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To start, here in the United States…we all have 3 “main” types of taxes we pay into:
The most common is what’s known as your “FEDERAL INCOME TAX.”
This ranges anywhere from 10% for those earning under $10,000 per year…all the way to 37% for those making above $518,000 per year.
The SECOND type of tax that pretty much ALL of us pay into, is what’s known as PAYROLL TAX.
This is a 7.65% tax on up to the first $142,000 of income you make.
And finally, the THIRD to top it all off – is a STATE INCOME STAX.
This one depends on where you live…but, if you don’t live within one of the 9 states which have ZERO STATE INCOME TAX…you’ll have to pay something extra here, too.
In terms of lowering your tax bill, here are a few options most of you would be able to easily use:
1. The First, that applies to ANYONE…is what’s called the “Standard Deduction.”
This is literally a tax write off that lowers your taxable income by $12,400 if your single, or $24,800 if your married…no questions asked.
2. The SECOND option you have is when you “ITEMIZE YOUR DEDUCTIONS”
See, the IRS gives you two choices: take the STANDARD DEDUCTION at a flat rate, no questions asked….OR, itemize your deductions, which allows you to deduct state and local taxes up to $10,000, your mortgage interest, medical expenses that exceed 7.5% of your total income, and so on…and, if that adds up to MORE than the standard deduction – you’re better off taking this, instead, because it saves you more money.
3. The THIRD option, in addition to the above…is contributing to a 401K plan.
This is a tax-advantaged retirement account that allows you to contribute up to $19,500 per year of PRE-TAX money, meaning – every $1 you contribute to a 401k will reduce your taxable income by that very same $1, so that way – you owe less in tax, and have more money left over to invest.
You can also contribute to a Traditional IRA…which allows you to invest an ADDITIONAL $6000 per year and reduce THAT from your total income…and, you might potentially have access to what’s called an HSA, which allows you ANOTHER $3500 to invest – COMPLETELY TAX FREE.
4. The FOURTH option has to do with a major reason to invest in REAL ESTATE…and that would be a term called “DEPRECIATION.”
See, the IRS says that something like a house won’t always be standing forever…in most cases, it will deteriorate, and eventually it will need to be replaced…so, in a a way to compensate YOU for that loss of value, they allow you to deduct the cost of the property over 27.5 years.
5. Now, Fifth – another simple one is charitable contributions.
I think this needs no introduction, but if you support a charity, claim that on your tax return, and you’ll low less tax because of that…plus, you can help out a good cause at the same time.
As for my own tax bill, that's because the vast majority of my income fell into the “EARNED INCOME” category, which – like I mentioned – is subject to the high level of tax throughout pretty much everything. And ultimately, one of the reasons I ended up owing quite a lot more than originally anticipated…was for the reason that I didn’t spend a lot of money.
In my case, though…I didn’t have THAT many expenses, relative to someone hiring 30 people and leasing an enormous office space with their name on the side of the building. Instead, I re-invested as much as I could back into better equipment, I’ve hired some extra help, and I’ve made a few other investments into the growth of this channel that I hope would pay off in the future.
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For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness@gmail.com
*Some of the links and other products that appear on this video are from companies which Graham Stephan will earn an affiliate commission or referral bonus. Graham Stephan is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available.
