December 18, 2020

Capital Gains Tax Rate 2020

Capital Gains Tax Rate 2020 you're about to learn the massive taxsavings between make your living through wages versus make your living throughdividends or investments good morning Internet! how's it going welcome back tomoney in. Live TV I have a very very special video for you guys today areally fun one, at that I've been thinking about doing a video around thistopic for such a long time and I'm just finally getting to it now now most of ushas probably we've probably heard, the amazing story about compounding interestand how investing and dividend. Growth and all that can eventually make youwealthy slowly over time but I bet you've, never heard about the story ofthe incredible tax savings you can obtain by investing and making yourliving through dividends we're gonna look at that in this video real brieflyand show you guys why. I think dividend investing is so powerful and this is apart of the reason I like to, structure my investments this way because not onlywill it provide. Me a residual income that has a very low risk of ever runningout but it can allow me to collect that income at virtually zero tax or a veryvery low tax rate. Compared to making that your livings we're wages let's diveright into it guys remember if you liked the, video make sure to drop a like itreally helps the channel out and it gets this information out to more and morepeople the numbers and the calculations we're, looking at on, screen have beenverified using tax software so I know the numbers are solid we've got solidnumbers here the examples, I'll be showing you on-screen I've put it on taxforms so that you can see it's more transparent and it's gonna make moresense of how this all plays out so you can see with a full clear picture.

, Of thetax differences between wages dividends and things like that so starting off onthe second page of the 1040 that's where the, numbers start to show up we see thatin this example chipper has whoops sorry let me scroll down here in this exampleon page 2 of the 2018 1040, chippers showing 100,000 in wages not aboutincome right now let's see how that plays outaxe wise and let's just for simplicity let's just stick with that. Income let'spretend there's no other income sources at all and how that. Plays out on forchippers taxes okay so first of all in the in this example tripper is single. Sothat means he gets a standard deduction automatically of 12,000 bucks so thatstandard deduction is going to reduce his overall. Taxable income so hishundred thousand in wages is reduced by twelve thousand gives him a total ofeighty eight thousand dollars in taxable income on line ten now the tax, thatcalculates on that on line eleven is fifteen thousand four hundred andsixteen dollars that is the tax chipper that's, the income tax chipper pays onhis wages what's all but what's not included, hereis a Social Security and Medicare taxes because the 1040 primarily just dealswith income taxes which is why you don't see that here so from an income taxperspective with if chipper. Made one hundred thousand in wages he.

Had afiling status a single and no other credits or deductions he would payfifteen thousand four hundred and sixteen dollars in federal income taxesnone of the examples.

Just real quick none of the examples have I'm, not goingto be showing state income taxes because each state has very unique in differenttax laws and it would be impossible for me to cover that so, I'm just focusing onfederal income taxes but if there would be state potentially be state incometaxes on this income as well now we've seen the amount on the taxes on wagesnow. Let's move on, over to dividends and see what the differences are let's startoff with ordinary dividends okay so this is example two ordinary dividends let mescroll down to where, the tax form starts okay so as you can see here chipper hasno wages now chipper is making all of his living through dividends, importantdistinction here is on line three a you're seeing that there's qualifieddividends and right now we're saying chipper it doesn't have. Any qualifieddividends but chipper has ordinary dividends on line three B of one hundredthousand so one hundred thousand wages nowmm dividends. Now these are ordinary dividends and that's really importantbecause the reason these are ordinary dividends is it could be a couple thingsone either chipper has, it held onto those investments long enough for themto become qualified dividends to maybe this is. His income that's coming throughthrough real estate investment, trusts which cannot get qualified dividendtreatment or maybe it's coming through MLPsor something else where qualified dividend treatment may or may not beallowed so that maybe that's why so those are some reasons why. He would havea hundred thousand and ordinary. Dividends versus qualified dividends andwe're gonna cover qualified dividends here a little bit more in just a momentokay how does this play out so once again chipper is finally in status issingle heat, so he gets that automatically. He gets a $12,000 standarddeduction his income is reduced to 88,000 and he once again on line 11 histotal tax is 15,000 for, 16 now you're saying now I know what you're thinking Iknow what you're thinking you're like Mike why do I show me this it's this isexactly the same well I'm gonna, show you that it's actually not, in just a momentokay so there's an important thing to remember here so your wages I'vementioned in previous videos on some of. My tax videos your wages are taxed atordinary income rates all ordinary income rates the same is true forordinary dividends if the dividends you're receiving are ordinarythey're tax at the same rate for income.

Taxes as your wages so there's no taxadvantages there not yet but now watch. What happens when we shift over fromhaving ordinary dividends to having. Qualified dividends something magicalhappens okay now we're looking at example 3 chipper now has $100,000 inorder and dividends but but right here notice there's $100,000 now on. Line 3awhich means it means of those $100,000 in dividends$100,000 of that is qualified and the reason s importis once you start to receive qualified, dividends you no longer pay taxes atordinary income rates that's a big thing that's a big deal, when it comes to taxesonce you're receiving qualified dividends you now get to pay taxes atcapital gain, rates which is significantly less than ordinary ratesthat you would pay on. Ordinary dividends other income or like income on yourwages so let's watch how this plays out and by the way if you're not used toseeing tax forms this is not, saying that chipper has 200,000 in dividend incomeno no no no this is saying that of the 100 thousand dollars of dividendschipper received. One hundred thousand dollars of that amount is. Qualifiedthat's what that means just to clarify if there's any confusion okay let's moveon down the tax form once.

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