Mark Kohler breaks down how the US taxes four types of income: tax-free, ordinary, passive, and investment. Hold stocks under 12 months and you pay ordinary rates; over 12 months gets you lower long-term capital gains. Strategies like charitable remainder trusts and management fees with 401(k) contributions can reduce what you owe.
Chapters
Let's talk about what short term capital gains are. People. There's about four ways you make money. You make money tax free, you make ordinary income, you make passive income or you make investment income. Man, I wish I would have wrote that cleaner. Okay, so this is ordinary. So we have tax free, ordinary passive investment. If I could. Okay, those are our four ways. When Logan Paul fought the other night, what did he make? He made ordinary income. If long term holder buys cryptocurrency, what is that? That's investment income. If Joe park says I'm doing a 1031 with my real estate, that's passive. So this is a rental, this is crypto or stock. Ordinary is a 1099. This is your side gig, your side hustle. And tax free is your Roth IRA or your 401k making the money. Okay, so these are the four main ways you're going to make money. Now yes, you could win in the lottery, you might get inheritance. But working your butt off every day, it's going to be one of these four. Now which one or two do you get to take? Awesome write offs against ordinary. And what's the other one? People? Passive. So I can take write offs on my rental property because I got to go out and check on it. Do I get write offs when I buy cryptocurrency? No. Do I get write offs when I invest with my retirement account? No. But I don't pay tax either, so who freaking cares, right? But here's the deal. When you invest with crypto, stock or any of these strategies with stock crypto, you're going to have short term capital gain or long term capital gain. Long term capital gain is if you hold it more than 12 months. Short term capital gain is if you hold it less than 12 months. Rental property after the write offs and I go to sell it is going to be either a sale of short term or long term or ordinary income. Now ordinary income is split into two types. It could be subject to self employment tax. Logan Paul, when he fought in the fight against Mayweather, he had to pay self employment tax on $20 million. Oh my gosh. We could run the numbers on that. Okay, but then if it's not ordinary income, I mean self employment income, then it's just ordinary. Now I know this may seem really complicated. Everybody just hang with me. DSB gamer says how can I get rid of short term capital gain or how can I minimize it? Well look it, if you've got ordinary tax rates here, everybody look at this. I've got ordinary tax rates Here I've got long term capital gain rates here. So these are the only two places I've got good rate. These are rates here rates here. Short term capital gain is taxed at ordinary rates after self employment tax then I pay ordinary tax rates. So short term capital gains aren't great but they could be worse because we we don't want self employment tax. So short term capital gains, the only way to really get around them is hold whatever you're doing 12 months. You could do a charitable remainder trust like we've been talking about. I sometimes do a backdoor strategy. Oh my gosh, I'm getting to some heavy duty stuff. But if I have passive income that short term capital gain I'll try to sometimes create a management fee and then create a 401k write off and create some tax deferred income. So short term capital gain is hard to get around. But just remember it could be worse. You don't want self employment tax and if you don't hold it 12 months you're kind of screwed. You know you're going to have to pay rate ordinary income tax rates. You could again do a crt but you've also hopefully got some write offs so that we could maximize that. That's a hard one. DSB gamers get a consult with your accountant. Give us a call too. Let's see what exactly is going on in your.
