Hey this is tom, and you know the drill, don't click, nothing, don't smash. Nothing don't buy nothing, just listen! What if i told you that you can improve the performance of your stock portfolio by anywhere from five to twenty percent by making no changes whatsoever to your investment strategy? No, better research, no better stock, picks just by improving a few strategies in the back end of how you operate your portfolio sounds great. The good news, any freaking body on the planet can do these steps and improve their portfolio. It's that easy! Now, what i'm going to talk about in this video is tax and before you leave hold on hold on a second before you leave, because a lot of people when they hear the word tax they just want to check out.

This is going to save you a lot of money, so you probably want to stay trust me. It's not the most interesting topic in the world, but hey this. Might save you a lot of money. You know the geico commercial.

I mean 15 minutes can save you. 15 - that's literally it i'm the geico of the investment community at this point so check this out. Now. Trust me.

This is gon na. Actually save you a lot of money. Now, before we go through how you can do this, i have to explain some principles to you, because we have to have a common language so before we do that, here's a few tax principles you have to understand and i'm just going to tell you right now: Taxes are complicated. This is just an introduction if you actually want to optimize your own portfolio.

This isn't the end of the line you got. Ta actually go and talk to a professional to get this done, because every portfolio, every human being is like a fingerprint. It's unique: it's a unique snowflake. You got to see a professional, but this is going to stimulate you to do it.

I'm going to explain why so. The first thing i want to explain is some basics. Now the basic principle of taxation is that we don't pay it unless we sell it quite simple. If you just have unrealized gains, meaning that you have stocks that have appreciated like crazy, but you haven't sold, you owe the government literally zero dollars.

They can't touch you so the best way not to pay taxes is just not to sell. So that's step number one. That's not a tax step, that's just a common sense tip. However.

However, i'm just going to put it out here, taxes do not lead the business. The business leads the tax, so i don't expect anybody and i don't think it's a good idea for anybody to make investment decisions based on tax. Optimization tax. Optimization comes second after basic investment decisions.

So if you have a piece of third that you're holding on to just for tax advantages, not a good idea. So whatever i'm going to say here comes after basic investment strategies, make sure you don't basically trade or invest whatever it is you're doing, based on just tax principles, now check this out. There's a lot of you in my comment section who asked this question and before we get started, i want to just save you a lot of stress and a lot of money by explaining this. If you sell stock and keep the money in your brokerage account, even if you don't take out a single dollar, if you keep zero dollars in your pocket and a hundred dollars or a hundred percent of your portfolio inside the brokerage account, if you do not withdraw The money you still are liable for tax for the whole thing, so keeping money in your brokerage account is not a tax shield.

It's not going to work. So stop asking me this question, because this is a mistake. It's an accident that happens to a lot of people money in the brokerage account is not a protection against tax, there's other forms of doing that which are called the 401ks. The iras retirement accounts i'm going to talk about that in a second there's, a way to actually shield about 25 26 000 per year.

I'm going to talk about i'm going to explain exactly how, but keeping it in your brokerage account is not going to protect you. So, just to clarify that, because let's get asked quite a lot now, there's one thing: you need to understand about taxes, taxes work basically on two parallel levels: the government is your partner. They love you they're, your partner, which means they kind of the good partner that doesn't want to do any of the work. You do all the work and they share the profits, beautiful partnership for the government, not so much for you, but unfortunately there's jack.

What you can do about it, however, we can actually work the system in our advantage legally, of course, so check this out. There's two streams of income which the government will tax you for, and i'm talking about, the federal government or the state government doesn't really matter. One stream of income is what you earn from salary that is called income tax. I'm not going to talk about that in this video whatsoever.

I'm going to talk about the second item, which is capital gains tax. The tax you pay for utilizing your capital in the stock market, those tax and those tax rates are significantly lower traditionally than income tax rates. Why is that the case? Why isn't it completely equal? Well, i have a few theories, but i'm just gon na tell you right now. I personally think that this is because rich people make a lot of money by using their capital and that's why this loophole exists, but instead of crying about it and talking about justice, we can use this to our advantage.

So i'm not here to talk about. What's right or wrong? Morally, this isn't a qualitative judgment, i'm just here to show you how to use the system to max out your own situation. However, even though i just explained to you why capital gains tax is taxed much lower than income tax, that's not going to be the case unless you pay attention to what i'm about to tell you right now, there's two types of capital gains tax. One of them is identical to income tax.

It's just called capital gains tax, but it's literally income tax. You don't want to be in that situation, so whatever it is, you can do to avoid to be in that situation. Do it and i'm going to explain to you how it's really really simple, this is called short term capital gains tax and, of course, i'm just talking about the us here. I want to clarify this is us tax? This is where i actually operate.

This is what i understand: i'm not talking about german tax or ukrainian tax. This is u.s tax, so short term capital gains is taxes. You pay for stock that you held below one year if you're holding period of a stock, meaning the date you bought the date. You sold is shorter than one year.

You pay short term capital gains tax and that can range anywhere from 22 to 37. It's a lot of tax, long-term capital gains tax, meaning you pay anywhere from zero to 20. Max it's a huge difference and most of you all are going to pay 15, not the 20, so this is really important. Now, i'm also going to talk about dividends in a second, it's very similar but hold on before dividends.

Let's just talk about the principle: now: how do you stay in long-term capital gains tax? Well, it's simple! There's no complicated stuff! Here you just hold the stock over a year. I'm gon na caveat this. If this is a piece of third that you have no business being in, don't just hold on to it for tax reasons, this is a bad idea, so make sure you make smart investment decisions and optimize after you made your own analysis about which stock you want To hold on to and which not now as far as short-term and long-term capital gains tax, there are a few basic implications on how you are making your money besides the stock market. So when the government sets your own tax rate, they look at a few different things.

For example, how long you held the stock which we just talked about, but they will also look at how much you make per year, because that is quite important. For example, if you make 40 grand or less your long-term capital gains are zero literally zero. If you make 40 grand, but not as much as 500 grand per year, your long-term capital gains are 15, and only if you make more than half a million per year. Your long-term capital gains are 20 now that may sound like a lot of tax, but when you hear the short-term capital gains, tax rates, you're gon na think that this is kindergarten.

This is child's play so for short-term capital gains we're talking about a whole different system. So if you make about 40 grand a year, you pay 22, it's really more than the highest rate for long-term capital gains. But if you make more than 86 000 per year, you're going to pay 24 now, if you're, that fortunate and you make more than 160 grand a year, give or take you're going to pay 32 and if you're, in that highest tax bracket of over half a Million you're going to pay 37 short term capital gains. Of course the numbers change every year and they may not have the exact same numbers.

So all your cpas in the comment section chill i'm just giving the principle here. Of course, you've got to talk with the cpa to check your own situation, but this is just kind of a principle now. The thing is: if we talk about an equivalent person, somebody who makes between 40 grand and 86 grand a year, which is most of my viewers, i assume for long-term capital gains. Your tax rate is going to be exactly 15 for short-term capital gains.

Your rate is going to be. You know how much 24 huge difference for nothing whatsoever other than holding the stock for more than a year. So before you get itchy fingers and try to actively trade to get another dollar here, another dollar there you have to remember there is a tax cost attached to that. So getting active and trading all the time has a massive cost.

You just saw the difference so before you do actually engage in penny collecting before the steamroller. Make sure that you know that the steamroller is costing you a lot of percentage points. So it's not always the best idea to actively trade, and the same thing goes for dividends. When you get dividends, you can pay either of two rates qualified and non-qualified, and the only way to get qualified is quite simple, just hold it hold it for more than 60 days in the period that starts for 60 days before the dividend 60 days after the Dividend and it contain any configuration, for example, you buy the stock one day before the dividend, and then all you got to do is just hold it for 60 days after the dividend.

That means you have 61 days within the 120 day period. Before and after the dividend date simple, as that i know that sounds complicated, but just you know, if you want one advice, just hold it for more than 60 days after the dividend you don't have to deal with anything beyond qualified dividends. Now i do want to explain a common misconception which has to do with losses. Losses are an asset in the tax world, not an asset in the accounting sense of the world, but an asset in the case that it actually makes you money losses, reduce your taxable income, so losses are actually good for tax.

However, however, before you go and start harvesting losses, you have to realize there's a lot of rules that are there and they're designed to prevent you from engaging in monkey business and the best example is the wash sale rule the war sale rule, even though it sounds Innocent, it's not about washing it's about taking away something from you. That is the loss. If you sell a stock at a loss, but you repurchase within 30 days or you buy a similar stock, you don't get to enjoy that loss as a deduction for tax purposes and just to explain to you how big this is on the regular year. The s p 500 does about eight to nine to ten percent.

Now forget 2020. We had a crazy s, p, 500, but that's what it does. What we just saw is the difference that actually is worth the same: seven or eight or nine percent. Just by having tax planning in place before you actually do stupid stuff now check this out.

There's a way around. All of this that will actually save you even more money. In fact, it's going to shield the entire income from tax until you retire as long as you keep it closed within this bubble, and what i'm talking about, of course, is the iras, the 401ks and the 403bs there's a lot of different options. It sounds like a lot of code, but the simple truth is: if you use an ira or a 401k, you don't pay any tax until you retire simple.

As that all your activity within the ira is completely tax-free. There's no short-term type of gains tax. There's no long-term capital gains tax, there's no medium capital gains tax, there's no qualified dividends, don't qualify, there's no tax. As long as the money stays within the ira or the 401k.

You can ask peter thiel actually put a lot of his planeteer money in the 401k or an ira, don't really remember and how much money he saved on tax, we're talking about billions simple, as that now you can put up combined iras and 401ks up to 26 Thousand dollars per year, which is a lot of money, we're talking about a quarter of a million dollars in 10 years or 750 000 that you can shield within a 30-year period until you retire. It's a lot of money. This is literally a hack. This is a benefit the government gives you and, if you're not maxing it out, if you're, not trading within the ira or the 401k to the max you're losing a lot of money anywhere, you just saw from 15 to 40 percent of tax, which is insane.

This is hundreds of thousands of dollars over the course of the next 10 to 15 to 20 years, maybe even more by just putting the money in the retirement account or 401k or whatever just make sure you go and talk to a professional because optimizing your taxes Is probably the easiest, simplest and cheapest way to optimize the performance of your portfolio without doing jack? Just pay a cpa or some guy who understand taxes or a lawyer to max it out for you and just sit back, enjoy your tea and watch your profits come in simple as that. So i hope this was helpful. Now, if you're crazy enough to ask me for a deep dive into taxes, which i don't know why anybody would i'm happy to do it? Let me know in the comments if this video gets 5 000 likes, which i don't think it ever will i'll make a whole deep dive into taxes, we're going to talk about 401ks. I raise everything but for the best part just actually go and research.

This thing, all this information is available for free everywhere, just go and educate yourself on tax. Optimization, it's gon na save you a lot of money. I've been tom you've been you see you tomorrow.