Understanding Taxes: Tips and Strategies for Minimization

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2:07I want people to also think about what are the things that you have to do or the investments that you have to make in order to help you, you know, live tax-free. The same thing goes with investing in the stock market. It's passive. It has a lower tax rate. So even if you put your money, if you made the exact same money in the stock market that you made in W-2 income, you would be paying like a much lower tax rate. Like I just told you guys, somebody could have a gain, a married couple could have a gain in the stock market of$90 ,000. they would have to pay zero taxes. Well, if they made W-2 income, they would be looking at, on the federal side alone, about 25 % in taxes, right?

2:52That's not including state, right? Like me live in New York City, right? Local, right? So now you have all of these different taxes and, you know, it can be pricey. So when we're talking about reducing taxes, I want us to talk about like the flow and really understanding that we have to look at everything. So before we start talking about business owners, let's just quickly talk about what tax deductions are there for individuals. And then we'll go on to being a business owner because honestly, starting a business is a tax strategy for people that have W-2 income, right? And when I say starting a business, that could be, you know, starting a business that can be invested in real estate, But you have to do something, right?

3:40I always say if you want to kind of change your tax situation, you got to change what's happening, right? You got to change your facts and what's actually being put down on paper if you want to make that change. So let's talk tax minimization as it relates to individuals, right? So you can do things like invest in municipal bonds, long-term capital gains. So I like to list long-term capital gains because a lot of people that are looking for a way to say, hey, well, how can I take my income and generate additional income and not have to pay as much taxes? So, again, we talked about this, you know, a good amount already, just investing.

4:18That is one way that can be done starting a business. So we'll talk about that on the next, but we'll continue to talk about that just like being a business owner and how you can shift a lot of those expenses that you guys are paying with after-tax dollars and shift it up into your business. So now it's a tax deduction, right? There's major power in that. Maxing out your retirement plan. So most people are not actually maxing out their retirement plans at work. That is done with before-tax dollars. So if that's done with before tax dollars, go ahead, invest in your retirement plan. So therefore, you're able to get to maximize on your money and take advantage of that compound interest.

5:01So employee benefits, HSA accounts, and then your tax credits. Right. So your earned income credit, your American Opportunity Credit, child and child and dependent care credit. So all of those are credits. One credit that I did not. Well, one really good deduction that I didn't put up here, which I just thought about because we were talking about real estate, is the homestead exemption credit for all of my individuals that are selling their property. So I talked about 1031 exchange. A really good one for individuals when they sell is they are able to exempt up to$250 ,000 of a capital gain if you're single.

5:45right if you're married you get to exempt up to 500 000 so i've had clients in so many different scenarios where there was one client she literally sold she helped she had a property 11 and a half months she sold the property and i'm like no no sorry it was a year sorry it wasn't it was one year and 11 months 11 and a half months and the exemption i mean the the credit says that if you live in this home two out of the five years that you that you've owned it um that you get to exempt this 250 000 and so i was like oh my god why didn't you call us because now what happens is because she sold it before the two years now she can't right now she can't take advantage of the credit but has she just known and held on to it for freaking 15 days yeah yeah she's two months away.

6:38Yeah. Yeah. No, actually she was 15 days. She was one year and 11 months. She only needed to hold onto it for two years. So she would have been, she would have been exempt from taxes, you know? So it's like knowing things like that is really important. Um, because again, you're giving away money, be offended. Like B I want people to get offended. I always say, if I came to you and said, listen, I want 20 % of your house sale, sell your house and then give me 20%, you will be highly offended. You probably want to punch me, right? Like you would be highly offended. But when it comes to taxes, people don't understand it.

7:17So they just be like, okay, I'm going to just pay it. But I want you guys to get offended and really do whatever you feel that you can do to minimize your taxes, which is just have the conversation, right? With your CPA or your accountant. And if you can't have that conversation with them, then that means that you need to fire them, right? Because then that means that they're not for you anymore. All right. So, yeah, so we're going to get into different type of tax deductions in detail. First, everybody hit the like button and share. We're about to get deep into it, but let's go over just the actual brackets if we can, before we go into the different type of strategy.

7:59Yeah. So brackets are important, right? Brackets are important because when you fall into a particular bracket, that is going to determine the amount of taxes that you are going to pay. Right. So early I talked a lot about, hey, well, you know, if you had a couple that were that was investing in the stock market and if they were invested in the stock market, then they would be able to, you know, take a, you know, sorry, they would be able to make$90 ,000 in income and pay zero taxes. But if you have that same person that was like married, right, they, they, what are we looking at? Okay. Well, we're looking at 12%, right.

8:35And taxes. So I want you guys just to understand, as I mentioned, the harder you work, the harder you, the more taxes you are going to pay. So at the top, what you see under earned income, this, these are, this is my W2 earners. This is my business owners, right. That are, that have LLCs that has S corporations, partnerships. This is your tax bracket. OK, so it can be as low as 10 percent and it can be as high as 37 percent. What you have below is your investment income. So your investment income can be as low as zero percent. Right. And then it can go as high as 20 percent. I want you guys to realize, do you realize that no point is your earned income not taxed at all?

9:20you see that it starts out at 10 % that's it from zero to 11 like it's going to start out at 10 % so I want you guys to just really really understand like you know what this really means and then I want to highlight the corporate tax rate because I know I talk I spoke a lot just about the you know the corporate tax rate and it being much lower so somebody may you know look at this and be like okay well I'm not going to be an LLC I'm going to be a corporation but you have to just hold on. Let's talk about corporations and how they're taxed. So corporations, the business itself does pay 21 % in taxes.

9:58So they do pay 21 % in taxes, but what happens is a corporation deals with what's called double taxation, right? So every person that invests in a stock, what happens? They invest in this stock, the company, let's just say they invest in Apple. Apple files their corporate tax return and Apple pays taxes, right? So Apple pays taxes. Then what happens is they send you dividends. And what happens when they send you a dividend? You got to pay taxes on it. Unless you reinvest it. You can reinvest it. However, you have to pay taxes on the dividends that they send you, right? They're going to send you your form.

10:44They're going to send you have to file the dividend income that you receive from this business. So that's what's called double taxation. So you as a shareholder, right, you have to pay taxes and then Apple has to pay taxes. So that's why ultimately just forming a C corporation may not be the best idea because now you're paying 21 % on the corporate side. And now if it's just you and the business, you are the shareholder. So now that then goes over to you. So now you're looking at an additional 20 % on the dividend income. Ernest, what's up? Look, let's face it. Most guys just power through pain and strains.

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