how's it going everybody so good to see all of you once again welcome back to
money in life TV my name is Mike the CPA on this channel we make videos around
finances investing and taxes in this video I hope to help you minimize taxes
when it comes to investing throughout the course of your life this is the
second part to the tax diet so I hope you guys enjoy it I think you're gonna
get a lot out of it so I encourage you to watch it until the very end I've
saved the best tip for last I have 5 tips and all for you guys ok guys I'm
gonna jump into the information right now but real quick before we get started
if you guys like this video let me know by crushing that like button!! or leave a
comment down below by doing so it's gonna help this information reach more
and more people all these tips I think are really easy to implement and you're
gonna see why so the first one of the first two are very related so the first
tip I have for you guys is to be a long-term investor now why do I say that
because if you're a long-term investor which means if you're holding an
investment whether it's a stock and ETF mutual fund whatever if you hold that
investment for a year and one day or longer you're gonna get long-term
treatment and when you get long-term treatment on a stock sale for example
you're there's a special thing called capital gain tax rates if you don't know
capital gain tax rates are much less than ordinary income tax rates that you
pay on your wages so for example the highest ordinary income tax rate is 37
percent whereas the highest capital gain tax rate is only 20 percent if you think
about how that adds up on large dollars so that's that's a pretty substantial
savings right on like a hundred grand seventeen percent less tax is like
seventeen thousand dollars more your pocket because the investor held the
stock longer you'll notice that depending on your pond your filing
status and your overall income when you go to sell your investments you might
actually be able to pay zero taxes if your income was low enough and that's
even if those investments are held within a taxable account so it's pretty
cool so it's so a lot of people out there if they own investments and sell
them they can actually pay zero tax on those gains very cool stuff so pay
attention to the long-term capital gain rates and I have a whole video on the
capital gain taxation rules that'll link below in the description so when it
comes to investing one of the first and simplest things you can do to minimize
your taxes and I should say that the the tax tips I have for you guys today are
within a taxable brokerage account not talking so much about a Roth account we
talked about that in the first part of the tax diet series but more so in a
taxable brokerage account but the things we can do to minimize our taxes there so
for you when you're thinking about investing think long-term if you want to
minimize your taxes being a day trader or a short-term trader is not your
friend short-term is defined as anything in
fact if you sell an investment that is held for exactly one year or less
so just by holding your investments long-term it's gonna help you save on
taxes when you go to sell them the second tip I have for you guys it's all
about dividends it is very related to the first tip if you guys know how
dividends work you know that if you buy a company for example let's say you buy
Johnson & Johnson stock let's say Johnson & Johnson they pay a dividend on
a quarterly basis so let's say on March 31st you receive that dividend well that
first dividend you receive is probably going to be classified as an ordinary
dividend it says ordinary because that means you have to pay ordinary tax rates
on that which you don't want so how do you fix that
well if you I'm gonna put the rules for qualified dividends on screen here you
can pause the video and read it for yourself but basically once you've held
Johnson & Johnson stock for like six months to a year those when you start to
get the dividends from the company after that period of time they're no longer
going to be classified as ordinary dividends they're gonna be start to
classified as qualified dividends which means you get the same amount of money
but now you're paying less and less tax and you didn't do anything different
here right the only thing you've done to get the qualified divin
is this hold onto that stock long-term so when it comes to investing and when
it comes to minimizing your taxes think long-term not short-term trading like
all those day traders who are trying to sell you their stock courses over
YouTube the third tip I have for you when it comes to taxation and
investments is do you really need to sell that right now what do I mean so a
lot of us who who own a taxable brokerage account let's say we we we
might have several investments that have large unrealized gains in them on
realized meaning we haven't sold them so we don't have to realize any tax yet and
that's important for you to know many people out there I find don't know that
you don't pay any tax at all on stock sells until you actually sell the stock
so you can actually own Amazon stock for example you might have a million-dollar
gain on Amazon stock but you won't pay a dime and not even a nickel in tax until
the day you start to sell some of those shares so when it comes to you wanting
to start to sell some of your shares of your ETF mutual funds or stocks think if
you should really sell of it sell it all at once or if you should sell it off in
bits and pieces and here's why you need to think about this so let's say let's
say you have a twenty thousand dollar gain on a stock and you're getting
you're thinking about selling it well most people they don't think about taxes
so what do they do they usually let's say they own a hundred shares of that
company they sell off all 100 shares at once and now they're stuck with a
$20,000 taxable gain that they got to pay all at once what most people don't
do is they didn't consider their other forms of income see your wages your
dividends your rental income business income all that adds up it affects your
overall tax rate so when you go to sell an investment in a game all that income
is going to be added to all of your other types of income which might push
you into a higher tax bracket you don't want that you want to avoid that so like
by paying attention to how much total income you have from other sources and
by looking at the marginal tax rates those tax bracket tables you can
and help keep your income low enough by being strategic of how much of your
investment you sell at once to keep your overall income low by keeping your
income as low as possible you're gonna avoid bumping up into your
into that higher tax bracket which you do not want to do so you might for
example so instead of selling all of your shares at once maybe you sell some
of your shares in December and then you sell some more of those shares in
January first of the next year to help keep your total taxable income down as
much as possible to not bump up into that higher tax bracket something to
consider something to watch out for that most people aren't thinking about when
they're going to sell investments the next tip I have for you number 4 deals
with selling investments as well but these investments these are investments
where we have a losing position where we own a ETF or stock or mutual fund but
we're losing on it we have an on realize loss
what's nice about having a taxable brokerage account is that if you do sell
an investment at a loss you get to take advantage of that loss that loss can
help help offset other short-term gains or other long-term capital gains so it
can be used to reduce your taxable income from those other sources which is
really nice so some people they it's called tax loss harvesting harvesting
which a lot of people will go to sell an investment towards the end of the year
and let's say they have a $5,000 gain over here on let's say Apple stock and
let's say they have a thousand dollar loss on GE stock or General Electric
stock for example well the loss from General Electric is gonna help offset
the total taxable gain for Apple so instead of paying tax on $5,000 now
they're only gonna pay tax on $4,000 which is quite nice and even if you
let's say you have no capital gains at all let's say you're wanna sell an
investment you know you're gonna take a loss then what well if you're gonna take
a loss what's nice is you can actually deduct - up to a maximum of $3,000 per
year on capital losses which is quite nice if you take a larger loss than that
what happens well what's nice is that loss is gonna carry
forward into future years and can be used once you have other capital gain
income so it's gonna offset that other income those other capital gains once
you have that so that you don't lose the loss it carries forward indefinitely
until the day you die and there's special rules that that come into play
when you die especially if you're married so but I
covered that all right auch Tibet in my other video
on capital gain taxation so make sure like I said make sure to check that out
okay guys it's time for the fifth and final tip and I think this one is the
most important of all and when I first started investing I was just trying to
wrap my head around how do you even do investing how do you analyze stocks and
all this so I wasn't thinking about this initially but as I got older and wiser
as they say I started thinking more and more about
this is a lot of people they have multiple types of accounts so for
example my wife and I we each have a Roth IRA and we also have a taxable
brokerage account well that's three different investment accounts right
there so what I've learned over the years is that especially if you're
somebody who wants to invest for cash flow for like if you're if you really
enjoy dividend investing you're gonna you're gonna like this because dividends
are normally taxable but what you'll find is if any dividends you put in any
investments you buy within your Roth there they're gonna be completely
tax-free even if you're receiving dividends as long as the investments are
held within a Roth IRA they are tax-free and so which investments might you
consider putting more so in a Roth than a normal taxable brokerage count two
perfect examples is real estate investment trusts known as REITs the
other one is master limited partnerships or publicly traded partnerships there's
two things about these types of investments where I think they'll
benefit from being in a Roth IRA as much as possible first with wreaths I don't
know if you guys know this but REITs no matter how long you hold the investment
when that dividend is paid to you it's always gonna come to you in the form of
an ordinary dividend so you'll never receive qualified dividends from REITs
it's not allowed so you can never so what that means
can never get lower tax rates on those dividends so with that being the case
those are a perfect investment to stick in a Roth IRA because even though the
dividends are at ordinary there's the ordinary dividends all them all the
money all the dividends you receive from that investment are completely tax-free
the same and same with master limited partnerships so our publicly traded
partnerships those entities the reason I mentioned those is with REITs and those
publicly publicly traded assets a lot of times they have higher yields like four
five six seven percent sometimes even up to ten percent depending on what you're
invested in so those are great examples of what you might place in a Roth IRA
okay the next thing so now you've let's say you've maxed out
your Roth IRA over here now what kind of investments might you consider putting
in your taxable brokerage account or what strategy you might you implement
more so in your taxable brokerage account well if you want to do growth
investing if you if you're all about growth and you don't care so much about
dividends a taxable brokerage account is actually a really good place to do that
because remember even though it is taxable you could if you hold the
investment long-term you can still get the lower more favorable capital gain
rates plus remember you don't pay any tax at all until the day it comes when
you sell the investment so if you want to do growth investing I think a taxable
brokerage account is it could be a good place to do that
the second thing you can do is if you want to buy bonds you can might consider
buying tax-exempt muni bond but I think there's there's several different types
of ETFs that are tax-exempt that that kicked-out tax-exempt interest or
dividends so that when you although you were receiving income that would
normally be taxable it's all tax exempt so it doesn't affect your taxable income
whatsoever so that's really nice the last type of investment or the third
type of investment you might consider placing in a taxable brokerage account
is your lower yielding investment so let's say let's say that some companies
pay 3% 2% or even 1% dividend yields those are the ones you want to place in
your to a brokerage camp the the companies
that pay or the ETF's that pay higher yield like four five six seven percent
those are the ones you want to stick as much as possible over in that Roth IRA
thing because those are that's where you're gonna and that's where you're
gonna reap the more the tax benefits on those so as you can see this by being
strategic about where you place what type of investments you can save tax
there now it might not be tonight it might not look like a big tax savings
upfront but over the course of your lifetime ladies and gentlemen it really
adds up especially as your account grows and that compounding kick interest kicks
in you want that compounding interest to not only be growing your account but you
you want to be minimizing your taxes the whole way through so let's just recap
real quick to make sure you guys understood all this so the first tip the
first two tips really is to be a long-term investor why because by being
a long-term investor when you sell investments or when you receive
dividends qualified dividends you're gonna pay a lower tax rate on those
investments because you get those are subject to capital gain rate treatment
the third thing we talked about is deciding when to sell your stock or ETF
consider only selling some in one year and a little in the next year to keep
your overall income low so that it doesn't bump up their doesn't bump you
up into those higher tax brackets on all of your income the fourth tip is that
use your capital losses to offset capital gains and the fifth tip we just
discussed which i think is the most important of all is be strategic about
which accounts you use to place which investments by doing that it's it's
gonna be a very simple way for you to minimize taxes throughout the course of
your lifetime when investing I do caution you guys though don't focus
everything you do around taxes only do these tips only implement these
strategies if it makes sense for you based on your long term investing
strategy and your overall goals but hey if it makes sense if it aligns with what
you what you're planning to do then go for it because it you might as well not
you might as well pay as little tax as possible right at least that's how I
think about it alright guys those are the five tips I have for you today if
you like the video Meno by crushing that like button I'd
really appreciate it also feel free to share this information with a friend
especially if you know somebody who's really into investing or who's trying to
learn more about this stuff I think these tax saving strategies
could really benefit them last but not least if you have not already subscribed
to the channel be sure to do so by hitting that red subscribe button down
below and also if you hit that little bell notification icon it will notify
you every time I post a new video I try to post a new video on this channel
about once per week on money in life TV we're all about helping you become
fiscally fit as you guys can see from the canvases behind me we teach finances
investing taxes and so much more so make sure you subscribe to the channel so you
do not miss any of our future uploads alright ladies and gentlemen
leave your comments your questions and all that good stuff below I'm looking
forward to reading what you guys have to say until next time wherever you're at
out there I hope you have a wonderful week and I'll see you in the next video
live life on caged bye guys peace