How to Make $123,250_yr and Pay Zero Taxes

The short and simple way to make $123,250 in income and pay $0 in taxes is to have one

type of income source over any type of income sources that are out there, and that is investment income

Today, I'll go over exactly what that means, the strategy that you can use to make $123,250

for yourself and legally pay $0 taxes, and as a bonus, explain why if you're working

on 9-5, it's the worst type of income that you can have, at least from a tax perspective

and why you need investment income as much as possible. So first, what is investment income

Investment income is passive income that you make by owning assets. In this particular case, I'm talking about investment income when it comes to owning stocks

If you make money through investment income, your tax rates become better, much better

However, more specifically, the long-term capital gains tax rates are what matters

Long-term capital gains tax rates are gains realized from owning the stocks for over one year

Realized means that you actually have to sell the stock for it to be considered income

This is completely different from short-term capital gains tax rates, which is taxes on

realized gains on stocks held for less than one year. The realized gains on short-term capital gains are taxed as ordinary income

This is because the IRS wants to behaviorally incentivize us to hold stocks over the long run

But in any other case, long-term capital gains tax rates is the name of the game here

And it doesn't just apply to selling stock that increase in value

It also applies to qualified dividends as well. Qualified dividends are dividends that are paid by meeting two requirements

For one, the dividends have to be paid by a US corporation

And for two, the dividends have to be earned by owning the stock for over 60 days

In general, there's a little bit more nuance behind that, but in general, that's what

qualified dividends are. So with this long-term capital gains tax strategy, you can actually pay $0 in federal income taxes. Legally

According to the IRS, in 2024, a married couple can make up to $94,050 in long-term gains

and pay $0 in federal income taxes. Single filers can make up to $47,025, which is half of $94,050

How much you can make in long-term capital gains before you have to start paying taxes

changes every single year. And the IRS updates their website every year on exactly how much you can make before the

taxes come in. It's called topic number 409 on their website. At the end of it all, you may still be subject to state and local taxes, but it's still much

better than having to pay taxes up front by working a regular 9-to-5 job

This favorable long-term capital gains tax rates have been in effect for the past 5 years

and I expect this favorable tax rate to continue on for the next years to come

So now you're thinking, hey, what gives? This isn't the $123,250 that I said that you could make without paying any taxes

Is this just clickbait? Alright, alright, alright, alright, alright, alright. Let's go one step further

So $94,050 is the baseline level of what we can work with

Then we move on further to the standard deduction. Standard deduction just means the dollar amount that reduces on the amount of income that

you're taxed on. In 2024, married couples can earn up to $29,200 without being taxed, and single filers can

earn up to $14,600 without being taxed. This standard deduction updates every single year

That means adding the $94,050 in long-term capital gains plus the $29,200 in standard

means that a married couple can earn up to $123,250 including wages without paying a

single cent in federal income taxes. Single filers can make up to $61,625 without paying a single cent in federal income taxes

So now, how exactly do you get there? How do you take advantage of this information

The first step is to invest your money in assets that appreciate in value and pay you

for doing nothing. This is where frugality, saving money, and increasing income to put as much as you can

towards investing comes into play. So then the next step is to produce $94,050 from the portfolio

As a general rule, a safe withdrawal rate to take advantage of is to withdraw 4% of

your portfolio every single year as a baseline withdrawal rate so that the average annual

appreciation rate of 8-10% of assets overtakes the 4% withdrawal of your portfolio

So on a mathematical basis, it's a way to never run out of money ever again

Therefore, you would need a $2.3 million portfolio to generate $94,000 in investment income per year

Then on top of which, you can get a part-time job like as a barista working for Starbucks

or as a cashier working for Costco just to earn the extra $29,200 in the standard deduction

And this is just for the extra fun of working and making money in your spare time

Now if you really don't want to do anything, then you can have a $3.1 million portfolio

to never pay any federal income taxes whatsoever. Now I know that's a lot of money and you may have to make a lot of sacrifices to get there

especially in the beginning. But there's nothing wrong with saving as much money as you can today to build up for your

future tomorrow because the future is coming whether we like it or not

There's no worse feeling in the world than to work for years on end only to have nothing

to show for it by the end of it all. I personally save and invest over 50% of my income, but that's a topic for another video

in which I'll go further into it if my viewers want me to

Comment below if you want me to. But anyway, now that we got the investment income out of the way, I'll explain exactly

why labor income is the worst income that you can have for yourself and why it's more

important than ever before to start investing today. This will really open your eyes on how badly labor is taxed

Labor income, or active income, is the worst income that you can have for yourself because

the United States taxes this type of income the most. Why exactly that is

I don't know. Maybe the United States government likes us being an employee for a longer period of time

so that we are a cog in the machine longer. Maybe the United States just flat out doesn't like labor

I don't know. But in either case, employees are taxed three separate ways

Labor incomes are taxed from Social Security Tax, Medicare Tax, and Federal Income Taxes

Social Security Tax is a part of the FICA Taxes, which is the Federal Insurance Contributions

Act, and it's a flat 6.2% that Uncle Sam takes right out of the employee's paycheck

The idea is to fund this account so that the employee can enjoy it in their retirement

or later years. Medicare Tax is the second part of the FICA Taxes, and it's a flat 1.45%

Both of these taxes are taken automatically out of the employee's paycheck and sent to

the US government. The last taxes that everyone is aware of is the Federal Income Tax

The Federal Income Tax rate changes every single year, and the general idea is that

the more that you make, the more that you pay. So for 2024, the Federal Income Tax ranges from 10% to 37% on incomes ranging from $11,600

on the low end and $600,000 plus on the high end. As you can see, employees are taxed three separate ways

On average, employees pay up to a third of their income to the US government

To put this into perspective, that means from January 1st of each year to April 30th

of each year, employees are working for the US government for free

And this doesn't even count the sales taxes and property taxes that the employees pay

on top of the income taxes that they pay. Nor does it count the inflation that's eating at our purchasing power every single day

It's no wonder that employees can't get ahead and why active income is the worst income

that you can have for yourself. Because we're taxed on the money that we make, money that we spend, and the money that we save

It's a little unfair that the tax code is written in such a way because it crushes working

Americans who actually provide goods and services for the economy. However, regardless of how the game is played, we have to learn the tax code so that we can

eventually beat it by playing the tax code and using it to our advantage

The great thing is everyone can take advantage to pay as little taxes as possible because

the tax code is public. For me personally, I fight to pay as little taxes as possible because I know how to use

my money to generate returns better than the US government ever could

But in any other case, the best way to get more tips on saving money on taxes, building

wealth, and personal finance is to smash that like and subscribe button because it would

help me out a ton. But in seriousness, we have to get more educated on saving money on taxes because the tax code

is written in such a way so that the working class gets crushed

The bottom 50% of Americans own just 6% of the assets that are out there

That's a wrong that has to be corrected and the way to do that is to be educated on good

personal finance habits with to build wealth. So with that said, thank you so much for watching and I'll see you in the next video