4 ways to reduce capital gains tax.

[Music] hey Dustin tivity our financial adviser with jazz wealth managers a little closer to the board today cuz we're gonna do some drawing and I got something for everybody actually so we're gonna cover everything four different ways to avoid or maybe reduce your taxable capital gains tax right because if it could be going higher here if well Joe Biden becomes the president I don't care who wins I'm just I'm not being political I'm just saying hey man's got a plan to raise long term capital gains taxes so we'll cover that I'll go through the first one the first one's really easy and that is to use retirement accounts right some people are gonna think oh my gosh it's gonna be a crappy video but hang with me you know IRA you have the ability to put away six or seven thousand right so six thousand if you're less than or under fifty years old seven thousand if you're over the age of fifty and what that does is if you're saving money there or investing it in that account provided that you need to or want to well obviously that's gonna eliminate the capital gains tax you're gonna deal with the different tax down in the future but you're lowering your tax rate as well if you think Roth IRA then we're gonna cover something interesting here same thing if you're over fifty six thousand if you're under fifty the idea there is of course you're not using a taxable account I buy the argument of using a taxable account for retirement savings right now tax rates are super favorable I understand that but we're gonna have to be a little bit strategic so number one was just really simple use an IRA Roth IRA Roth 401k your 401k at work if you want you can contribute a lot more of course so that's number one number two is if you're gonna use a brokerage account shoot for long term capital gains in that account be more active in your Roth right so a lot of people look at their brokerage account and they'll have like a M one account Robin Hood account or some sort of brokerage account right and they're doing their active trading in this account whereas I argue you might want to do it in the raw right because you're not paying taxes there if you want to be active I'm if you don't believe in that or don't want to do it that's fine but a lot of people just open a brokerage get to trading and then they find out all crap has short-term capital gains doesn't matter if you have a smaller account but as you get a sizable account over here you're really going to start to regret the short-term capital gains because short-term capital gains are taxed as income it's just as if you went to work and you made some money you're gonna pay ordinary income taxes whereas long-term capital gains are a little bit different of a story here they get a flat tax the way this works basically and I'll do this real briefly and we'll get into some more detailed stuff but let's imagine you're married filing jointly right and you make under eighty thousand dollars so eighty thousand dollars or less you are not going to pay long-term capital gains it's free it's as if you had a Roth but the Roth doesn't have an age restriction right so you want to shoot for long term capital gains in the brokerage account if you can that's a zero percent tax rate there right for now that may change but for now that's what it is if you make between eighty thousand and five hundred thousand alright that's a big jump there but as what it is you're gonna pay a fifteen percent tax now a lot of people mistakenly leave comments in the videos and they say but dustin has double taxation no no it's not double taxation it's fifteen percent on the profit if you make a thousand dollar profit 150 goes to the government assuming you're in this camp here and then you get to keep the 850 that's that's basically how that works okay income let's say you sold a business or you have a really sizable account you're gonna pay 20 percent flat tax that's a little this here this 15 percent is likely better than your ordinary income tax rate so my argument is use the brokerage account for long term capital gains and use the Roth IRA for your active trading things like that if you want to be more active it's up to you okay number three be super diverse when you invest don't just buy five stocks there's no commissions anymore you can buy all the stuff you want there's fractional shares we use fractional shares here for example our dividend fund which we post on our websites our portfolio is made up of currently 99 different stocks usually it's a hundred but it's 99 at the moment so by being diverse that gives you opportunity for number four right you can't go to number four with this tip here if you're not diverse here's the idea if you have a brokerage account and you're super diverse got a lot of positions in there you're building a portfolio versus looking at stocks well then what you can do is sell your losers and add to your winners right in other words rebalancing but sort of a hybrid rebalancing there wouldn't you want to do that right if you have two stocks and one's a winner one's a loser you're likely not gonna sell that one stock you'll say I wait till recovers out good job then I'll sell it now you're gonna get stuck if you have a hundred stocks little more to manage you got to do a portfolio sort of mindset there but if you have eleven stocks that aren't performing well it's such a small position you're gonna say forget it just sell those and move them on to my winners well by doing that you now have a capital loss right potentially a capital loss so this takes me back to an example I did for a customer a long time ago this is number four here this is a thought right is just an idea it's by no means a strategy and I'll get someone going to all of it but let's assume you have a sizable brokerage account so I'm gonna put up here this is your brokerage account I can't write and talk right so that's your brokerage account and let's pretend that you're going to pay your taxes and this was two years ago as the customer I'm thinking of and you're like I me and I could use some help in my tax return man I owe some money here I'd like to try to reduce that bill most advisors just say I just put money in an IRA if you qualify right so then you think all right a traditional IRA and as long as I qualify I'll take my deduction it'll be fine but let's take it a step further if you're diverse in your brokerage account and you don't know mutual funds or whatever let's say you have one of our portfolios or a couple of them and you've got two or three hundred stocks inside of there you have access to the cost basis meaning you have we have the ability to sell just a couple different stocks inside of there we don't have to sell the whole fund like a mutual fund with so what could happen I'll give you an example of this this customer here they wanted to get the full $3,000 long capital gains write-off so each year if you're not if you are an individual you can write off three thousand dollars in capital losses in your positions again if you have two positions you're not gonna do this but if you have a very diverse portfolio you might consider this so he said I want to take three thousand dollars in capital losses Destin how much would we have to sell in order for me to lock in three thousand dollars of capital losses and I've shown this how we calculated it before the system that we use so in this case we had to sell off ten thousand dollars just about in total assets in order to generate three thousand dollars in capital losses right so on paper in other words we had to generate that so ten thousand dollars it was is what we had to do so then he says okay great I got the three thousand there that makes that's good I'll have that on my tax return that'll help maybe it gave me a little bit of something he was happy with that and I said well wait a minute you got ten thousand dollars here we're not gonna leave it in cash right we just sold it what are we gonna do the rule is we can't reinvest it right away got to either wait we're invested in something different so my thought was as long and this applies across both accounts by the way my thought was hey man why don't you take six thousand and contribute it to your IRA right and then we can reinvest the other four thousand within the rules so we didn't have the washout trigger we can invest the other four thousand in your brokerage account on paper you got a $3,000 loss I hope you're with me I know I just I go sometimes right so on paper we got a $3,000 loss he gets a six thousand dollar contribution for that year in his IRA which means let's just assume 20% that's another 1200 bucks where he landed but that's a credit for him of $1,200 so he's got on his taxes a loss of 3,000 on paper and he's got a $1,200 bonus or credit for investing in his IRA now as long as we don't reinvest in the same positions he gets to keep the $3,000 loss if we did by the way you could just add it to its cause basis but he wanted the write-off so sorry to go up topic and then we've got an extra 1200 because he made the contribution of the traditional IRA and he fully qualified to get the full deduction there and so now we've got 4,200 bucks to be used no tax genius here but that's better than thing if we would have just been like every other advisor and said just put money in your IRA it'll be fine where's the money come from can we take advantage of this here so in other words that's the moral of number four number one really simple use retirement accounts if you can and I mean individual accounts are fine but use the them to reduce long-term capital gains by maybe splitting them up number two short shoot for the long-term capital gains in the brokerage account if you can use the active sort of mindset for your retirement accounts if you can particularly Roth IRAs number three be super diverse if you can write all of our portfolios are made up of lots of stocks we don't pick mutual funds we don't play that game we build a portfolio so if it's a brokerage account and you have a specific need that you want to work out here I can quantify that down to the penny and help you out which leads me to number four if it makes sense and a lot of our customers do this let's look use the end of the year to not tax lost harvest is what a lot of people say tax loss harvesting is being more efficient than this but to tax loss lock in the losses you have and consider using some of that money for the IRA did I lose you I feel like sometimes I just you know I go I'm excited to share this stuff with you if I lost you in some way give me a hard time that's fine I could take the hard time there I just appreciate you watching and paying attention I hope that it sparks questions I teach customers every week we do a class for customers but I try to do it in a way where I leave it open-ended a little bit so you ask the question if I just tell you to do something you may not know what's going on you know like I don't know I guess I trust him right let's learn let me try to teach you so that's what I tried to do today if I messed anything up you know these things happen we made a lot of videos anyways enjoy the rest of your day thank you so much for watching and we'll see you soon why should you choose jazz wealth as your retirement or long-term investing service our portfolios are managed by us not some faceless mutual fund manager our private classes will teach you everything about investing and getting your dough straight best of all our fiduciary standard means your best interests comes before ours [Music]

Channel: Jazz Wealth Managers

Views: 27,431

Keywords: capital gains tax, capital gains tax explained, capital gains tax explained stocks, capital gains tax robinhood, long term capital gains tax, long term capital gain vs short term, long term capital gains, short term capital gains tax, short term capital gains tax on stocks, short term capital gains tax 2020, short term capital gains, short term capital gains tax explained, robinhood investing and taxes, how to avoid capital gains tax, tax loss harvesting

Id: jE7Hk6jl72E

Length: 11min 13sec (673 seconds)

Published: Wed Jul 08 2020