning, helping our clients keep more of what they earn so their money can support the life they’re building.

[00:04:18] If that sounds like the kind of guidance you’re looking for, you can schedule a complimentary conversation with one of my lead advisors by visiting hendershottwealth.com/contact to see if our approach is the right fit for you.