Okay, so the goal of this video is to help you get your taxes down as much as possible without of course breaking the law. Remember folks, tax evasion is illegal, but tax optimisation is very, very legal. Okay, so what is it that we're going to be covering? Well, we're going to start with talking about how the IRS taxes regular trade ups. If you start trading tomorrow, how are you going to be taxed And we'll talk about how to deduct your losses because as a trader, losses are inevitable at some point, if not at every point.

and we're going to be talking about some of the most common and straightforward write-offs when it comes to being a trader. What is it exactly that you can write-off because there are expenses when it comes to trading and then we are going to be going over why It is so important that the IRS sees your trading activity as a business because if it doesn't see it as a business, they are going to tax the cahoots out of you. And lastly, but most importantly, we're going to be talking about how to take advantage of the corporate tax rate of 21% instead of paying the personal income tax rate of up to 50% and increasing depending on the state that you live in. And this all fits wonderfully into an umbrella that I call Tax Hacking is very important to tax hack folks.

But why why would you save me money, Charlie? Why would you like to save money on taxes? Everybody loves paying taxes, but you see this is the problem if you give it to the government, you no longer have it. Well, when it comes to me, I'm very passionate about maximizing the amount of capital that I can make and then maximizing the amount of that capital that I can then keep in the sunny state of California where I live. the top tax rate can very quickly become 50 percent and increasing. So it's so important to be extra diligent to make sure that you're not paying any more than you absolutely have to.

Folks, we all work so hard for what we earn. But it's not about what you earned, it's about what you keep. So with that being said, my goal is to help you have some actionable steps and strategies to actually help you keep more of your money. But let me go ahead and give you a disclaimer that this video is for entertainment purposes only at the end of the day.

I'm just another guy on the internet and I'm not even a CPA You are going to need to see a CPA so that you can get a personalized opinion based on your own financial situation. These are simply strategies that I have learned through my own experience and consultations. Okay, so with that out of the way, the one thing that I do want to warn everybody as the IRS has just announced that they will no longer be taxing ravishing this. That means that starting now you can hit that ravishing like button.

Tax-free Okay, so to start, let's go ahead and talk about how you're actually taxed as a trader will oversimplify trading and say that you place 100 profitable trades per year and make a total of 100,000 profit at the end of the year. Now because these are short-term trades, because a trade is simply you either buy or sell in the same day, or you buy and sell in under a year. That means that you're going to be taxed at your regular income, right? as if you had earned any type of income. Other examples of ordinary income that you'd be taxed at the same rate would be like a job contracting if you're a private contractor or something of that nature sole proprietor.

It's all tax that these ordinary rates. There is a small difference though, which we're going to talk about later on when it comes to self-employment taxes. but a lot of people think that the low capital gains rate of 15 percent applies to traders. But that's simply not true.

Capital gains is when you have a position and you hold it for more than a year and then you sell out of it, then you pay capital gains tax. However, that only applies to long term held positions, and when it comes to trading, we're not holding things for the long term. Anything held less than here is going to be taxed at your ordinary income tax rates. But going back to the example where you just make 100,000 in profitable trades and you have no other sources of income.

If you live in California, your combined state in federal taxes at a simple income level of a hundred thousand will leave you with about seventy eight thousand, Four Hundred Forty Six dollars left. Of course, in California they tax the sunshine. So you pay a lot in state taxes just to pay for that sunshine. Though if you look at my pan you can see it's 100% worth it.

But in any case, that any come level of hundred thousand will leave you with about seventy Eight Thousand Four Hundred Forty Six. Now that's a pretty good tax rate. However, we live in a progressive income tax system. Both California and the United States are both on what's called a progressive income tax.

That means that the more you make, the higher percentage you pay. And this is when it comes to ordinary income. There's other types of income, but we're just talking about ordinary income. But if you make a million dollars per year all of a sudden, the rate goes up quite a bit and you're left with only five hundred Sixty One thousand a measly five hundred sixty one thousand for that year.

So you could see that as your income goes up, your percentage of taxes goes up as well. And I should remind you that this is based on California and your taxes are going to vary a bit based on what state you're located in. Main difference in terms of tax when it comes to what you'd earn trading versus what you learn at a nine-to-five or when you turn in a if you're self-employed is what's called the FICA taxes. Now, when you're employed for somebody, you and your employer split the difference between a 15.3% tax rate in terms of your Social Security, Medicare, and whatnot FICA taxes.

When you're self-employed on the other hand, you pay be full 15.3% Catch yourself. But trading income isn't subject to those FICA taxes and that's a huge benefit because you're saving a ton of money right off the top. Great, Fantastic. So as a normal trader who's done nothing in terms of tax optimization, what is it that you can write off? Well, unfortunately, the IRS doesn't care about you and they only let you write off one thing and that is your capital losses up to three thousand dollars.

So that means it If you lose three thousand dollars, you can write off three thousand dollars. Okay, so this is how trading taxation works if you're treating your trading as ordinary income. As far as the IRS is concerned, however, ordinary income is sort of the herpes of the different types of income. The key is making the IRS designate you as a business.

The two biggest ways of convincing the IRS that you have a business: A trading business instead of you just dabbling and trading is by having either Apts status or by forming an LLC. Tts essentially means that you qualify as an active intraday trader or an active trader and you have to fit a long list of eligibility in order to get this. you don't fit that. The other easier way to do it is through an LLC.

But having the IRS treat your training as a business means that now you can ride off all of your expenses and your losses. You could ride off anything necessary for running your tweety business. For example, you have a specific computer for trading. You can ride off your computer or the depreciation of it they you invested in an iPad for chart reading and chart marking up with a pen.

you could write that off. If you trade on your phone, you can run off a portion of your phone bill, or if you use your phone for research or something of that nature, you can run off a portion of your phone. You are also probably going to be able to take a partial home office deduction for the part of your room that you're using for trading and solely for trading. You can also write off any software costs or program cost that you may have incurred while trading and earning an income as a trader.

For example, if you bought a paid software package for scanning for stocks or something of that nature or you subscribe to The Wall Street Journal Anything of that nature that you can argue is for trading, then you can write that off. You can also write off education expenses say you bought a book about trading, say you enrolled in my zip traitor you education course. You could hypothetically write these off because these are education expenses that are helping you and your business. And you can write off any brokerage fees like margin fees, commissions, stuff of that nature.

Okay, so here is where it gets interesting and this is the deduction on qualified business income. This allows eligible taxpayers to deduct up to 20% of their qualified business income. The key with this is that it's any income up to one hundred fifty Seven thousand. Five hundred dollars.

A minute starts to phase out, but this is a great deduction because it substantially reduces your taxable income by 20% But let's say that you make more than one hundred fifty seven thousand dollars and you're starting to get to this area where you have fifty percent or more in taxes and you can't take this deduction. What do you do then? Well, this is where corporations come in. One of the best ways to tax, hack and save on your taxes is by having the IRS tax you as a corporation. And for the business nerds that are watching this video, this is AC Corporation.

You not only have the same Radha's that we talked about earlier, but you'd also have the ability to take advantage of the flat 21% corporate tax rate instead of the high ordinary income tax rates that we have to pay as individuals. Now, this, of course, only makes sense if you're making a sizable amount of trading or making a sizable amount of income. Overall, when everything's considered because of the simple fact that tax rates aren't really about high unless you're making over a couple hundred thousand a year now, there are many different ways to do this. The big way is by first making your trading business into an LLC and letting that LLC be owned by a corporation.

So earlier, I talked about how to make yourself into a business by either designating Tts or designating an LLC and V LLC. It's the same thing, except in the situation: instead of you owning the LLC, a holding company owns the LLC and the holding company is a corporation. But how does this work? well? Taxation 101 an LLC is essentially a pass-through entity. Which means that what happens is that it passes through the taxable liability to whoever owns it.

So if I personally owned an LLC, that means the cash that's made comes directly to me and then I have to pay taxes on it on my own specific rates. But if it's a corporation, then the corporation pays taxes on it. Why is this important though? Well, if a corporation pays taxes on it, then they're paying taxes on the corporate rate of 21 percent instead of the high personal marginal tax rate of up to 50 percent. So let's go ahead and say you make 1 million dollars per year in California Yeah, said it.

Being left with a measly 561 thousand dollars, he'd be left with seven hundred and Ninety thousand. Now this is a huge difference, and it increases substantially as you earn more income. So if you're planning on getting to higher income brackets all of a sudden, you're getting into this area where you're paying so much in taxes and you can really save just by incorporating your profits. But again, it really depends on what your income level is and what your goals are.

A lot of you have different businesses I have a different business I have a bunch of different incomes. You probably have several different incomes, or you have a primary job or something of that nature. So let's just go ahead and say that you have two businesses: a trading business and an education business that makes short, sweet simplified videos on how to trade the stock market. Well, you could set them up as two different LLC's have them pay you a relatively small monthly salary each, and they connect both of these to the holding company.

Then, instead of both of these flowing through to your personal tax rate, they'd both be taxed at the advantageous rate of 21% And once the money is in your holding company, you can start using the money there that you've saved. You treat that as sort of a bucket where all your cash goes, and then you start building assets using that bucket and any income generated from the LLC's in that bucket in. any investments that you make with that bucket is all taxed at the corporate income tax rate of just 21%. And of course, this holding company is something that you have control over.

That means that you are the one that personally gets to decide where and how these funds are managed. But what? What is the catch? Charlie? Well, the catch is that if you distribute these earnings to yourself by going into your corporate holding accounts bank account and then transferring that to your personal account, then all of a sudden you're going to be taxed twice because you paid the corporate income tax rate and you're going to be paying your personal income tax rate. So how exactly do you get around this? Well, the key is to pay yourself a small, reasonable, and tax-deductible salary at the LLC stage. So when you're making money here, you take a certain percentage of that and you distribute it to yourself so that you can take advantage of having personal income and something to live off of all also getting in a lower income tax rate on both sides of the scale, and then the majority of your money is left to flow into your holding company.

And the key distinction between a salary and corporate earnings here is that once you make a certain amount of money to cover your regular expenses, the rest of that money should be going to your long-term investments, long term growth, and of course future big-ticket purchases such as houses or a car. The holding company can then build up money and that money can make more money and then be used for a real estate acquisition. Investing more money back into your own businesses, investing in the stock market, or even creating new businesses that you're holding company can fund an income from. Those can then be further taxed at the advantageous 21% income tax rate, which allows your wealth to grow exponentially because you're not paying 50 percent of your income in taxes.

And of course, if you want to pay absolutely zero in taxes, you could spend all of the money that you make all of your revenue after you pay yourself a small salary and put it back into your business by acquiring more capital and acquiring things to expand your business. And of course, there are some regulations on asset allocation how you can allocate assets in this way. So it's very important that you see an adviser to make sure you understand exactly what you need to do in order to take advantage of this tax hacking. I Should go ahead and reiterate that this only works if your goal isn't to spend every single dollar that you make.

Most folks when they start making money, they do increase their lifestyle. But if they make a lot of money, there's only so many things that you could spend in your day-to-day life. So if your plan is to grow wealth long term instead of just increase your lifestyle expenses by buying dumb, then this is a great strategy because it indefinitely lowers your taxation while also allowing you to have a salary that you control that you can live off of. And of course, you technically never have to cash out the corporation.

anyways. corporations have many benefits. For example, if you ever get sued, if you ever personally get sued, maybe you hit someone with your car, or you beat down someone's rabid dog. Their corporate assets are protected because you're separate entities, and of course, you can use the corporation to acquire big-ticket purchases such as a car or a house that you would normally buy anyways.

However, this is where the legal distinction is drawn and it's important to note that a corporation is not a personal piggy bank. Do you want to use corporate money in order to buy yourself Gucci hats? You're going to need to figure out an argument that says: I needed corporate Gucci hats for this holding company business and for me I Could actually probably pull that off if I bought a Gucci hat and I wore it in my videos I could say hey, well that was a marketing expense however I don't look good in hats, but it is very important to understand that the distinction between your personal and your lifestyle and your wealth building goals is going to be something that dictates how much you care about taxes and how much you defer to the future. Charlie wouldn't I still be paying a high tax rate on my personal salary that I'm paying out of the corporation? Well, yes, but because again, the taxation system is progressive in terms personal income taxes. That means that you're paying a smaller percentage because you're taking less money in terms of salary.

so you could probably get it so that your corporation is only taxed at 21 percent and then your personal income taxes are only taxed at an effective 25 percent or 30 percent in terms of you know how much you distribute to yourself. Anyways, folks, if you have any questions, feel free to reach out to us below. of course I can't give you personalized financial advice I can give you guesses, but at the end of the day you're going to need to see your own CPA and your own advisor. Pfizer's can be quite expensive if you get a good one, but at the end of the day it's going to be worth it, especially if you're in an income bracket when you're paying just so much in taxes.

and you can of course write-off advisory fees, so that shouldn't be a problem anyways. folks, for those of you who are learning to become a better trader, we also have our Zip Trader Circle which is the link in the description below. You can learn to trade with a bunch of other people and it's really a great community I post nightly watchlist and everything of that sort. We also have Zip Trader You, which is our structured walkthrough on teaching you how to grow your account and how to do it in the most efficient way possible.

Thanks to those and a bunch of other resources that I know you'll enjoy are in the description below. Have a great day and I'll see you in the next video.