569: The Most Expensive Tax Is the One That Stops Compounding

Most investors spend nearly all their time thinking about how to make money. They analyze returns, evaluate risk, search for opportunities, and try to identify the next great investment. But there is another side of wealth building that receives far less attention: How much of what you make do you actually get to keep—and continue compounding? Taxes on investment gains can be one of the most destructive forces in wealth creation, not simply because of the check you write today, but because of everything that money could have earned in the future. Consider an investor with a $10 million gain in California. A combined capital gains tax bill approaching $3.7 million would leave only about $6.3 million available to reinvest. That is not merely a one-time loss of $3.7 million. It is also the loss of every dollar that $3.7 million might have produced over the next 10, 20, or 30 years. At a hypothetical 10% annual return, $3.7 million could grow to nearly $25 million over 20 years. That is the true cost of the tax: not just the original payment, but the decades of compounding that disappear with it. This is why sophisticated wealth planning cannot focus exclusively on generating returns. We must also consider how assets are owned, when gains are recognized, and whether taxes can be legally deferred so that more capital remains invested. My guest on this week's Wealth Formula Podcast is Brett Swarts, founder of Capital Gains Tax Solutions and author of Building a Capital Gains Tax Exit Plan. Brett specializes in a strategy known as the Deferred Sales Trust, which he says may allow certain investors and business owners to defer capital gains taxes when selling highly appreciated real estate, businesses, stocks, or cryptocurrency. In this episode, we discuss how the strategy works, the legal structure behind it, its costs, its audit history, and the important limitations investors should understand. We also walk through practical examples involving real estate, business sales, and Bitcoin. This is not about avoiding taxes illegally. It is about understanding that when and how taxes are paid can dramatically affect long-term wealth. Because making money is only half the equation. Keeping more of it working for you is where compounding becomes truly powerful.