馃攳
Taxation of Dividend Income VS Wages 馃挵|Dividend Income Taxes - YouTube
Channel: Money and Life TV
[0]
you're about to learn the massive tax
savings between make your living through
[4]
wages versus make your living through
dividends or investments good morning
[9]
Internet! how's it going welcome back to
money in live TV I have a very very
[15]
special video for you guys today a
really fun one at that I've been
[19]
thinking about doing a video around this
topic for such a long time and I'm just
[23]
finally getting to it now now most of us
has probably we've probably heard the
[28]
amazing story about compounding interest
and how investing and dividend growth
[33]
and all that can eventually make you
wealthy slowly over time but I bet
[39]
you've never heard about the story of
the incredible tax savings you can
[45]
obtain by investing and making your
living through dividends we're gonna
[51]
look at that in this video real briefly
and show you guys why I think dividend
[57]
investing is so powerful and this is a
part of the reason I like to structure
[62]
my investments this way because not only
will it provide me a residual income
[67]
that has a very low risk of ever running
out but it can allow me to collect that
[73]
income at virtually zero tax or a very
very low tax rate compared to making
[79]
that your livings we're wages let's dive
right into it guys remember if you liked
[83]
the video make sure to drop a like it
really helps the channel out and it gets
[87]
this information out to more and more
people the numbers and the calculations
[90]
we're looking at on screen have been
verified using tax software so I know
[95]
the numbers are solid we've got solid
numbers here the examples I'll be
[99]
showing you on-screen I've put it on tax
forms so that you can see it's more
[104]
transparent and it's gonna make more
sense of how this all plays out so you
[107]
can see with a full clear picture of the
tax differences between wages dividends
[112]
and things like that so starting off on
the second page of the 1040 that's where
[116]
the numbers start to show up we see that
in this example chipper has whoops sorry
[122]
let me scroll down here in this example
on page 2 of the 2018 1040 chippers
[127]
showing 100,000 in wages not about
income right now let's see how that
[133]
plays out
axe wise and let's just for simplicity
[136]
let's just stick with that income let's
pretend there's no other income sources
[140]
at all and how that plays out on for
chippers taxes okay so first of all in
[146]
the in this example tripper is single so
that means he gets a standard deduction
[150]
automatically of 12,000 bucks so that
standard deduction is going to reduce
[156]
his overall taxable income so his
hundred thousand in wages is reduced by
[161]
twelve thousand gives him a total of
eighty eight thousand dollars in taxable
[166]
income on line ten now the tax that
calculates on that on line eleven is
[173]
fifteen thousand four hundred and
sixteen dollars that is the tax chipper
[178]
that's the income tax chipper pays on
his wages
[182]
what's all but what's not included here
is a Social Security and Medicare taxes
[188]
because the 1040 primarily just deals
with income taxes which is why you don't
[193]
see that here so from an income tax
perspective with if chipper made one
[198]
hundred thousand in wages he had a
filing status a single and no other
[202]
credits or deductions he would pay
fifteen thousand four hundred and
[205]
sixteen dollars in federal income taxes
none of the examples just real quick
[210]
none of the examples have I'm not going
to be showing state income taxes because
[214]
each state has very unique in different
tax laws and it would be impossible for
[220]
me to cover that so I'm just focusing on
federal income taxes but if there would
[225]
be state potentially be state income
taxes on this income as well now we've
[230]
seen the amount on the taxes on wages
now let's move on over to dividends and
[235]
see what the differences are let's start
off with ordinary dividends okay so this
[239]
is example two ordinary dividends let me
scroll down to where the tax form starts
[243]
okay so as you can see here chipper has
no wages now chipper is making all of
[248]
his living through dividends important
distinction here is on line three a
[253]
you're seeing that there's qualified
dividends and right now we're saying
[257]
chipper it doesn't have any qualified
dividends but chipper has ordinary
[261]
dividends on line three B of one hundred
thousand so one hundred thousand wages
[266]
now
mm dividends now these are ordinary
[269]
dividends and that's really important
because the reason these are ordinary
[273]
dividends is it could be a couple things
one either chipper has it held onto
[278]
those investments long enough for them
to become qualified dividends to maybe
[283]
this is his income that's coming through
through real estate investment trusts
[287]
which cannot get qualified dividend
treatment or maybe it's coming through
[291]
MLPs
or something else where qualified
[295]
dividend treatment may or may not be
allowed so that maybe that's why so
[299]
those are some reasons why he would have
a hundred thousand and ordinary
[302]
dividends versus qualified dividends and
we're gonna cover qualified dividends
[306]
here a little bit more in just a moment
okay how does this play out so once
[310]
again chipper is finally in status is
single heat so he gets that
[314]
automatically he gets a $12,000 standard
deduction his income is reduced to
[319]
88,000 and he once again on line 11 his
total tax is 15,000 for 16 now you're
[326]
saying now I know what you're thinking I
know what you're thinking you're like
[329]
Mike why do I show me this it's this is
exactly the same well I'm gonna show you
[334]
that it's actually not in just a moment
okay so there's an important thing to
[339]
remember here so your wages I've
mentioned in previous videos on some of
[344]
my tax videos your wages are taxed at
ordinary income rates all ordinary
[350]
income rates the same is true for
ordinary dividends if the dividends
[356]
you're receiving are ordinary
they're tax at the same rate for income
[361]
taxes as your wages so there's no tax
advantages there not yet but now watch
[367]
what happens when we shift over from
having ordinary dividends to having
[373]
qualified dividends something magical
happens okay now we're looking at
[377]
example 3 chipper now has $100,000 in
order and dividends but but right here
[385]
notice there's $100,000 now on line 3a
which means it means of those $100,000
[394]
in dividends
$100,000 of that is qualified and the
[400]
reason s import
is once you start to receive qualified
[403]
dividends you no longer pay taxes at
ordinary income rates that's a big thing
[410]
that's a big deal when it comes to taxes
once you're receiving qualified
[414]
dividends you now get to pay taxes at
capital gain rates which is
[421]
significantly less than ordinary rates
that you would pay on ordinary dividends
[426]
other income or like income on your
wages so let's watch how this plays out
[431]
and by the way if you're not used to
seeing tax forms this is not saying that
[437]
chipper has 200,000 in dividend income
no no no no this is saying that of the
[443]
100 thousand dollars of dividends
chipper received one hundred thousand
[447]
dollars of that amount is qualified
that's what that means just to clarify
[451]
if there's any confusion okay let's move
on down the tax form once again chipper
[456]
gets his standard deduction of twelve
thousand because he's filing single
[460]
total taxable income of eighty eight
thousand but look at that tax difference
[466]
his tax difference because now he's
getting to pay taxes at capital gain
[472]
rates he only pays seven thousand four
hundred and ten dollars in federal
[476]
income taxes on that dividend income
he's killing it tax wise now it's a huge
[483]
tax savings so when he was making wages
chipper was paying fifteen thousand four
[488]
hundred sixteen dollars right but now
that he's receiving qualified dividends
[492]
he's only paying seven thousand four
hundred ten dollars in taxed which is an
[496]
eight thousand dollar tax savings which
on that amount it's huge it's like he
[501]
virtually cut his taxes in half is
essentially what just happened there so
[504]
let's look at the summary page so you
guys can see the real power of dividend
[509]
investing so I created this summary page
that summarizes the three examples that
[512]
we just looked at we just looked at an
example with wages and that plays out
[517]
where you you have a hundred hour
fifteen thousand four hundred and
[521]
sixteen dollars in income tax we looked
at ordinary dividends and we looked at
[524]
qualified dividends the thing that's not
mentioned here on wages which is why
[528]
it's from a tax standpoint it's the
worst way you can make your living
[532]
unfortunately it's through wages
I know I know you've been told your
[536]
whole life it would be the job and work
hard for money well from a tax
[540]
standpoint that is the worst thing you
can do Robert Kiyosaki if you've read
[544]
any of his books author of Rich Dad Poor
Dad the cash flow quadrant he says that
[549]
if you want to be wealthy or if you want
to have a better chance of becoming
[553]
wealthy you want to either own your own
business make make a living that way and
[558]
make your living through investments and
this is what he's actually talking about
[562]
meant in his book he doesn't list out
examples like this but this is from a
[567]
real stack tax standpoint by looking at
real numbers real examples this is how
[572]
that plays out so not only do you pay
less tax down here on the qualified
[576]
dividend line of seven thousand four
hundred ten dollars if you take into
[581]
account that your wages not not only are
they subject to income taxes but they're
[586]
also subject to Social Security taxes
and Medicare taxes just from these three
[593]
things if you were making your living
through wages you would pay twenty three
[597]
thousand dollars roughly in taxes okay
now it but if you look down here
[603]
qualified dividends if you would pay
remember dividends are not subject to
[607]
Social Security Medicare so you
completely avoid those taxes and I call
[611]
them taxes because who the hell knows if
we're ever gonna receive that money if
[616]
you know I'm 34 years old and there's
I've already been told that I'm only
[622]
gonna receive 75% of what I was promised
not a hundred percent seventy five
[628]
percent which means the generations who
are younger than me are going to receive
[632]
even less which to me actually says that
that Social Security Medicare is
[640]
actually you're actually paying more tax
than you think you are because the
[643]
likelihood have you ever seen that money
is has been reduced or we don't know
[648]
it's uncertain so that's why in reality
we're all paying higher taxes on our
[653]
income especially if you're younger the
baby boomers in the generation before
[656]
them they're they enter to the golden
age of Social Security but for us
[660]
younger folks who are in our 30s who are
now you younger and just starting off
[665]
who knows if we'll ever see that money
so that's I just
[668]
want to point out these distinctions
here guys of how big of a tax savings it
[672]
really is if you can make your living
through investments so if you if you run
[677]
the math the total taxes from qualified
dividend income due to capital gain tax
[683]
rate treatment and by avoiding Social
Security income taxes our Social
[687]
Security taxes and Medicare taxes you
would have a 68% less tax bill your tax
[695]
bill is reduced by 68% holy crap that is
a huge savings so not only can you tell
[703]
you realistically you could actually
make less money through dividend income
[706]
and still come out ahead because you're
not paying as much tax as you you used
[713]
to under under this example I wanted to
show you guys this because this is a
[717]
huge reason why I invest for dividends
because I know as a CPA and I've seen
[722]
this on a couple people's tax returns
where they're making buku bucks like
[726]
over a hundred thousand a year or near a
hundred thousand year in dividends and
[729]
they're hardly paying any tax at all
because they because the majority of
[734]
their dividends their qualified
dividends and it's a fantastic way to
[739]
make a living a living where you don't
have to worry so much about the ups and
[743]
downs of the market timing the mark and
all that but it's like a residual income
[747]
it's like it's a pension replacement in
a sense that mixed with some other
[752]
investments can be very powerful for you
for your retirement and from a tax
[756]
standpoint
alright internet I really hope you found
[759]
this information helpful if you did do
me a huge favor ladies gentlemen and
[764]
crush that like button feel free to
share this information with a friend and
[767]
if you have not already said already
subscribed to our channel make sure to
[771]
do so usually make a new video once a
week here on money live TV and we make
[775]
videos around finances investing and
taxes and more to help you become
[779]
fiscally fit with that being said have a
great week everybody I'll see you down
[784]
in the comment section below leave your
thoughts your comments your questions
[787]
whatever it may be down below and I'll
look forward to reading what you all
[791]
have to say see you next week's video
guys live life on caged peace
Most Recent Videos:
You can go back to the homepage right here: Homepage