What's up here, guys it's upgram and i got ta say i was actually pretty blown away by how many people enjoyed my joe biden tax plan video and wanted to hear more no joke. When i made the video, i was worried that no one would want to hear about the topic of taxes and that it would be a total flop of something that i spent so long to research and create. But when i see people asking for more tax videos explaining exactly how it works, what you could do to save more money at the end of the year and some legal life hacks that you could do on your taxes to save more money, i'll, listen and i'll. Make that exact video right here, because, honestly, when it comes to this, not only is the topic of taxes so complex, and sometimes it makes no sense whatsoever, but it's also never taught anywhere, which is absolutely mind-boggling, just think about it for a second, the average american Family spends about 25 percent of their income towards taxes, and the average single american spends about 30 percent of their income towards taxes.

So consider this video, your introduction towards a topic. You really need to understand - and it's probably one of the most important things that you could learn besides smashing the like button for the youtube algorithm, because that greatly helps out my channel and that by the way, is really easy to do. Just take your finger or your mouse place it over that thumbs up button and then just destroy it so anyway, if you want to save more money and see me attempt to try to make taxes as entertaining as possible, keep watching and also just to spice things Up a little bit i'll be going over my own taxes and why i owe the irs about one and a half million dollars: yeah! That's real! So stay tuned for that and uh we'll start over here, all right! So here's your taxes, 101 breakdown, explained in a few minutes, and this is basically going to summarize how 90 of the us tax system works on a really basic level so enjoy so first, if you're in the united states, which, according to my analytics about 80 of You are you first start off with: what's called your federal tax bracket. This is how much you owe the irs on the income you make and how much money you pay is determined by how much income you make generally the more money you make.

The higher the tax bracket you're going to be paying and right now in 2020, here's how it's broken down if you're single meaning you're not married, all the income you make under 9875 dollars is going to be taxed at a rate of 10. After that, you'll pay. A 12 tax on all income earned between that and 40 125. Then you'll pay a 22 tax on all income earned above that to 85 525, and that continues until all income earned five hundred and eighteen thousand four hundred and one dollars is taxed at a rate of thirty seven percent.

Now this is really important for me to clarify, but this does not mean that if you earn one dollar above a certain threshold that now all of your income is going to be taxed at a higher rate like, for example, if you make nine thousand eight hundred And seventy six dollars - that's not gon na mean that all of your income is now taxed at twelve percent. I've seen this as a common misconception as a reason not to make more money, because all of a sudden, it's gon na bump them into the higher tax bracket, and that's not how this works. When it comes to higher taxes like this, you only pay the higher tax rate at the income earned above that threshold, not the entire amount. Even for me, no matter how much money i make, i still pay the same: ten percent tax on the first 9875 dollars of income, the same 12 percent tax up to 40, 000, 125, and so on.

It's just that the more money you make, the more tax you owe based on those higher tiers and no i'm not talking about these tiers, even though it may as well be i'm talking about these tiers. So now, if you made it this far in the video, then congratulations, you officially know more about the tax system than a lot of people, but then, after that, taxes are not over. This is just the beginning. In addition to your federal income taxes, you also have what's known as payroll taxes on your wage income.

That means, if you're, working a job or maybe you're self-employed, you have to pay separate social security and medicare taxes that could be as high as 15.3 percent now. Unlike the other tax brackets, this one is not a tiered system and everyone pays the exact same percentage up to the first 142 thousand dollars worth of income, but typically, if you're an employee, this 15.3 tax is split evenly between yourself paying 7.6 and your employer paying The other half, but if you're self-employed as a 1099 contractor well lucky you, you are responsible for paying that full 15.3 percent, because technically you are your own boss, but wait there's more. We also have what's known as the state income tax. Now this one depends on where you live, but if you don't live in one of the nine states that doesn't have any state income taxes and you're gon na have to pay something extra.

Here too, these tax brackets work the exact same way as the federal tax brackets. In that you will have a tier that you'll owe depending on how much money you make so generally. If you do live in a state that imposes state income taxes, you'll have to pay a minimum of one to four percent. All the way up to a maximum of 13.3 percent, depending on where you live, for example, in california, people earning between 57 and 295 000 will pay 9.3 percent in their highest tax bracket in addition to what they would pay at the federal level, which would be Another 32 to 35 percent on the top end of that income and, in addition to their payroll taxes, which could be another 7.65 to 15.3 percent.

So between all that about half of your income is going to be going to the government depending on how much money you make now. Obviously, this could be a little less than this, depending on where you live, but i'm not going to bore you with all the details. If you're curious about your own state income tax just go to google and type in your state income tax bracket, and that will give you all the information you need to know. So after that, if you want me to be all technical here, you aren't done paying taxes quite yet, because then, if you want to spend any money you have left over after paying taxes, then you also have to pay what's called sales tax.

This is that little bit, that's tacked onto your sales receipt. Every time you make a purchase, it's usually something that we don't think about doing, but we all pay it no matter how much money we make now again, this one depends on where you live, but unless you live in one of the five states that doesn't have Any sales tax, which is alaska, delaware, montana, new hampshire and oregon for anyone wondering you'll, probably pay anywhere from five to ten percent in sales tax, depending on where you live, then, on top of that, if you own a property, then you also have property taxes, and This is very specific to where you live, but generally speaking, you're gon na have to pay anywhere from half a percent to two percent of the property's assessed value every single year, and of course, if you want me to be really nuanced here, there are usually other Local and city taxes thrown in on top of this, there could be special use, taxes, business taxes, gas taxes and other little miscellaneous charges that get added on without us thinking much about it. So, between the federal income, tax, payroll income, tax, state income, tax sales, tax property tax and special use tax, you could very well be spending anywhere from 30 to 70 percent of your income on taxes, depending on where you live. How much you make and how much you spent now take a step back here, because i understand i'm framing all of this in a really negative light and that's not exactly fair, because our tax revenue does help support our school systems, social services, the government, military spending, Roads, infrastructure and so on, so there's definitely some very worthy programs and services that we are lucky to be able to pay into like 16 dollar muffins for the justice department.

Okay, that was just a playful joke, but seriously they paid 16 for muffins five dollars for sodas and eight dollars for coffee, but i'm gon na save that for another time anyway. Now that you know generally how the tax system works, here's what you need to know to make sure you pay the correct amount of taxes and don't leave any money on the table, because the tax system is written to encourage you to pay less. If you know what to look for now quick disclaimer here, but i am not a tax expert and i'm a random guy on youtube, just making videos from a spare bedroom, so don't listen to me and always consult a qualified tax expert for your own situation. So, anyway, the first most straightforward way of lowering your taxes is just by using what's called the standard deduction.

This is by far the most common tax strategy out there, and it's almost always going to be automatically applied anytime. You file your taxes, see any time you go and make money you're left over with an amount at the end of the year that you're going to have to pay tax on. But you have the option to bring that number down through the use of tax, write-offs and deductions, and the more you lower that amount. The less tax you're gon na owe now the standard deduction gives people the option to reduce their taxable income by twelve thousand.

Four hundred dollars, if they're single or twenty four thousand eight hundred dollars, if they're married without doing anything so most likely if you're single and you made sixty thousand dollars a year from your job. You just take the standard deduction and now you're only going to be taxed as though you made forty seven thousand six hundred dollars, but you also have the option to itemize your deductions, like mortgage interest, investment interest, state and local taxes up to ten thousand dollars charitable Contributions and so on, the rule of thumb when it comes to this, is that if your itemized deductions exceed twelve thousand four hundred dollars, then you just go and itemize those deductions, but if they're less than twelve thousand four hundred dollars, then you just take the standard Deduction to get a bigger tax write-off, so after that we have another really popular one called the traditional 401k retirement plan. Now this is an employer-sponsored retirement plan that allows you to invest pre-tax money and then you're taxed on all the money. You begin withdrawing from the account after the age of 59 and a half for example.

If you contribute 100 a week to a 401k, you are taxed as though you've made a hundred dollars a week less on your paycheck. That saves you money up front by lowering your tax bill, thereby giving you more money left over to invest into the markets instead of spending that money on taxes. Now, in 2020, you are able to contribute 19 500 a year into a 401k, and by doing so you're going to be able to reduce your taxable income by that very same 19, 500. Now the catch with this is that you have to pay taxes on the money you take out of the account after the age of 59 and a half, and if i were to guess, i would say that taxes in the future are probably going to be higher Than they are today, but still this one is always worth doing if your employer offers what's called a 401k match.

This is when they will match your contribution dollar for dollar up to a certain amount. Essentially, this means you're, doubling your money immediately with no risk whatsoever. So the rule of thumb when it comes to this is just always do it don't even question it if your employer offers an employer 401k match just say yes, the second to 401k also makes a lot of sense if you're in a really high tax bracket. Right now and you expect to retire in a much lower tax bracket again, this really depends on your own situation, but for most people watching, i would only recommend doing a 401k if your employer offers the employer 401k match and then carefully consider anything else because, like I said i just think taxes are going to be going up in the future, but once we go beyond the basics, where the tax code really shines is for business owners, the reality is here in the united states.

Self-Employed business owners have a lot of write-offs and deductions available to them to bring down their taxable income. Now, whether or not you agree with the tax system, this is how it works and how it's set up for people to follow. This encourages business owners to not only reinvest back into their business to lower their tax bill, but also give them more profit left over. That will hopefully circulate back into the economy through their investments, real estate purchases spending money on weeble to get four free stocks by using the link down below in the description and so on.

I think it also encourages people to go and start their own businesses, because it means they could fully utilize the tax code as it's meant to be used, the first of which is something i mentioned in the previous video, and that would be running your business through An s corporation, this is a legal entity that you could start up and then your escort becomes your employer, which you just happen to own 100. Of the advantage of this is that you could designate yourself a salary that the s corp will pay you and then the rest of those profits are going to be given to you as a distribution which is not subject to payroll tax. So, for example, if you're, self-employed and you're making 140 000 a year, then typically you would be subject to twenty one thousand four hundred and twenty dollars with the payroll tax. But if you created an s corporation and pay yourself a salary of fifty thousand dollars, then you will only have to pay seven thousand six hundred and fifty dollars of payroll tax and then, like i said, the remaining.

Ninety thousand 000 is a distribution which is taxed slightly differently than wage income. Now, of course, when it comes to this, there's also going to be extra accounting fees and s corp taxes that will be due, but overall, if you're self-employed. This is a really good option to look into if you haven't done this already now. On top of that, if you own a business whatever you spend on that business is generally a write-off against your income.

So, for example, if you make a hundred thousand dollars, but then at the end of the year you spend twenty thousand dollars on a new office space. You spend ten thousand dollars in new equipment and another ten thousand dollars hiring somebody. Well, that's a forty thousand dollar write-off and now you're only taxed as though you've made sixty thousand dollars now. The reality is that the more money you make the more valuable these tax write-offs become because all these write-offs are reduced by your highest tax bracket.

First, so for somebody making a million dollars a year if they spend a hundred thousand dollars as a tax write-off, that's a lot more money back in their pockets when they file their tax return than somebody who makes ninety thousand dollars per year. That's why i typically wait until the end of the year to make my business purchases, because at that point i could estimate how much tax i would owe and what expenses are best spent for the next year, that i could pay up front today. This is really just the reality and benefits of being self-employed and running your own business here in the united states and how the tax code is designed. All of this is perfectly legal.

There's nothing breaking the law, there's no evading taxes, it's all about following the tax code, doing exactly what's required and keeping proper documentation of everything and lastly, without overwhelming everyone with super specific tax codes. I do want to mention this one that helps a lot of people in real estate and it's a term called cost segregation analysis. This allows real estate investors to write off depreciation on certain aspects of the property. For example, the carpet is not going to last forever.

It's got a lifespan of a few years same with wall coverings, cabinets appliances, fans and so on. So in a cost segregation analysis. Each item is determined to have a certain lifespan and when something has a lifespan of less than 20 years, it could be 100 depreciated up front in the first year. So, for example, let's say you buy a 1 million dollar building for 200, 000 down and 30 of that building has a lifespan of 20 years or less.

That means 300. 000 could be a write-off in the first year on a 200 000 down payment, and this works especially well on apartment buildings, office, buildings and commercial real estate. And this is what a lot of people do if they make a lot of money and invest a lot of money now. Obviously, i'm simplifying things a lot here, because this analysis is something that experts will charge five to fifteen thousand dollars to do, but that's the gist of it.

For anybody wondering - and this is how some really wealthy people can make a lot of money and then get away with paying no tax whatsoever, all right so now, as for myself, why? I owe the irs about one and a half million dollars? I'm not gon na beat around the bush, but so far this year my taxable income is going to probably exceed about four million dollars, and that means, by the time january comes around. I'm gon na have to pay the irs about one and a half million dollars in taxes, depending on my expenses and deductions towards the end of the year, typically with something like this, when you're self-employed you're supposed to be paying what's called estimated taxes, this is when You would pay what you would owe based on last year's income and four equal payments throughout the year. Doing this prevents one big tax bill from becoming due like what i'm about to pay, and this year i did not pay the estimated taxes. Now.

Here's the thing when you don't make your estimated taxes on time to the irs, they will charge you anywhere from three to five percent annually as a penalty for not paying, and for me i'll be honest. I just found it more profitable to pay the penalty and then have more money available to me to reinvest back into the markets at a time where everything dropped and remember the three to five percent penalty is annualized, which means that as they're owed every quarter. The effective interest rate - i'm really paying, is more like two percent. By the time i pay it off in full by the end of the year.

Doing that's allowed me to have more cash on hand to negotiate lower interest rates on mortgages. It's allowed me to use some of that money to reinvest back into the stock market and, overall, i've had a lot more mobility with my money than paying the estimated taxes or really. In other words, it's like. I paid the irs two percent to get a loan from them to then go and reinvest all my money and when the markets are up substantially for march and april, paying a two percent fee for something like this is invaluable.

So really come january. I'm gon na have a pretty substantial tax bill that i am fully prepared for, but it's still a lot of money and it's something i've been factoring in since the very beginning. But anyway, i think i've rambled enough about how the tax system works, and i hope this is what people wanted to hear. But overall the more you understand how this works, the more you're going to be able to make sure you get everything back, that you're entitled to and anytime you're, not sure i recommend you hire a cpa and sometimes this is the best money ever spent.

I hired the best cpa that i could afford and i learn a lot every single year as new things change. It's definitely worth it and hopefully now you know way more about taxes than you did like 20 minutes ago. So if you found this helpful in any way just make sure to hit the like button for the youtube algorithm, it really helps me out a lot and with that said, thank you so much for watching. I really appreciate it as always make sure to subscribe and hit the notification bell also feel free.

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