Uncle Sam

Uncle Sam

Now we are the Trading Experts, not the Tax Experts, however there are some common misconceptions that the media has spun that people have been pounding down their throats for so long they are happily chugging the kool aid (as you will see first hand at the end of this lesson). Let's see if you have been sipping on it to.

Which account would you look to hold long term investment in from a tax standpoint?

1. Trading Account
2. Retirement Account

Which account would you look to trade more actively in from a tax standpoint?

1. Trading Account
2. Retirement Account

Now there is a good chance that you selected B for question 1 and A for question 2, which are both wrong and this is the story most have been sold. We’re going to break that backwards ass approach down right now (If you picked A for Q1 and B for Q2 golf clap my friend).

Which account would you look to hold long term investment in from a tax standpoint?

1. Trading Account
2. Retirement Account

Which account would you look to trade more actively in from a tax standpoint?

1. Trading Account
2. Retirement Account

People get wrapped up in the names- brokerage account, margin account, option account, IRA account, ROTH IRA account, 401k account, SEP IRA account, 529 plan, etc etc. They all are the same shit just different shades of brown. They are all just accounts that you put securities in, plain and simple. The only difference is the tax treatment and how much and who can contribute to them for said account. To avoid going into the weeds, we are going to keep this simple and focus just on Uncle Sam.

Majority of people start with a taxable account, like at Robinhood where you are taxed each year if you actually make money, the tax bracket is below. If you are trading with more than $10,000 and looking for more of a real broker, talk to Ben, he will point you in the right direction.  

Now let's say you have a little more coin than most, and you have a taxable trading account and an IRA account that you max out each year of $5500 (or $105 a week). If you are in this camp, bravo since the average investor in the US does not get around to opening their first IRA until their mid 30s. This lesson is more for you, where knowing basic tax strategies can keep more profits in your pocket for the next 40 to 50 years.

The plan is simple, odd lot what the media has been selling you, aim to be more patient and hold longer term in your “trading account”, sounds weird right? However numbers don't lie, 0% to 20% (long term capital gains) trump's 10% to 39% (short term capital gains) in taxes any day of the week unless your dyslexic.

Now why do we say trade the retirement account? What's the tax rate each year on profits made in that account?

FUCKING ZERO %

Yes let's repeat that again, regardless of time frame (short or long term) in a retirement account are zero for that year. You could have $5,000 grow into $100,000 in an IRA and owe Uncle Sam not one fucking penny for that year in your IRA! In a taxable account if you did the same you would owe Uncle Sam about $28,000. Starting to see how stupid most people are when it comes to taxes?

Very simple, if you have both accounts, max out your IRA (remember you cannot touch that money until you retire) then after add any extra savings to your taxable account. If you have a 401k and are not at least contributing to match your companies match (usually 3-4%) you should hit yourself it the back of the head with a shovel.  

Trading wise aim to be more aggressive in a retirement account and more patient in your taxable account. For a brief breakdown of the differences between the two major IRA are below. We lean towards a ROTH if you are not currently a high income earner yet. Meaning if you are  making less than $132,000 a year on your tax return, not what you tell your buddies on Friday night trying to impress the girls across the bar. Trust me they don't care either, they care who's paying for the next round.

In our program The Secret we dive deeper into tax strategies however for now at least you now know the major misconception that the media has been selling you since the day of time. Let's take a quick peep at a real world dumb money tax strategy that people make up.

He does not want to trade out of positions in his retirement account (for who knows what reason) however he is more than willing to do so in his taxable account and pay 25%+ in taxes (can't make this shit up). Hass made $5,000 that week in questions so he owes Uncle Sam a G bone because he likes to do it his way.  Let's continue, it gets worse and contracting in a moment.

The platform (who gives a fuck about the platform) that does not let him execute trades is pretty good, legit makes zero sense. It's like say my girl is a smoke, however my best friend bangs her every Thursday. Now he had mentioned that he had just “picked up a long term hold” in the account he doesnt “trade” and doesn't speculate in. The stock in question was a $8 loser speculative stock. The conversation was a walking contradiction to say the least.

A week prior he put on a long term hold in a turd $8 stock in his retirement account yet there's absolutely zero tax benefit for doing such a thing. Put that shit in the taxable account and reap the benefit.  Where even though the stock was a loser, in his taxable account he could have used that loss against any of his gains for that year. So let's recap how fucking dumb he has been.

Made $5,000 in a taxable account, owes Uncle Sam some scratch, lost money in a “long term idea” that he mooked out a week in a nontaxable account where he cannot write the loss off.

DUMB MONEY

Now he said earlier he didn't want to trade his retirement account, only to sell the loser stock a week later as it continued to get smoked in the account he said he didn't want to trade in, sounds dumb right? Learn from dumb money and don't repeat their same mistakes.

Do you have balls?

In the Group Chat explain from a tax standpoint which account (Trading account or Retirement acct) makes sense to trade shorter term in and which account (Trading account or Retirement acct) makes more sense to aim to hold for a year plus. Also explain the tax reasons why those choices make sense.