that's why they say that Warren Buffett
pays less in taxes than his secretary
his effective tax rate My Philosophy is
I'm going to invest enough into
retirement accounts invested enough into
the future if you want to retire early
you're going to need to contribute to
this account if I lose all my real
estate I'm going to be fine because I'll
still have those retirement
[Music]
accounts hey welcome back to the learn
like a CPA show I'm your host Ryan bakey
and today we're going to be talking
about the most underutilized form of
investing account that you can have
especially as a real estate investor
more so as someone who is trying to
retire early or to make work optional
early at this point if you have been
following the content you probably have
heard me talk about traditional IAS
traditional 401ks Roth IRAs Roth
401ks and how they all intertwin with
real estate and kind of the steps that
you have to take in order to progress
into being a real estate investor a lot
of people ask Ryan what do you
personally do and my my investing
strategy is going to be a little bit
different than your investing strategy
and so that's why personal finance is
personal but my philosophy is I'm going
to invest enough into retirement
accounts invest enough into the future
so that way if I lose all my real estate
if I lose all my businesses and now I'll
crash and burn and China takes over the
United States or whatever reason I'm
still going to have I'm going to be fine
because I'll still have those retirement
accounts I will have enough wealth by
time I go to retire that I don't need
business or real estate and so for that
for me that's like that's a thousand
bucks a month into one of these accounts
whether that's a 401k Ira or this new
account that we're going to talk about a
taxable brokerage account so a taxable
brokerage account you might have you
might have it already you just don't
know that that's what it's called but we
have you you might have TD Merit trade
there's Robin Hood there is is Fidelity
CH law Vanguard all these different
types of people that can hold your
Investments and with a tax BR account
what's important to understand is that
there is not a income limit that you can
make to invest in taxable brokerage
account like there is an IRA or 401K so
with a taxable brokerage account there's
no $66,000 a year Max there's no $10,000
a year Max you can contribute as much
money as you want to this account this
this account is going to be an after tax
account which means you're going to go
to work work your W2 or your business
you're going to pay taxes on that income
and then you're going to contribute to
the taxable brokerage account so there's
no limit on what how much you can put
into that account and it's a taxable
brokerage account the best part about
this account is there's no penalties on
early withdrawal so if you if you
deposited money into this account on
January 1st and you wanted to withdraw
it later on in the year there's no
penalty there's nothing that says you
can withdraw that money early unlike an
IRA or 401k and so this account really
is a flexible account because you're
setting yourself up in the future
because at any point in time you can
always draw on that account you can
always pull money out of that account
and not have to worry about paying any
penalties so we already said that
there's no cap on the amount of income
that you can contribute to it there's no
penalties on early withdrawal but what
makes the account so advantageous is the
tax efficient gains because this account
is considered folio income and if you
are one of the members of my 365 tax
strategy service you probably talk you
probably heard me say that portfolio
income is one of the most tax advantag
incomes next to real estate income
because number one we don't pay any
Social Security and Medicare taxes on
that so if you're if you're working at
W2 go pull up your last pay Stu you'll
see a line that says Social Security and
you'll see a line that says Medicare and
that's an actual 7.65% that you pay tax
just just a work with in taxable
brokerage account portfolio income does
not have that same tax so right away any
money that you make inside of this
taxable brokerage account is more tax
efficient than if you were to show up to
work and make it but the best part about
the brokerage account is that there's
tax efficient gains because anytime you
have a stock in that account that's held
for at least a year that's going to
receive capital gain tax treatment which
means you're tax at zero 15 or 20% based
on where you're tax bracket is and so
how tax brackets work is that your
income stacks on top of each other kind
of how water and oil mix together they
don't mix well so you have water at the
bottom oil goes on top the water being
your W2 your business income Etc and
then any sort of capital gain income
goes on top of that well your W2 income
is going to set the standard for your
capital gain tax rate and now most
people if you're listen if you're
listening to this you're probably fall
in the 15% capital gain rate most people
do unless unless you're making I would
you know half a million dollars or more
married I want to say maybe 300 if
you're single you're going to be in a
15% capital gain rate so right away
think about that if I make if I make
$100,000 in my taxable brokerage like
let's say I invest that money and over
10 years I I I earn $100,000 in that
account I'm only paying 15% taxes when I
go to withdraw that account versus if
I'm in a high tax bracket I'm might be
paying paying 35 37% on the money that I
make at my W2 or my day job but I'm only
paying 15% inside of that Capital inside
of that taxable brokerage account so it
it's much more advantageous when I talk
about shifting your income when I talk
about getting instead of being a W2 or a
self-employed person being an investor
being an owner of stocks being an owner
of real estate you're really shifting
your tax bracket you're shifting how you
make your money because remember it's
not about how much money you make it's
how you make the money if you are making
all your money through portfolio income
like a taxable brokerage account or a
real estate portfolio with which is
passive income you could have a way
lower tax bracket than somebody that's
only making their income at W2 that's
why they say that Warren Buffett pays
less in taxes than his secretary his
effective tax rate it's not that he pays
less in taxes than a secretary let's be
honest he's got you know payroll taxes
he's got State local taxes he's got all
this type of stuff but the amount of tax
that pays on his income relative to how
much tax that his secretary pays on his
or her income is a lot less and that's
what I'm trying to get you guys in the
mindset of is Shifting your income from
that W2 that high tax bracket into the
portfolio income through a taxable
brokerage account or rental real estate
passive passive activities and so how
these kind of work and play in together
is you are taking money from your high
tax bracket and you're shifting that to
these buckets over time So eventually
all if not most of your income is made
up of either passive income through real
estate or a taxable brokerage account
let's get back to the taxable brokerage
account real quick guys if you could
think about how you find this podcast
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else pass it on to the next person whose
investing Journey or business can be
changed by listening to the show much
love guys and let's get into the episode
let's get back to the taxable brokerage
account there's also taxfree or tax
incentivized Investments that you can
make inside of the account for example
like they they'll have state and
municipal bonds which are normally tax
exempt or taxfree sometimes you have
bonds that do not pay your they're non
taxable like M municipal bonds now
typically these bonds uh they're they're
considered interest income which
interest income is normally taxed at
your regular tax rate right 30% 35% 20%
whatever I'm at but if I have an
interest free buy bond in my inside of
my taxable brokerage I actually don't
pay taxes on that Bond so a lot of
people like to invest in these what they
call immunity bonds because they're
taxfree at a federal level now just just
realize that normally if you're
investing in any side in any type of
investment that's uh taxfree they
typically have a little less of an
overall return or a little bit less cash
flow because you're making it up for it
because you're not paying taxes so
sometimes these tax-free Investments may
not provide you as much cash because the
way that they're structured the more
they're you're more incentivized because
you come out ahead by not having to pay
30% tax on that income what's also not
talked about enough is and this might be
this might be a little too complex for
some people but hey hang with me is this
idea of what's called tax loss
harvesting so tax loss harvesting is
where you have maybe you have inside of
your inside of your brokerage count
maybe you have some stocks or Holdings
that of Skyrocket in value that super
appreciated value and you want to go
sell those well you have a capital gain
on the difference between what you what
you bought it for and what you sold it
for and so if you're you might have a
capital gain well if you have part of
your portfolio that has a loss okay in
the same year you can sell the loss you
could sell the taxable brokerage account
portion that has a loss to offset the
the portion that has a gain okay and
that's what's called tax loss harvesting
if I have a gain from one side of my
portfolio but I have a loss from another
I can sell them both and nut them
together nut them out as long as my loss
is equal to my gain now what you want to
be careful of is what's called a was
sale rule so if you sell a stock for a
loss you're not able to buy back that
same stock within 30 days because just
because you wanted to harvest a loss so
be careful about the wash sale rule I'm
not going to go into it on today's
episode but the wash sale rule just make
sure that when you sell a stock at a
loss you buy back not the same stock but
a different company maybe in the same
industry but just a different company
okay
so that's tax loss harvesting you cannot
tax loss Harvest inside of your IRA or
your 401k right so if you're if you have
an IRA and it it lost value there's no
such thing as tax s harvesting there
there is Roth conversions that we've
talked about before and that I will also
probably do another podcast on today
there's going to be raw conversions that
you can do but inside of that taxable
brokerage account you can do tax loss
harvesting so I've seen clients
personally do this where they might have
losses losses from Real Estate Capital
losses from Real Estate like let's say
they bought a property they sold it they
lost money on it unfortunately but they
have gains inside of their brokerage
account they could sell the gains from
the brokerage account and because the
rental losses are loss capital gains
they can use those Capital losses to
offset their brokerage income or vice
versa right like maybe you have losses
in your stock portfolio and you're going
to sell those at Capital losses and you
have capital gains inside of your real
estate portfolio those two will offset
each other and so that's that's what I'm
saying that's the power of Shifting your
income into these other types of buckets
because these buckets will all net or
offset each other it's it's an amazing
thing you know I use I talk about I talk
about the flow of money okay so the flow
of money goes like this you're going to
make the money at a W2 or earned income
at your business that's where you're
going to be paying the the most amount
of money in taxes and we can help you
you know not pay as much in taxes on
that right through 401ks hsas have more
babies short-term rentals buy real
estate right there's ways you can offset
your W2 income but you're shifting that
income from that high 37% tax bracket
down to your portfolio income where
you're maybe only paying 15 or 20% and
then into real estate where most of our
clients have not all Real Estate
Investors should be paying 0% on their
rental income because of the way that
the tax code is written so the name of
the game is how quickly can you move
your money from those High tax brackets
in the W2 over to your portfolio bucket
05 or 20 or to the real estate bucket
where most people are paying
0% the last thing that I want to talk
about with the taxable brokerage account
and I'm kind of killing two birds with
one stone here is that you can actually
take out loans against a portfolio so if
I have built up this huge tax War
brokerage account let's say I have $2
million in a brokerage account I can
actually take out a loan against that
the value of that brokerage account and
I'll get a cash loan so I might have a
$2 million balance in my brokerage
account let's say I can take out a
million dollar loan from that account
and I'm going to have to pay interest
back to that account it's typically like
five or 6% and then I could take that
money and go buy a real estate deal all
cash then I don't have to pay a 7% 8%
interest rate and pay closing fees and
lender fees Etc like I can borrow
against that brokerage account remember
when you take out loans they're not
taxable events but I can borrow against
that brokage account instead of selling
it and recognizing capital gain and
losing some of it to Uncle Sam I can
borrow a against that account and use it
to go buy real estate so just another
just another Pro of the taxable
brokerage account the one con to the
taxable brokerage account that I want to
talk about today is hey guys just wanted
to interrupt the podcast today let you
know about my Facebook group Tax
Strategies for Real Estate Investors we
have over 6,300 Real Estate Investors in
the community actively engaging every
single day you're going to learn all my
top tips you're going to get to network
with other professionals and you're
going to get to see all the past
recordings and all the past Post in that
Facebook group so make sure you join
today it's going to be linked in the
podcast below and now back to the show
the one con to the taxable brokerage
account that I want to talk about today
is the flexibility of the account so
earlier I talked about how you can you
can buy in whatever you want you could
sell it whenever you want that being a
pro in my eyes it's also a con and the
reason being is because when you have
that account you have access to that
money and you see the stock market go up
and down up and down on a roller coaster
you might be inclined to jump off the
only person that gets hurt on a roller
coaster outside of the
0.00001% of people that actually get
hurt on them is the people who jump off
the roller coaster right if you don't
have that disciplined mindset to stack
that money in that account to save to
save to invest it you know you're not
going to get scared when the market goes
up or down five 10 percent but you want
to you want to have that long-term
mindset in mind whenever you're
investing in real estate whenever you're
investing in your tax or brokerage
account because that those are the
people that really get hurt I hate to I
hate to say it but I I saw people during
covid family members even that they sold
they sold all everything when when the
market went down 30% during Co 25 30%
they sold everything they liquidated
their portfolio and what do you know a
year later it was backed up and not only
was it backed up it was actually more
than what it was before covid so you
just have to have the long-term
investing mindset whenever you're
dealing with real estate whenever you're
dealing with your taxable brokage
account and if you you want to implement
these strategies because the people that
pay the least amount in taxes are the
people that own assets they either own
stocks they own real estate they own
businesses and those three things right
there are a long-term gain you have to
have a long-term mindset for those so
that about wraps up the podcast today we
talked about the taxable brokage account
and how it really is this flexible
wealth building machine where if you
want to retire early you're going to
need to contribute to this account and
you're going to need to stack cash into
this account your IAS your for 4 1ks and
real estate so this is just another
vehicle that I want you guys to use or I
want you to use in order to build wealth
thanks for tuning in to the episode
today if you want to learn more check
out my Facebook group Tax Strategies for
Real Estate Investors we have over 8,400
Real Estate Investors in that group
posting daily interacting daily and we
would love to have you there
