Transcription
I want to share with you a few tips on how to avoid taxes legally. My name is Brian Kim. My legal disclaimer is I am a certified public accountant, so I'm a CPA. I do encourage you to speak with your accountants. If you don't have one, then I hope you enjoy this free information.
Before we begin, I do have a request. If I help you save money with this video, then my request is that you enjoy the money. Treat yourself out. Help someone else out. The way I see it, I'm just happy that the money stays in your hands. It's better than having the IRS have your money, right?
If you're making under $400,000 a year, this video is going to be perfect for you. That's because the reason why I'm saying that is if you make over $400,000 a year, then you can utilize more tax tricks. There's more tricks that are available to you. Once you get over the one million dollar threshold, that's when things start getting wacky. There's a lot of gray areas. But in today's video, we're going to stick to information for people making under four hundred thousand dollars a year.
And I want to be upfront with you. There is no magic bullet. There's no secret hack that's gonna reduce your taxes to zero. That privilege, that's reserved for the billionaires with sophisticated offshore entities. That's, I'm just, I'm basically saying that's, it's not for people like you and me. If you want to make your taxes go to zero without the offshore entities, without the army of tax attorneys, then the only way to pull that off is for you to go down the illegal routes.
So, how to avoid taxes illegally? If that's what you're looking for, then you're at the wrong video. You clicked on the video with the title that says "How to Avoid Taxes Legally." Therefore, in this video, I'm gonna, I'm gonna show you how to do it legitimately so you can save money on your taxes and you can sleep well at night. I'm basically going to teach you how to nickel and dime the IRS legally. And those nickels and those nickels and dimes, they're going to add up.
Now, let's begin. Let's start off with the easy ones.
Number one is commuter benefits. Your workplace offers this to you, so please take advantage. For 2023, you can spend up to $300 a month tax-free on commuting. So that's basically a $300 tax deduction every month, which is $3,600 a year. This is applicable to mass transit such as trains, subways, buses, ride sharing such as Uber or Lyft, parking meters, parking garages, parking lots, and more.
Number two, retirement plans. So please take advantage of retirement plans offered by your workplace. For example, a 401(k) or a 403(b) retirement plan. A 401(k) is offered by for-profit companies. A 403(b) is if you're working for certain governments or non-profit organizations. So when you put money into your 401(k) or 403(b), you pay less taxes this year, and you're building up your retirement accounts. There are more retirement plans than just the 401(k) or 403(b), but these are just the more popular ones.
Number three, HSA. An HSA is a health savings account for people with a high deductible health plan. When you put money into your HSA, it lowers your taxable income. It's a tax deduction. Okay, so here's how it works. You put money into your HSA. So you can think of the HSA like a savings account dedicated to health-related expenses. So if you spend the money on qualified medical expenses, then you do not pay taxes on that money. So essentially, you're paying for your health-related expenses with pre-tax money, which is awesome. Additionally, you can invest the money in your HSA, and the earnings and interest will be tax-free.
Number four, FSA. An FSA is a flexible spending account. An FSA allows you to pay for certain healthcare expenses with pre-tax money, which is great. But I do want to warn you that there's a use it or lose it rule with the FSA. If you have leftover money in your FSA by the end of the year, you end up losing it unless your company has a rollover option.
Number five, dependent care FSA. You can pay for child care expenses with pre-tax money. You can do this for children and adult dependents. You can use your pre-tax money to pay for daycare, nurseries, preschool, nannies, au pairs, babysitters, day camps, after school programs, adult day care facilities, and more.
Now let's move on to saving money and paying less taxes within investments.
Number six, we have capital losses. If you have cryptocurrency losses, make sure that you report them because losses are good for tax purposes. Losses are tax deductions. So when it comes to stocks, you will receive a tax form, the 1099-B, and your stock losses will be accounted for on that tax form. So when it comes to stock losses, they're pretty hard to overlook. They're pretty hard to miss. I'm bringing up cryptos specifically because in many instances, you are not provided a year-end tax form, and many people forget to report their crypto losses, or many people are just too lazy to report them. But you're throwing away money to the IRS if you don't.
Number seven, long-term capital gains. If you hold on to a stock or a crypto for more than a year before selling it, that is classified as a long-term capital gain. Long-term capital gains receive much better tax treatments. The tax rate for long-term capital gains, it's about half your regular tax rates. And if you're under a certain income threshold, you will qualify for a zero percent tax rate. In that case, you will pay zero taxes at the federal level. Your profits will be 100% tax-free.
Number eight, review your 1099-B tax form. The 1099-B is the year-end tax statement for your stock market activity. So you get this tax form from your brokerage account, like Robinhood or Ameritrade, or whoever you use. So they send this to you around late January to mid-February. But you can also download the 1099-B from your brokerage account. You just have to go to the tax section in your app or on their website. With this 1099-B tax form, just gloss over it. Make sure that there are no obvious mistakes. I want to tell you about the most common mistake that I see that makes people pay more tax than they should. On your 1099-B tax form, if you see some information that's blank or missing, that could cost you a lot of money, and I see this happen all the time. Your 1099-B says how much you bought a stock for and how much you sold it for. If the "how much you bought it for" is missing, you know, for whatever reason, then it looks like you bought it for zero dollars, and then whatever you sold it for, it looks like pure profits, and then you're gonna erroneously end up paying a lot of taxes. Therefore, look out for obvious errors like that.
Number nine, margin interest. So please do not forget to deduct your margin interest. You can deduct your investment interest expense, and this is going to be listed on your 1099-B tax form as well. I see so many people forgetting to report this because it's not listed on the cover page.
Number 10, gambling losses. So here's a random one that's actually useful because I see this quite frequently. If you went to the casino and you won big on the slot machine, then you will receive a tax form called a W-2G. We're not talking about a million dollar jackpot. This is applicable if you win a few thousand dollars. The casino sends a copy of your winnings to the IRS. Therefore, if you don't report your winnings on your tax return, then you will get in trouble. However, I want you to know that if you do get a W-2G, you can reduce that amount by how much money you lost gambling. So the money that you lost on table games, slots, sports betting, horse racing, etc., you can use the losers to offset the winners.
Number 11, traditional IRA. So we spoke about the 401(k) and the 403(b). Those retirement plans are offered at your workplace. The traditional IRA is a retirement plan that you set up outside of your work. So depending on your situation, you may qualify for a tax deduction for putting money into your traditional IRA. So please keep that in mind.
Number 12, 529 plan. If you want to put away money for education, whether it's for your child or for someone else, or even for yourself, you can put money into a 529 plan. You will not receive a tax deduction with the IRS for funding a 529 plan. However, you may receive a tax deduction on your state's income taxes. Some states do not give a tax deduction for 529 plan contributions, like California. And nine states do not have state income taxes, like Texas or Florida. But even in those cases, if you have a 529 plan, you can still benefit from tax-free growth.
Number 13, fix your W-4 payroll settings. If you usually owe money to the IRS when you file your tax return, in many cases, you're getting charged an underpayment penalty, and you don't even realize it. The penalty is listed on your tax return, but many people overlook this because the penalty automatically adds to your balance due. So it's sneaky like that. To prevent this, you have to fix how much taxes that you have taken out of your paycheck. You make that adjustment on your W-4 with your payroll department or in your payroll settings. So I made a video on how to do that. I'll provide a link down below.
Number 14, minimal rental use rule. A lot of people have been listing their homes on Airbnb or similar providers. If you rented out your home for 14 days or less, the money that you make will be 100% tax-free. This is called the minimal rental use rule. So make sure that you report this properly, otherwise you're going to end up paying taxes, which is wrong. Notify your accountants or look it up. It's called, again, the minimal rental use rule.
So I hope this has been helpful to you. I hope you pay less taxes to the IRS. And again, if this video helps save you money, please treat yourself out. Treat someone else out. I'm just happy for you. Please subscribe. I thank you for the support and I wish you a very nice day.