Why You’re Paying $12,797 in Taxes While I Pay Zero

Here is exactly why you are paying $12,797 in taxes this year, and why I'm paying zero in taxes this year. I'm Tyler, a former financial advisor and portfolio manager, and I create financial content for free so that you don’t have to pay for it.

Understanding Your Tax Situation

Let’s say that you and your partner are W-2 employees, and you earned roughly $100,000 this year. You both worked 40 hours a week and 50 out of 52 weeks of the year. After the standard deduction of $29,200, you’re left reporting $70,800 of taxable income to the U.S. government.

From that, $4,389 goes directly to Social Security, $1,026 goes directly to Medicare, and $7,382 goes directly to the federal government in the form of income taxes. Assuming you live in Florida, you owe $0 in state income tax. You’re left with a take-home pay of $87,203, and you’ve just paid $12,797 in taxes.

My Tax Strategy

Now, let’s say my partner and I also made $100,000 this year. After the standard deduction of $29,200, we were also left with $70,800 in taxable income. But instead of paying $4,389 in Social Security, $1,026 in Medicare, and $7,382 to the federal government, we pay nothing. Why?

Because each year we sell 5% of our $2 million stock portfolio, and we live off of that $100,000. This $100,000 is considered capital gains income, as opposed to your labor income.

We owe 0% in Social Security, 0% in Medicare, and 0% to the federal government because it's under $80,000. Oh yeah, and we also moved to Florida, so we pay $0 in state income tax.

Source