How I Paid $0 In Taxes Investing In The Stock Market (IRS Loopholes)

five ways to bypass or lower taxes on capital gains what's up y'all it's prince darnell founder of the jumping jack tax franchise where we offer taxes life insurance bookkeeping and other financial services to fulfill your needs i appreciate you for watching this video yet again if you are an avid subscriber uh first and foremost i want to thank all of the subscribers on youtube we have been growing we're at about 76k right now our goal is to get to 100k so if you value this video please like comment and subscribe and all of the of my stock market investors y'all are going to like this video if you're a beginner stock market investor you don't understand what capital gains are short term long term and how to bypass those taxes this will be very valuable for you and um i'ma bring some game and and if this is a massive value the only thing that i ask in return of you watching this video is to support my business right support my franchise so you found value in this um we offer personal and business taxes life insurance bookkeeping you can shoot a text message um text info to 267 267-792-0185 and i would love for my company and the professionals to be able to assist you tax-wise or any other financial services that you have right um so let's go ahead and get into it this is a quick video and um i want to just get a a really nice breakdown for you so that you know how to operate when um when moving um and buying assets and in this example i'm going to give i'll be talking about the stock market since this is the one that i'm most active in and odds are you are too let's start off by talking about what is a capital gain for all of the beginners who may not um have ever invested in the stock market or had assets before you don't know what a capital gain is basically a capital gain occurs when you sell an asset for more than you paid for it right and that has to do with stock market stocks bonds real estate it could be cars it could be boats and other assets that you acquire and you sell them for higher than what you bought it for um and you could go to the irs website as well and they'll have a list of all the different assets that are subject to capital gains and capital gains tax so that you know because some assets are taxed differently than others so it's important to understand that um but the purpose of this video is for you to understand if i sell my asset for more than i paid for it then it's possible that i'm gonna have to pay capital gains tax on that asset so the formula that i like to use is capital gain equals my selling price minus my purchase price right let's let's let's put the formula here on the screen capital gains equals my selling price minus my purchase price and that's how you'll always know what that capital gain will be so that it so that if it's subject to tax you know what you have to pay so let's use an example of a real life scenario that happened to me and we'll use that example in the stock market um so back in about june 2020 i think right around april to june this was when a pandemic happened and obviously the stock market was at a discount meaning a lot of a lot of stocks uh that companies a lot of company stocks were were undervalued right so you'd be able to buy up you know a lot of shares and um at that time i ended up finding fiverr and fiverr at the time i would spend money with fiverr all the time so a good a good example of you know buying companies in the stock market i think a great first example that i've learned from a lot of other people who are massively successful in this is you know start off by buying things that you're already spending money on right now right and having ownership of those stocks in those companies and fiverr was one of them when it came to business i would get websites done there graphics all type stuff like i would spend thousands of dollars in them a year and also i'm like damn you know especially during the pandemic one would think or one would speculate that you know obviously um a lot of people are going to be doing side work and you would think that people who are doing graphics and websites different things of that nature that's going to be a big business because everybody's doing it from home and side works i'm like damn you know what i want to buy in the fiber man have ownership in the company and at the time i ended up getting it in june 2020 for 68 dollars a share so i bought about 30 shares at 68 bucks right and that was a total of 2 000 40 price point to be able to acquire all 30 of those shares um should have got more but that's a whole other story um so it was 2040 uh total price um that i ended up getting it and um right around february 2021 february 8th 2021 to be exact i ended up selling because the stock price ran up to 268 and i sold it right at 268 price point and um so i sold at 268 on february the 8th so remember when we talk about the formula right capital gain equals my sell price minus my purchase price so let's just give that example well i know if my sale price was 268 and my purchase price was 68 then my capital gain was 200 per share and of course since i had 30 shares now you just obviously do multiplication 200 at 30 shares now that's a 6 000 capital gain that now occurred right six thousand dollar capital gain um from holding in all the way up until february we're not going to get into the tax yet but as you'll see on that scenario that's how you can calculate now what your capital gain is like i said let's 68 went up to 268 268 sell price minus 68 purchase price 200 capital gain multiply that by how many shares you have boom you now have your capital gain now at this point it's important when we talk about capital gains for those who are again beginners let's talk about how you're taxed right because now that i have a six thousand dollar capital gain it's important to know the difference between short-term and long-term capital gains because it's going to be a difference in how much taxes that you owe let's say on that six thousand dollars that i now have as a capital gain that's now realized right so let's break down how taxes work when you actually sell so um i think it's important to back up a little bit first and it's important to realize that um when we talk before we talk about short-term and long-term capital gains tax um there is a difference between an unrealized capital gain and a realized capital gain right so when i between that time of june 2020 all the way up to february obviously the stock price was was increasing which means that i i was making money but i was making money on paper but since i actually since i didn't sell that's considered an unrealized capital gain meaning that i i never i never have to pay tax on the growth of that stock until i actually sell and it becomes realized so to give you a better example that we see a lot of times people like jeff bezos saying uh the founder of t uh tesla uh elon musk and you see these and mark zuckerberg with facebook we saw them making billions of dollars over over the pandemic right they were making so much money billions and people were like upset because they're like yo how did how did their net worth increase by billions but yet they're not even paying that much in taxes based on how much their net their net worth right well it's important to understand that although they their value increased in billions it's because of the amount of shares that they own in their company right like i think jeff bezos has like 17 share in amazon so based off of all those shares that he owns when amazon's stock price increased then of course the his net worth increases at the same time but until jeff bezos actually sells off his shares right for cash but until he sells them off he doesn't have to pay taxes it's unrealized so his net worth continues to grow but he doesn't owe any taxes so it's important to understand that as everyday people that when you're an investor as long as you don't sell yeah you're getting richer on paper obviously you don't have the cash but there are ways around that too so know the difference between unrealized and realized i never have to pay tax if i don't sell off that asset that stock right as long as i hold it i'm good to go which is one of the things we'll talk about later on in this video um so when i sold that now became a realized capital gain where now i potentially have to pay tax on that gain so now let's talk about short-term and long-term capital gains tax now that it is realized i have a real live six thousand dollar gain okay so short-term capital gains tax that is that's six thousand dollars that that i now have as a capital gain it's short-term capital gain tax if i sold less than a year which indeed i did because i told you guys i bought in june 2020 i sold in february 2021. the reason why i and i'll talk about that in a second but i'm now subject to short-term capital gains tax because i didn't hold for longer than 365 days so with that now short-term capital gains tax is your ordinary income tax so let's give an example and this this is important because the ordinary tax rate is so much higher ordinary tax can go up to 37 percent based on your tax bracket so as an example that let's say that for the year i ended up after standard deductions and other type of deductions that i qualify for let's say that um my adjusted gross income for the year was 100 000 so if i have a hundred thousand if i made a hundred thousand for that year let's say to my tax bracket i think it's 20 24 then i'm going to end up having to pay 24 on that six grand because it's short-term capital gains tax on my ordinary uh tax rate so that's expensive imagine if you imagine if your adjusted gross income was up was upwards of four hundred thousand plus dollars you could be paying close to thirty seven percent in tax on that six thousand dollars that you just now had as a realized um as a realized capital gain that's expensive that's almost half of the money you can pay close to three grand right that's huge so if you whole if you if you sell less than a year you're gonna be paying ordinary capital gains tax uh on every single time that you sell for less than a year right so for me it's about let's say 24 if my adjusted gross income is 100 000 for that year right 24. now on the flip side if i held for longer than 365 days let's say i held for 366 days now i'm only paying long-term capital gains tax which is much cheaper because long-term capital gains tax you're paying anywhere from zero to 20 percent so if my adjusted gross income is i think 41 000 or less i'm actually i actually don't have to pay any taxes zero right and then if i i don't have the brackets we could put the brackets up here on the screen but based off of the let's use the same example that if my adjusted gross income was 100 000 for that year then i'm going to end up paying 15 percent long-term capital gains tax but let's think about it i'm paying 15 long term as opposed to 24 which is a extra 9 roughly that i'm paying in taxes right that i'm able to save just because i held for longer than 365 days so with that being said because because i'm about to roll into the to the five ways that you can bypass or lower your taxes i'm about to i'm about to run into that in one second if y'all keep watching here with that one of the things to just literally lower the amount of taxes you owe is by literally holding for 366 days that is going to save your life right there by saving money a lot of people don't want to hold right and they don't want to buy and hold so that was it and really the main reason why i didn't buy and hold fiverr to begin with was because of the fact that um obviously when i was looking at the chart um i just noticed that you know obviously the rsi was a little hot and i realized that the stock was on a run and it was about to take a dip any minute and i sold right at the top before it took that dip because literally right right after i sold stock i think i think the stock price ended up dropping from 268 all the way down to uh i think it was the low 200s so i ended up catching at the right time was the perfect trade but um you know sometimes you got to think about that as well you know um i took my profits at the top which is nothing wrong with that but just remember if it's less than a year you're gonna have to pay short-term capital gains tax if it's longer than the year then you pay long-term which ends up being cheaper from a tax perspective with that being said now that we understand what capital gains are um we understand what capital gains are we understand the formula on how to on how to get your capital gain and we know the difference between short-term and long-term capital gains tax let's now go into the five ways that you can lower or bypass taxes all together on your capital gains so let's go into number one to recap off of what i was just talking about buy and hold say with me ladies and gentlemen buy and hold let's say one more time buy and hold right when you buy and hold for at least 365 days you are lowering the amount of taxes that you owe because you're going to be subject to long-term capital gains tax of zero to 20 percent as opposed to ordinary tax which can go all the way up to 37 depending upon your adjusted gross income buy and hold not to mention buying and holding is the most effective way to double and triple your income and your net worth but on top of that that's how you create generational wealth through buying and holding right so you hold for a longer period of time that you have no issues right so number one buy and hold number two invest through an ira and if we're talking about the stock market right now yes preferably i love a roth ira i love it i'm not going to get into all of the nuts and bolts of what the roth ira is i'll do that in another video but just to simplify this i currently have a roth ira and i had to set it up as a backdoor roth ira because iras have income limitations but in order to have one um i it's like a hundred and something thousand dollars but there's a way to get around it through having a back door roth ira and you could still set one up and when i did basically now with that ira i can contribute up to six thousand dollars in a year to that ira to that roth ira and these are after tax dollars that i'm putting into the roth but here's the beauty of it when i'm when i'm investing into quality companies and index funds through this roth ira then all of the gains that i am earning in this roth ira when i turn 59 and a half and i now have the ability of accessing those funds without getting penalized now i don't have to pay any taxes on the gains when i'm 59 and a half let's say that my roth ira ran up a million dollars and cap a million dollars in gains right just through me long term and i'm doing it year over year now from the age of 27 all the way up and now i ran up a million dollars in capital gains through buying and holding now at 59 and a half when i go to access those funds if i want to access the funds i don't have to pay any taxes that's the beauty of having a roth ira right no no taxes when i'm 59 and a half because i contributed to it with after tax dollars so that's a way right there to be able to bypass the taxes all together through establishing a roth ira so if you're watching this right now i encourage you to go ahead and open up that roth ira have a 401k established with your job have a traditional ira it all depends obviously you want to do your research you want to look and talk to a professional but it's important that you set up a retirement account that's an effective way to lower your taxable uh your capital gains or bypass it all together and number three you can use your capital losses to offset your gains basically what that means is this right let's say with the same example with fiverr boom i'm i know that i'm about to sell on february 8th right and um because i want to get rid of it because i believe it's about to drop and i go ahead and sell well in that same year what i can do is if i know i have a six thousand dollar capital gain now i can look at some of the losing stocks that i have and i can sell off the losers to be able to offset the gain that i currently have now of course there are some tricks to that because you can only obviously if your losses are if you have losses that are higher than your gains you can only offset up to three thousand dollars um i'll make another video on that as well because that gets a little tricky but with tax laws there's something called tax loss harvesting where i can use my losses to offset my gains and that's another effective way to be able to lower how much i'm going to owe in taxes so again talk to a professional about that about tax loss harvesting so that they can look at your scenario to figure out if it's appropriate to do because every scenario is different but tax laws harvesting and using capital losses to offset your gains is also an effective strategy to be able to lower the taxes that you owe number four which is probably one of my favorites because it gives me the best of both worlds loan against your portfolio or loan against your assets even if it were real estate this is man i love this strategy and again this is more of a what people would call risky because obviously your ass get your asset could decrease in value and scenarios could happen but let's just talk about loaning against your actual portfolio or your asset why is this important well here's the thing let's say that i have a i have a ton of shares in microsoft and i'm buying and holding right i don't wanna i don't wanna sell my microsoft shares but i need cash right i need cash but i but if i know if i sell my microsoft shares i no longer own the assets i no longer own that asset anymore i don't own the stock which means that it can't continue to grow if microsoft continues to grow and secondly on top of that i'm also going to have to pay capital gains tax short term and long term short term if it's less than a year long term if it's if this uh if it's longer than 365 days so i you know but i need cash it happens to us right well if you loan against your portfolio you put your portfolio up as collateral now it gives you the best of both worlds what that means is now okay i can i can keep that i can keep my shares in microsoft intact i don't have to sell them off i i can bypass the capital gains tax short-term and long-term capital gains taxes i'm technically not selling my shares i'm loaning against that to get the cash that i need while keeping my shares in place and bypassing the taxes at the same time they can't tax me on a loan the same way that if you were to go to a bank right now and the bank were to give you a ten thousand dollar loan you're not being taxed on receiving a ten thousand dollar loan it's a loan right same concept here when it comes to your asset to your portfolio loaning against that now bypasses the taxes and it allows my asset to stay in place so that it can continue to grow now i can take the the money that i just got loaned to me now and i can use that to buy more income so maybe i want to loan against my portfolio and maybe i want to use that to buy real estate now and now when i buy that real estate i can use the actual rent roll from the real estate to pay back the loan and now from there i now have my asset of of my stock portfolio still in place and i have another asset of real estate at the same time and i was able to do that without paying tax again there is risk to that obviously because obviously if your portfolio were to take a dip in in in the value decreases then it could offset that loan and you would end up having to pay it back immediately or they would obviously your portfolio's collateral is being held as collateral um so that's it but when we talk about making more money there's always going to be risk involved in making money but obviously you want to do this manage manageable risk and again i always talk say talk to a professional before doing anything but these are things that i like to think about because instead of me having to sell if i can just loan against for a short period of time to buy more assets and pay it back with the income being produced from that asset that i just purchased from the loan yo that's a win-win and i didn't have to pay taxes man yo i love it and and this this happens in life insurance a lot too and i talk about this when it talks when i talk about having a permanent life insurance policy and how with your permanent insurance policy with all the uh the the interest that you're earning um through the cash value that you have in life insurance now of how you can loan against your life insurance portfolio and do the same thing walt disney people don't know this crazy story before i move on walt disney actually did that and that's how disneyland was created he loaned against his life insurance policy started walt started disneyland because the banks would not give him a loan so he had to do it through insurance same thing with your other assets with with your stock market portfolio or real estate right um this is important so that's a way that you're able to bypass taxes all together purchase an additional asset and still keep everything intact and number five last but not least which is to me probably my favorite you die with the stock die with it and pass it down to your family man like yo that's real generational wealth right there hey i'm not gonna end i'm not going to pay the tax because i died with it and i passed it down through a trust to my to my uh to my children to my family man now you don't pass down the asset to your family right so you didn't have to pay the tax at all so that's the most effective way to bypass the tax create generational wealth for your family now obviously inheritance taxes come into play with that again talk to a professional regarding that when passing this stock down to your to your family because it could affect the cost basis and there's a lot of other technical things you don't need to worry about just talk to a professional but man die with the stock pass it down to your family that is a beautiful thing so with that being said um we talked about what is the capital gain right a capital gain occurs when you sell off um an asset for more than what you sold it for we talked about the formula of capital gain equals my uh my sale price minus my purchase price and then we talked about short-term and long-term capital gains tax of short-term is less than a year ordinary income tax long term is longer than a year or over 365 days then we talked about the five ways that you can bypass and uh or or lower your tax you lower your taxes which is number one through uh buying and holding for longer than a year which which will lower your your uh capital gains tax of course so you're always in a long-term tax rate we talked about investing through your retirement account uh preferably i love roth ira so that i don't have to pay any capital gains tax when i'm 59 and a half we talked about tax loss harvesting where you can uh sell off some of your losing assets against your winning assets so it can lower your taxable um so it could lower your capital gains tax we talked about loaning against your portfolio so that you can keep the asset intact to bypass the tax altogether and use the loan to be able to purchase more assets to make more income for yourself and then also we talked about just dying with the asset altogether and passing it down to your family right so all of these things man take these into account talk to a professional of course if you need one jumping jack tax franchise is here for you like i said text info to 267 uh 7920185 and somebody on my team can help you but i hope that this video was massively valuable to the beginner out there that's taking the steps of buying assets and buying some freedom um it's available for everybody right and um you have opportunity to do it and i hope this video empowers you to do that with that said i'm prince donnell founder of the jumping jack tax franchise please be sure to watch a lot of my previous videos on youtube i have a ton on starting an llc um how llc's attacks llc versus s corp i got a bunch of different videos on business when it comes to taxes and business finance and um share this like comment and subscribe as well if this was valuable to me leave a comment below a thoughtful one of what you thought about this video and also share in the comments as well what other videos would you like for me to talk about around the business financial field and um i would love to be able to bring a presentation for you guys with that said y'all have an amazing day see you next video peace

Channel: Prince Donnell

Views: 14,054

Keywords: investments, forex, prince donnell, crypto, stocks, real estate, taxes, capital gains, jumping jack tax, money, how to save money, save on taxes, Foreign exchange, dana chanel, curlbible, jack life, life insurance, roth ira, robinhood, coinbase, etrade, webull, coincircle, tradestation, trading stocks, trading, wall street, EYL, stock market

Id: WsUQmPkXM0U

Length: 26min 44sec (1604 seconds)

Published: Thu Jul 22 2021