I'm sure a lot of us have heard that our
three biggest expenses are housing, transportation and food.
But according to a Nasdaq article, they say there is no doubt about it,
taxes are by far the single largest
expense that most Americans pay every year.
We often forget about taxes because they usually come directly out of our paycheck.
So we never see that money coming out.
And then we don't really think about it
until we have to do our taxes in the following year in April.
But if taxes really are our largest expense or close to it,
then today you're going to learn how to make money in three different ways
that is non taxable income so you can keep more of your money in your own pocket.
I am Tiffany Thomas with Wealthy
Tiffany Com, and I achieved financial freedom at age 38.
And if you are looking to achieve financial freedom at a young age as well,
hit that like button and hit the subscribe button, and we are going to dive right in.
First off, let's talk about the most
traditional way that people do make money, and this is through a nine to five job.
They usually work 40 hours for a certain
salary, but they aren't receiving all of that salary.
A lot of that is going to taxes.
On average, people pay over $15,000 a year in taxes.
The most recent IRS data revealed that Americans who filed taxable returns
paid an average income tax payment of 15,322 in 2018.
So I'm sure that number has gone up in the past few years.
The first way to have non taxable income
is by setting up a Roth IRA, a Roth individual retirement account.
It's a retirement account that you can set up on your own.
You don't need to be working a nine
to five job and have it set up through your employer.
I personally have my Roth IRA through Vanguard.
One of the reasons that I like a Roth IRA
is because when you contribute money, yes, you do pay taxes on that money.
But when you withdraw that money, you do not pay any taxes on that money.
So it is able to grow tax free over how many ever years you keep it in there.
You can contribute up to $6,000 per year to a Roth IRA.
And if you do that every year, that money will continue to grow
exponentially over time because of compound interest.
And as that money does grow and grow and grow.
When you withdraw that money, you do not have to pay any taxes.
And since it is a retirement account, any money that you are earning
in the Roth IRA, you're not able to withdraw that until age 59 and a half.
But you can withdraw your contributions any money that you put into the account
at any time, without any penalty and without paying taxes again on your money.
And plus, you are not required to start
withdrawing that money at any time, unlike a traditional IRA.
So that's just another benefit of a Roth IRA.
You can let that money just grow and grow
and grow, and you can take all of that money out all of the money
that you've earned at age 59 and a half and not pay any taxes on it.
Just to give you an example,
I have contributed to my Roth IRA, but a few years ago I ended up purchasing
another property and I wanted to use some of my money from my Roth IRA.
So I took out what I had contributed to my Roth IRA, and I didn't have to pay
a penalty when I did that or pay taxes on that money again,
because I already paid taxes when I put the money in and I was able to put
that toward my down payment on the property I was purchasing.
When you are in your retirement years, you're able to live off of a Roth IRA
without having to pay taxes on that money, which can be really great because you may
be in a higher tax bracket, especially if you have a traditional IRA
because you will be required to start withdrawing that money each year and you
will definitely have to pay taxes on that money.
And if you want to learn more about
a Roth IRA, I have a video completely dedicated to that.
I will leave a link above and below in the description.
You can check that out later on.
So comment below and tell me if you already have a Roth IRA setup.
The second way that you can have non taxable income is by investing in stocks.
And this is actually one of my favorite
ways to do this, because you can set up a brokerage account,
which means you can withdraw that money at any point without a penalty.
But the catch here is, if you keep those investments in your
brokerage account for at least one year, then you will be paying what's called
a long term capital gains tax, which is going to be lower than a short
term capital gains tax when you sell off those investments in your brokerage
account and they have made a profit for you.
So that just means if you
bought a share of a stock for $20 and then you were selling it for $30,
then you've made a ten dollar profit, then that would be considered a capital gain.
If you bought it for ten and sold it for five, that would be a capital loss.
When you set up your brokerage account and you invest in stocks or ETF,
whatever it might be, then hold that money for at least a year
and then you'll be able to pay long term capital gains tax, and this can be $0 non
taxable, depending on which state you live in.
If you are single and you are making up
to $40,400 per year, then your capital gains tax rate would be 0%.
If you are married, it would be $80,800 per year,
and you would still be able to get 0% interest for that capital gains tax rate.
And yes, this doesn't apply to all states,
but the majority of states, and it is a federal income tax.
So depending on which state you are in, you may have to pay state income tax.
And if that is the case, maybe it's time to consider moving
to a state that doesn't have a state income tax.
It's just an idea, because it is another
way that you would have non taxable income.
And if you are single making over
that $40,400 up to $445,850, then you would pay 15% in the capital
gains tax rate, which is still better than the ordinary income tax rate.
And if you are a high roller making over
the $445,850, then you're only going to pay 20% for the capital gains tax rate.
And if you're married, it is higher.
So anywhere from $80,$801 to $501,600,
you would pay that 15% and then over $501,600 you would pay 20%.
And I have personally done this.
I have a brokerage account set up.
And when I was purchasing that fourth property of mine, I decided to use some
of that money from my Roth IRA and some from my brokerage account.
So I had investments in there that had been in there over a year.
And some people seem to be worried about putting their money into a brokerage
account because they have to pay taxes on that.
But as we've just talked about, if you are making a lower income around
that 400 being single or that 800 by being married, then you would have that 0% rate.
The third way to have non taxable income
is by contributing to an HSA, a health savings account.
This is such a great investment vehicle that a lot of people don't know about.
And yes, you do have to qualify to have an HSA.
You need a high deductible health plan that is HSA qualified.
It's very advantageous to reduce your taxes, because any money that you're
putting into your HSA you are not taxed on like you would be for a Roth IRA.
And then any money you are pulling out
for any medical expenses, you are not taxed on that money either.
And most HSA providers let you invest that money in the stock market.
So it's not just sitting in a savings account not earning you hardly anything.
But you can actually put that money into the stock market.
You can invest it, which means that will grow exponentially over time.
The maximum contribution amounts for an HSA for a single person is 3550.
And then for family coverage, it is $7,100 per year.
And if you're thinking that's not that much money,
if you are investing that money in the stock market every single year,
then it will definitely grow into a large amount over time.
And with an HSA, you do not have to take
that money out every year like you would with an FSA. A flex spending account.
Those two are very different, so don't get them confused.
An HSA, you can continue to roll that money over.
You can save all of your medical receipts and get reimbursed for those years later.
And when we are getting older, we tend to spend more money on medical expenses.
So the HSA makes it really nice because you can build up that money over time.
And then if you need a Hip replacement years down the road,
you can use that money from your HSA completely tax free,
completely penalty free, and use that to pay for your Hip replacement.
The HSA money is completely tax free when
you are using it for any medical expense that you might have.
But if you do want to use the money for a non medical related expense after
age 65, then you can do that and you would pay taxes on it.
And if you're thinking I don't have a lot of medical expenses,
there are some expenses in there that you may not think about as a medical expense.
For example, contact solution, or if you are getting LASIK or PRK,
which I just had done, you can use your HSA for those expenses.
And when I had my PRK surgery,
my eye surgery done, I did not use my HSA for that.
I will save that receipt.
And when I want extra income, then I will get reimbursed that amount
for my PRK surgery and I will not have to pay taxes on any of that money.
And if you want to learn all of the details about an HSA,
A health savings account, I did create a separate video about that.
I will leave a link above and below.
You can check that one out later on.
That is the third way that I wanted to talk about on how to have non taxable
income, and I actually want to give you a fourth way.
This is a bonus way of creating non
taxable income, just because I thought it was pretty interesting.
If you rent out your house for 14 days or fewer out of the year,
then you do not have to declare that income that you are receiving on your taxes.
And if you're thinking, oh, I have no plan to rent out my house.
I just want to give a quick example.
A few years ago when we had that total eclipse, the solar eclipse,
there were a lot of people that were traveling to Idaho,
which is not usually a popular state to travel to, but it was crazy.
Hotels were completely booked out
and people started letting other people park in their driveway or
camp on their lawns or even rent out their basement or part of their house house.
So if there is some event that is happening in your area,
then you can take advantage of that and rent out your house or even
just your garage or your yard, and you can do that for 14 days or fewer
and not declare that rental income on your taxes.
I also heard of a guy that decided to list his house on Airbnb or VRBO one
of those vacation sites, and he listed it for a pretty high price.
But when someone took him up on that offer, on that high price,
then he would take his family and they would go stay with relatives
for the weekend or however long the people wanted to rent his house for.
And he made a decent sum of money by doing that.
So just try to be open to different possibilities or opportunities.
If you want to create a little extra
income and especially non taxable income, hopefully these items will help you pay
less in taxes, and you can use that money for something else.
I know there are a lot of other ways to create non taxable income,
so comment below and tell me what is your favorite way to create some income
that you are not going to have to pay taxes on.
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Thanks so much for watching.
I'll see you in the next video.