How to PAY ZERO Taxes on Capital Gains (Yes, It's Legal!)
Toby Mathis Esq | Tax Planning & Asset Protection・12 minutes read
Understanding how taxes work is crucial to paying less tax. Three types of taxes are active income, portfolio income, and passive income, each with different tax treatments. Wealthy individuals often benefit from capital gains and rents due to favorable tax treatment.
Insights
- Understanding the distinction between active, portfolio, and passive income is key to optimizing tax payments, as each type is subject to different tax rates and treatments.
- Utilizing strategies like generating capital losses and leveraging security-backed lines of credit can help offset capital gains and reduce tax liability, particularly beneficial for individuals deriving income from capital gains and rents to take advantage of favorable tax treatment.
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Recent questions
What are the three types of income for taxes?
Active, portfolio, passive income.
How can capital gains be reduced for tax purposes?
Offset with capital losses.
How can individuals eliminate capital gains for tax purposes?
Generate capital losses, use tax strategies.
What is the tax treatment for passive income?
Taxed differently with limitations.
Why do the wealthiest individuals often derive income from capital gains and rents?
Favorable tax treatment.
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Summary
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Tax Basics: Active, Portfolio, Passive Income Explained
- Understanding how taxes work is crucial to paying less tax
- Three broad types of taxes: active income, portfolio income, passive income
- Active income is subject to ordinary rates and social security tax
- Portfolio income includes royalties, interest, and dividends with preferential tax treatment
- Capital gains can be offset by capital losses, reducing tax liability
- Ways to eliminate capital gains include generating capital losses and utilizing tax strategies like security-backed lines of credit
- Passive income includes rents and businesses where there is no material participation
- Passive income is taxed differently, with limitations on offsetting losses against other income types
- Wealthiest individuals often derive income from capital gains and rents due to favorable tax treatment
