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How to PAY ZERO Taxes on Capital Gains (Yes, It's Legal!) - YouTube
Channel: Toby Mathis Esq. | Tax & Asset Protection
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- Hey guys, Toby Mathis here
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with Anderson Business Advisors.
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And today we're going to talk
about how to pay zero taxes
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in 10 minutes or less.
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All right, let's dive on in.
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Number one, in order to
understand how to pay less tax,
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you got to understand
how taxes actually work.
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And my experience is that
99.9% of the people out there
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have no flipping clue.
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And that includes a lot
of the tax practitioners,
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unfortunately, and here's
where we're going to start.
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We're going to do the 10,000 foot view.
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Now we're going to be specifically
drilling into capital gains
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in this particular video.
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Although there's lots of
others, you can look on YouTube.
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You're going to see that we have
a lot of content on my channel
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that'll show you how to eliminate tax,
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but you have to understand
how all the taxes interrelate.
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And so I'm going to focus on
the different types of taxes.
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There's actually three
types, three types only.
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Anybody starts telling you differently,
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it's because they just don't know.
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There's three broad
overlying factions of these.
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So number one, I'm just
going to call it active.
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And we'll just say active income.
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Number two, and this active income,
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it's the worst possible tax
treatment you can receive.
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Active income is subject to,
and I'm going to put it in red,
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ordinary rates,
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plus social security.
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Here's how bad this is.
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Of all the taxes we collect every year,
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in the United States of
all the taxes we collect.
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That's income, old age,
disability, survivors, Medicare,
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all that good stuff, estate
taxes, corporate taxes.
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This accounts for a little bit over 88%.
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You work at McDonald's and
somebody who's going to run around
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and say, you don't pay any income taxes.
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That's absolutely-
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That's a lie.
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That's a lie that's been repeated so often
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that people actually believe it.
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You're not paying the income tax,
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the federal income tax
at the ordinary rates,
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but you're definitely paying that 15.3%.
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The employer pays half, you pay half
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on old age disability, survivor's
insurance and Medicare.
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If you're self-employed,
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"Hey, I'm a little guy that's
running a plumbing company"
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and you say, "Oh, your taxes were so low
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you had a standard deduction,
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you barely paid any tax at all."
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Complete fabrication, you're
paying self-employment tax.
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Same thing, that social security
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is also called self-employment tax.
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Same thing, you're paying 15.3%.
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You make a hundred grand,
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over $14,000 is going
to leave your pocket,
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going to just that little guy.
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And what's sad is this is really
the only place that exists.
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So it is the worst possible treatment.
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When I worked for McDonald's, I was 16,
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I was making four bucks an hour.
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I was paying this tax.
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They would withhold from
me and I get a refund on my
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federal taxes because I didn't make above
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the standard deduction
or I was in a super low,
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uber low bracket, like 10% and
they're withholding over 20.
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So I'd get some refund and I'd be like,
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"Yay, I got some refund."
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Make no bones about it.
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We're paying, if you're getting a wage,
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if you're getting a salary,
you're paying taxes, period.
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They lie about that all the time.
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Number two is portfolio.
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And portfolio income,
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there's several types that I'll go into,
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but what's most important is
there's no social security tax.
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There's a way if you screw up
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or you do something that
becomes your business,
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to turn portfolio income
into active income.
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But for my topic today, I'm not
going to dive in those weeds.
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I'm just going to say, as a general
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practical matter, this is royalties,
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Like, "Hey, I have a-
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Wrote a book or I have software out there,
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I'm getting a royalty."
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It's going to be taxed as ordinary income,
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but no social security tax.
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I have interest.
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I loaned money to my buddy or
I'm loaning money to somebody.
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And they're paying me back that interest,
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that's taxed, no social security tax,
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it is subject to ordinary tax.
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And then we get into some
cool ones, dividends.
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So dividends equal a tax treatment
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called long-term capital gains.
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And this is why that's important.
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These are taxed at zero,
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15 or 20%.
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Long-term capital gains rates.
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Which means they're treated preferably.
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And again, no social security.
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Hold on for a second, what's a dividend?
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If you own securities like,
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"Hey, I own a piece of, let's say Apple."
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I buy some stock in Apple
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and they pay me a dividend every year
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or Procter & Gamble or 3M
or Coca-Cola or Chevron
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or Verizon or AT&T.
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All these companies pay dividends
out to their shareholders
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because you're a shareholder.
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They're sharing the profit with you.
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That could be taxed at zero.
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Like again, if I was at
McDonald's, working at McDonald's,
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I'm up here, I'm paying social security
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and I'm paying ordinary
tax rates, that stinks.
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But if I have dividends
coming in, I'm smart enough
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and I started accumulating a portfolio.
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Zero, I'm not going to
be paying tax on that.
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If I make a whole bunch of money like,
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"Oh, I'm made 100,000,
200,000, $300,000 a year,
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I might pay 15%.
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You make $10 million a year
and you have dividends,
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it's taxed at 20%.
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Now there's a net investment income tax
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that raises it to 23.8.
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If you hear anybody say 23.8,
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it's because they're
adding in the surcharge,
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but that's pretty darn potent.
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And then you have capital gains.
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And the long-term, I just told you,
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if you hold something over a year,
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where if you do futures, 60%
of it's treated as long-term,
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it's that long-term, if it's short term,
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all of these,
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this one, this one, this one,
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they're all ordinary.
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They're all added up into
your ordinary bracket.
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Now, why is this important?
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These little guys down
here, capital gains.
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Capital gains get offset
by capital losses only.
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Capital gains get offset by capital losses
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or better yet, capital losses
only offset capital gains.
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Except that if I have
excess capital losses.
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So let's say I lose money on a security.
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So I buy a stock, Dejour,
and I lose $10,000.
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I'm limited to use that $10,000
against other capital gains,
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but I could take $3,000.
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See if I can put up the right numbers,
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$3,000 a year against my
active ordinary income
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or other income sources.
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So it's actually pretty potent.
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When you start looking at these things
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to how do I eliminate capital gains,
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one of the first ways you
eliminate capital gains
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is by generating capital
losses on other capital assets.
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So for example, I have a
whole bunch of stock gain,
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great, watch, but I have Bitcoin too.
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Sell your Bitcoin when
it goes down that 30%,
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like if the does this like Bitcoin's,
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it goes up 30, down
30, all over the place.
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When it goes down, just sell it, great,
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buy it right back.
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Now I have a capital loss,
but I own Bitcoin still.
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I can take that loss and offset my gain.
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That's number one.
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Number two is don't sell things.
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If you have a capital asset,
you can borrow against it.
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So there's something called a
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security backed line of credit.
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They call it bank on me nowadays.
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They're talking about all the
ultra wealthy, like Elon Musk,
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he's got billions of
dollars of stock, right?
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He doesn't pay any taxes, why?
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Because he doesn't sell a stock.
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He borrows against it.
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"Hey, give me a loan, I won't default.
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But if I do, you can
take some of my stock"
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I got billions of dollars of stock.
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So give me a few million
dollars of line of credit.
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You don't pay tax on that.
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If you have real estate,
you have 1031 exchanges.
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I don't have to pay tax,
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I just keep buying more, 1031 exchange.
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Or take any capital gain
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and I can invest it in a
qualified opportunities.
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And I could defer it.
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Like there's lots of different
ways to not pay any tax.
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Once you understand where it sits.
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Now you notice I said there
was three types of income.
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So here's the third.
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And it's called passive,
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passive income.
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Passive income, there's only
two types, really simple.
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The two types,
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number one,
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rents.
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Rents are always considered passive
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unless it's not rent.
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So for example,
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like if you're doing an Airbnb
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and it's seven days or
less average tenancy,
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the regs say that's not rent,
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but if it's rent, it's passive, period.
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It ends up being really
cool because passive income
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again is ordinary,
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but
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no social security, hopefully
you guys can see that.
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No social security.
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So it's really, really
all of these down here,
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you start realizing,
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"Wait a second, if I don't
want to pay a lot of tax,
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maybe I should be making tax-
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Maybe I should be making
my income here and here,
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duh."
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The wealthiest people making
over a million bucks a year,
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guess where up to 96% of
their income comes from.
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Two and three, less than half
on average comes from one.
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'Cause it's the worst tax treatment.
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But so I said two, there was
two types of passive income.
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The second is businesses
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in which there's no
material participation.
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So I'll just say businesses,
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silent.
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I won't give you the technical rollout,
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but it's businesses that you do not
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materially participate in.
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It just means you're a
silent partner in a business,
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you don't do anything in the business.
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So immediately you start
thinking of rich uncle Ned
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or whoever it is, rich aunt Sally.
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And hey, they're always
investing in businesses,
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but they don't want to be any part of it.
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It's because they probably
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have a whole bunch of rents
coming in and they're thinking,
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"How do I not pay tax on the rents?
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I'll go into these passive
investments in startups.
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And I'll generate a bunch
of loss in the first year
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or two years and it will keep
me from having to pay tax
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on this."
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The other thing they do is they
say, "Hey, if I have rents,
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I have huge depreciation,
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I have all sorts of tricks up my sleeve.
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I can accelerate my depreciation,
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I can use bonus depreciation,
I could do cost segregation.
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I could do a lot of fun stuff.
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I could borrow against the
asset, not pay any tax.
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I have all these tricks in my toolbox.
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I got 1031 exchanges.
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I got to step up in basis when I die
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so nobody ever pays tax on it."
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Like I have all these little
tricks floating around up here.
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If you pay tax on rents 'cause
you're not trying hard enough
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to not pay tax on your rents.
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There's always a way to
not pay tax on rents.
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So we start looking at this,
our three types of income.
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And immediately we realize that,
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"Boy they're treated so differently."
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They're treated so differently,
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why are not more people going into this?
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Well, the two best tax
treatments, capital gains,
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long-term capital gains specifically,
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and the rents, there's a little nuance,
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which is they limit the losses
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against that same type of income.
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So for example, on the passive,
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that's a little bubble.
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They can only offset each
other with very few exceptions.
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So if I have a whole bunch
of losses that I generate
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on my rents, I can offset other income
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that's coming in off of my
silent business ownership.
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But what I can't do is take all that loss
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and use it against my active income,
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unless, there's a couple of ways to do it,
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a real estate professional
and active participant.
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But for the most part, normal people,
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you're just going to be stuck there.
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You don't lose it, you
just carry it forward
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and it keeps offsetting that income.
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Which is why the wealthiest people
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tend to get stuck in that bubble.
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And they're are always doing that.
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Like, "Hey, I don't want to participate.
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Hey, I don't want to do this.
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I just want to buy and I want rent.
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So, hey, I want to open up a business,
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will you give me a bunch of money?"
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And they might be like,
"Well, hold on for a second.
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I might buy the real
estate, I'll rent it to you,
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I'll give you a really good rent rate.
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I'll defer the rent for a while."
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All those things they'll do that
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because they know it fits
in with their tax planning.
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And they're going to get a huge benefit,
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they're in the highest tax bracket.
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So every dollar of deduction
is worth over 37 cents to them
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in some cases, over 50 cents to them.
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So they may just be glad,
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"Hey, I'm putting my
cash out there to play
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and it's going to save me
a whole bunch of money."
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I know I just threw a lot at you.
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There's a lot of content on this channel.
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