Here is everything you need to know about the US Tax System, how it works, and why I owe the IRS $1.5 Million Dollars – Enjoy! Add me on Instagram: GPStephan

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TAXES 101:

First, you have your FEDERAL INCOME TAXES.
When it comes to the tax brackets, you will ONLY pay the higher tax rate on whatever income is above that threshold – NOT the entire amount.

Second, you have PAYROLL TAXES.
This means, if you’re working a job, or maybe you’re self employed – you need to pay a separate Social Security and Medicare Tax, which could be as high as 7.65%-15.3%.

Third, you have STATE INCOME TAX.
his one depends on where you live…but, if you don’t live within one of the 9 states which have ZERO STATE INCOME TAX…you’ll have to pay something extra here, too.

Fourth, you have SALES TAX.
This is that little extra bit that’s tacky on to your receipt anytime you make a purchase.

Fifth, you have PROPERTY TAXES
Generally…this is anywhere from .5% of the assessed value of the property annually, to as high as 2.3% of the assessed value annually if you live in Illinois.

*QUICK DISCLAIMER: I AM NOT A TAX EXPERT. I AM A RANDOM GUY ON YOUTUBE MAKING VIDEOS IN A SPARE BEDROOM. DON’T LISTEN TO ME. CONSULT A QUALIFIED PROFESSIONAL FOR ANY TAX ADVICE.*

Alright, so there FIRST, most straight forward “tax deduction” out there is just called “The Standard Deduction.”
This is, BY FAR, the most common tax saving strategy out there, and it’s almost always going to be “automatically applied” by even the most basic of tax softwares. This gives people the option to reduce taxable income by $12,400 if you’re single, or $24,800 if you’re married.

After that, you also have a VERY popular one called a Traditional 401K retirement plan.
This is an employer-sponsored plan that allows you to invest PRE-TAX money, and then you’re taxed when you begin withdrawing the money after the age of 59.5. For example, if you invest $100 per week into a 401K, you’ll be taxed as though you make $100 per week LESS on your paycheck.

But once we go beyond the basics….where the tax code REALLY shines is for business owners. The REALITY is that here in the United States, self employed business owners have the benefit of getting a LOT of tax deductions and write offs available to them to bring down their taxable income.

The first, like I mentioned in my previous video, is running your business as an S-Corporation. This is a legal entity that you can set up, and then…that S-Corporation becomes your “employer,” which you just happen to own 100% of. The advantage of this is that you can designate yourself a “Salary,” which your S-Corp pays you…and then, your remaining profits are received as corporate distribution, which is not subject to the 15.3% of payroll tax.

In addition to that, when you own a business – items spent DIRECTLY on that business are generally a “write off” against your income. If you incur any expense relating to that business generating PROFIT, it’s reduced from your gross income and you will pay less in taxes as a result.

Alright, now…as for myself…and why I owe the IRS about $1.5 million this year: when you’re self employed, you’re responsible for paying what’s called “estimated taxes.”

When you don’t make quarterly estimated payments to the IRS, you’re hit with an annualized penalty of 3-5% of the amount you’re supposed to pay. And for me, I found it MORE PROFITABLE to pay that penalty and have the ability invest that money upfront, instead, during a time where the markets were down.

That’s allowed me to have more free cashflow to move around banks and negotiate a lower mortgage interest rate, I’ve put more money into the stock market, and I’ve had more overall mobility rather than paying that money to the IRS upfront.

For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness@gmail.com

*Some of the links and other products that appear on this video are from companies which Graham Stephan will earn an affiliate commission or referral bonus. Graham Stephan is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available.