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Qualified Dividends Fully Explained (How To Pay Less Tax On Dividends) |Dividend Income Investing - YouTube
Channel: Money and Life TV
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I hear dividends even qualified bro!
good morning internets how's it going so
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good to see you I got so many comments
and questions regarding qualified
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dividends how do you get them when do
you not get them all these different
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questions so I wanted to put this video
together so I can explain how qualified
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dividends work so you can walk away from
this video with confidence knowing how
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to achieve that for yourself if you saw
last week's video of dividends versus
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wages you could quickly see from a tax
perspective why qualified dividends are
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badass or they kick some serious ass if
you're new to investing what dividends
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are in general is is a share of the
company's earnings with their
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shareholders that's what a dividend is
it's a payout of the company's earnings
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by making your living through qualified
dividends you could actually pay 68% or
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less in tax compared to actually going
to work and working for a living versus
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living off investments so it's really
powerful and I had to really study up on
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some of this stuff I knew a lot of it
already but there were several aspects
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of these technicalities is there's very
technical stuff of how this actually all
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works the biggest difference between a
qualified dividend and an ordinary
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dividend is a tax treatment but
basically when when you receive a
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dividend if it comes in the form of an
ordinary dividend you pay tax on it at
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your personal marginal tax rates which
I'm gonna display on screen right now as
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you can see the personal margarit
marginal tax rates they go anywhere from
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zero all the way up to thirty seven
percent now if you receive that dividend
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in the form of a qualified dividend you
get a capital gain rate tax treatment
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instead and not a tap and not a marginal
tax rate capital gain rates are much
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more favorable for tax purposes and can
save you a lot of tax so for a qualified
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dividend you're the tax you'll pay on
those qualified dividends ranges
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anywhere from zero to a maximum rate of
20%
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now what's not shown on here that is if
your income is in excess of two hundred
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thousand per year then you also have to
pay net investment income
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taxes on that on those investment
earnings like dividends until your max
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rate would be closer to 24% but lo and
behold no matter how what even if you're
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at the maximum income tax record level
of 37 percent the most you'll ever pay
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in taxes on your qualified dividends
would be around twenty four percent if
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your income is over two hundred thousand
dollars but let me just share with you
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real quickly on when you will not
receive qualified dividend treatment and
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I've mentioned some of these before in
our previous videos but one is real
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estate investment trusts known as REITs
master limited partnerships usually
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you're not gonna receive qualified
dividends from those I have the k1
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statement on screen but generally
speaking just so you guys know from a
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qualified dividends perspective you're
not gonna be able to obtain that by
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investing in master limited partnerships
employee stock options is another time
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you won't receive qualified dividend
treatment tax-exempt companies you won't
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receive qualified dividends from them
money market accounts such as like your
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savings savings account or high yielding
accounts special one-time dividends are
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not qualified or cannot receive
qualified treatment and if you're
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investing in options if you're doing
placing puts and calls or if you're
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selling the market short then you're not
gonna be able to get qualified treatment
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there either in my last dividend
investing video somebody asked me they
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said Mike can my ETFs or mutual funds
can they can those receive qualified
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dividend treatment the answer is yes and
no so some of them can and some of them
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cannot to get qualified dividend
treatment as long as you're not
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investing in the things we just
mentioned above right here these things
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right here the only thing you need to do
is just really hold on to the investment
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and not sell it it's that simple so
here's the rules and then we're gonna
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look at an example on screen that's
gonna help break this out the ayah it
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says the IRS requires investors to hold
shares for a minimum period of time to
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benefit from lower tax rate on qualified
dividends common stock investors must
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hold the shares for more than 60 days
during the 121 day period that starts 60
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days before the ex-dividend date fudge I
can use play that please when I read
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that it's really confusing to help me
understand it I had to visually break it
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out so the way this all works for a
company when they're gonna pay out a
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portion of its earnings as a dividend to
its shareholders is first they declare
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the dividend and there's a date and time
when they say okay ladies and gentlemen
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shareholders we're gonna we're gonna be
issuing you a dividend in the future so
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the first thing declare it then what
they do is they determine a report date
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and that report date is has a list of
all the shareholders by that date as a
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shareholder in order to receive that
dividend payment you have to be on their
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books as a shareholder at that time and
then what they do from their report date
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they declare an ex dividend date the
ex-dividend date is basically your
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cutoff date so if the and usually the
ex-dividend date is one day before the
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report date so x7 date is usually one
day before the report date so basically
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if you don't own those shares before
before that ex-dividend date you're not
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gonna receive that quarters dividend or
that month's dividend does that make
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sense so to make sense of this guys I
actually had to break this out on on
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Excel to visually show you how this
works so what I did here guys is there's
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an example that s investopedia provides
that explains the the cutoff date and
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all that for qualified dividends and how
long you need to hold them and so let's
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just read that real quick here and
that's what I used
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I use this information to to build this
but I had to visually lay it out to make
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sense for me because I when I'm reading
it it wasn't making sense says an
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investor receives dividends as qualified
from shares and mutual fund X so they're
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using a mutual fund as the example that
investor bought 1000 shares of fund X on
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May 1st so on May 1st they that was
their purchase date so here's the
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purchase date as May 1st that's when
they went to start to brag to their
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co-workers and Friends of how they're
gonna start receiving cash flow and
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they're are gonna have passive income
and then soon afterwards their friends
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start to hate them they said shut up
well you know you're doing well we know
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you're investing I don't need to hear
about it then you told them about then
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they went and told them about the fire
movement and about how you're gonna
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retire early except when they heard the
fire movement they thought you're an
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arsonist so don't tell people about the
fire moment unless you explain what it
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is
now in the article the ex-dividend date
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they lay out is May 15th which is right
here
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that's the ex-dividend date so what that
means is that as a shareholder this
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person would have needed to hold shares
in the company before this date of the
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ex-dividend date to receive that
dividend so knowing that the ex-dividend
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date is the 15th of May does this
investor are they going to qualify for
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the dividend yes and because they
purchase their shares on May 1st which
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is before are prior to the ex-dividend
date so they're they're definitely going
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to be able to receive that dividend now
the question is is it going is that
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dividend going to be and come to them in
the form of an ordinary dividend or are
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they going to get the special tax rate
treatment and get the qualified dividend
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well in order to get the qualified
dividend they would have to hold that
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investment for 61 days or because it
says hold for more than 60 days right
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here and so they would hold that
investment from May 1st all the way
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through July 1st but at that point by
July 1st
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now they've held it long enough to
receive that dividend in the form of a
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qualified dividend now in the
investopedia article it didn't list a
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dividend payout date there's that the
ex-dividend date doesn't mean that's
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when the dividend is gonna be paid out
that's not what it means
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there is another date of when they'll
declare when that divin will actually be
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made now for the example here I'm just
gonna say it's July 5th that's when this
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company's gonna pay out their dividend
the cash is actually gonna leave the
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account and go to the shareholders now
we know this investor we know they're
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gonna receive the dividend but will they
receive the qualified dividend the
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answer is yes because they've met the
holding period of more than 60 days as
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of July 1st and the payout didn't
encourage held July 5th so they're good
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so that dividend should come to them in
a form of a qualified dividend to show
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you a real example of this what I've
done is on screen here I hope you guys
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can see this okay is this page just one
of the pages from my taxable brokerage
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account this is from the the monthly
statements I get if you look at this
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statement if you look at this page if
you go about halfway down
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and you see Clorox it's a little bit
more than halfway down the page look at
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Clorox and you'll see there's a
qualified divin so the statement itself
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will tell you if your dividends have
become qualified when they are paid out
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so in this example I received nine
dollars and sixty cents from Clorox no
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big no big deal but that dividend is
qualified which means I get the SPECIAL
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tax rate treatment and I also wanted to
point out see now look below Clorox is
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EPR properties now that's a real estate
investment trust
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now remember real estate investment
trusts are not able to get qualified
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dividends so you'll see there it says
ordinary dividends so I received an
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ordinary dividend from EPR of $26.25
below that is Procter & Gamble which is
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a company I've owned for quite some time
now and you can see those dividends are
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qualified so that's what it looks like
on your actual investment statements
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it's gonna look something like that and
that's how you're gonna be able to tell
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what type of dividend you're receiving
going back to our example here to wrap
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things up is now because the payout date
was July 5th this investor had held this
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investment long enough to get the
qualified dividend but if the payout
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date was prior to this date so let's say
the payout date was June 15th let's say
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the payout date occurred here
well that investor would then that same
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dividend would no longer be a qualified
dividend but would be an ordinary
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dividend because they didn't meet the 60
plus they holding period which would not
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have occurred and chilled shall I first
so that's the basics of how long you
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need to hold an investment to receive
qualified dividends now I apologize in
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last week's video on dividends versus
wages I somebody asked me Mike how long
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do I need to hold the investment for it
to be qualified I said six to twelve
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months well I'm a big dum-dum it's
nowhere near six to twelve months
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it's only greater than sixty days
according to this investopedia article
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sorry about that I apologize I totally
had that wrong but all you need to do
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guys is just hold onto these investments
long term especially if your cash flow
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vest investor and eventually you're
gonna see they're in a shift from an
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ordinary dividend to a qualified
dividend all right everybody I hope that
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made sense that's about how long you
need to hold these things and how it
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works from a technical perspective of
what's visually happening is you have
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your purchase dates you have the date
the company declares they're gonna pay a
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dividend they then determine a report
dates from the report they determine the
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ex-dividend date of when you you need to
own the shares before the ex-dividend
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date in order to qualify for that
dividend and then they determine the
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date they're actually gonna pay out the
cash for that dividend later on so
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there's all these little dates to keep
track of when you purchase to when they
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pay it out to when the ex-dividend date
is so it gets quite confusing but if you
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just hold the investment long enough you
don't even have to worry about these
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stuff guys and eventually you're gonna
get that good tax rate and you're going
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to be able to make passive income and
pay less taxes which is freaking sweet
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all right guys if you enjoyed the video
today please let me know i'm crushing
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you guys have a great week everybody I
love you all now take this information
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and use it to live your life on Kage
I'll see in the next video peace
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