Did You Know: Not All Income Is Equal

Did You Know: Not All Income Is Equal

Hello Rookies!

In earlier articles the basics of income tax were discussed if you missed them click here. We know that the more money you make the higher the income tax bracket you fall into leading to more taxes being paid. That is less money in your pocket. However, did you that not all income is taxed equally. Income made as an employee is taxed differently than income from other sources such as stocks.

Not All Income Is Taxed Equally

There are several ways stocks can produce tax advantaged income for you the most basic and easiest way to get started  is with capital gains and stock dividend.

A dividend is a payout from a corporation to you its shareholder

A capital gain is a profit from the sale of stock  

Did you know that you could pay as little as 0% income tax on your capital gains and dividends.  You owe nothing to the federal government and get to keep it all.

Capital gains from the sale of stock you have held for at least a year and qualified dividends (those dividends that are included for tax advantage status) are taxed much lower than your ordinary income:

Single File
Income Bracket              Dividends/Capital Gains Tax Rate
$0-38,600                       0%  
$38,601-425,800           15%
$425,801 +                     20%


                                           Married/Joint File
 Income Bracket              Dividends/Capital Gains Tax Rate
 $0-77,200                       0%
$77,201-479,900             15%
$479,001 +                      20%


Compare the chart above to your normal income bracket in the 2018 year here

This is an important principle to consider when thinking about where your money comes from. Having multiple income sources taxed in different ways - sometimes at zero taxation can help you reach financial success.

Think of how your money is being taxed - and how can you legally avoid it?

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