How To Pay NO TAXES In 2024 (What Nobody Tells You)

What's up you guys? It's Graham here, and if you pay any amount of tax whatsoever, you need to hear this because chances are you're wasting a lot of money. Don't believe me? Well, just consider that here in the United States, the average single worker paid 30.5% of their income to taxes, meaning one-third of your entire working year is spent just earning enough to pay the IRS, and that's unacceptable.

The fact is, most people have perfectly legal ways to reduce their tax bill by a lot that almost no one talks about, and the IRS isn't out there telling you about these things because if they did, let's face it, they would make a lot less money. That's why we need to discuss exactly how the tax system works, the best ways to save a lot of money in your taxes legally, and break down the most underutilized tax strategies that anyone would be able to use immediately, whether you make $10,000 or $10 million.

As soon as you hit the like button and subscribe if you haven't done that already because it helps the channel tremendously, and as a thank you for doing that, I will do my best to respond to as many of your comments as possible. Oh, and also just keep in mind this is not financial or tax advice; I am just a random guy on YouTube. Do not rely on me, go and consult a professional. So if you understand that, thank you so much, and also a big thank you to Rocket Money for sponsoring today's video, but more on that later.

All right, so when it comes to paying less in taxes, the secret is to make your income look as low as possible without actually reducing your income. And no, this doesn't require you to take out loans against the arbitrary value of assets. Instead, one of the first ways you could go about doing this is by contributing to a traditional form 401(k). This is a tax-advantaged retirement account that allows you to contribute up to $23,000 a year of pre-tax money, meaning every $1 you contribute reduces your taxable income by that very same $1.

This way, you show less in income, you pay less in taxes, and you have more money left over to invest with. And if that sounds confusing, here's an example: let's say you make $65,000 a year and you contribute $15,000 to a traditional 401(k). In that case, now you're only taxed as though you made $50,000, and in a 22% tax bracket, that's an immediate savings of $3,300. Even better, some employers will even match your 401(k) contributions dollar for dollar up to a certain amount, essentially doubling your investment risk-free.

But there is a bit of a catch. The downside is that you'll eventually have to pay taxes when you take money out of the account in retirement, which is typically going to be at the age of 59 and a half, and at that point, the tax bracket could be a lot higher in the future than it is today. So from my perspective, it really only makes sense in two scenarios. The first is when your employer offers a 401(k) match, which, if that's the case, you should almost always take it, no matter what, because you're doubling your investment risk-free.

There's no reason not to do this. And second, a 401(k) also makes a lot of sense if you're currently in a high tax bracket and you expect to retire in the future in a lower tax bracket; then you could just profit the difference. Although for most people out there, a 401(k) is a fantastic resource to lower your tax bill.

And that also leads me to something slightly better, and that would be what's known as a health savings account or HSA. This account is specifically used to pay for any out-of-pocket medical expenses or charges that you incur throughout your lifetime. Even better, you're able to invest this money to grow your tax savings even further, and here's why I would consider this to be one of the best tax-advantaged accounts to ever exist.

First, you don't pay tax on any money that you contribute to this account, which in 2024 is $4,150 a year. Second, you're not going to be taxed on that money when you spend it on health-related expenses, which we're all going to have at some point in our lifetime, so that's also completely tax-free. It's basically like you're getting completely tax-free money to invest that you will never have to pay taxes on when you spend it on eligible expenses, and in a 22% tax bracket, that's a net savings of $1,000 immediately for maybe 10 minutes worth of work.

However, just keep in mind that in order to qualify, you must have what's called a high deductible health plan, which means in 2024, you have a deductible of at least $1,600 for individuals and $3,200 for families, along with some other fine print to follow depending on your state. But assuming you fit the criteria, this is one of the best ways to save money in your taxes, hands down, for the least amount of work.

The third, one of the largest U.S. tax breaks in existence that anyone could use today, is by taking advantage of what's called the long-term capital gains tax rate. Just consider this: if you buy an investment and you sell it for a profit within 12 months, that profit is considered earned income and taxed at your ordinary income level, which could be as high as 37%, plus state income taxes. However, if you hold that investment for longer than a year and then you sell it for a profit, it's taxed at the long-term capital gains rate, which, as you can see here, is significantly lower.

In fact, the federal long-term capital gains tax is only 15% if you make between $47,000 to $518,000 a year. That could lead to a massive savings for anybody who makes more than $50,000. Even better, if you make less than $94,000 a year as a married couple filing jointly, you'll owe nothing in long-term capital gains, meaning your profit is completely tax-free. As in, theoretically, you could make $94,000 a year and pay the IRS $0.

On top of that, qualified dividends also get the very same long-term capital gains tax treatment on stocks that you hold for more than 60 days on approved U.S. based and foreign companies. So consider that the next time you're about to bet on short-term call options because you saw on Wall Street bets. Anyway, I'm getting sidetracked here. This is why I personally love the strategy of buying and holding long-term broad-based index funds. Not only does this tend to be safe and yield higher returns, but it's also way better when it comes to your taxes. And the more money that's saved, the more money you could use towards our next option, which happens to be my personal favorite out of the entire list.

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And now let's get back to the video. All right, now fourth in terms of my favorite way to reduce your tax bill as someone who is self-employed, one of the best methods that you could utilize as soon as possible is by setting up what's called an S Corporation or an LLC taxed as an S Corp. This is simply a legal entity that you create to run your business through. In essence, all of your self-employed income goes into the S Corp, expenses come out, and then you take what's left over as a profit.

And yes, if that sounds confusing, let me break it down a little further in very basic terms. With an S Corp, the S Corp becomes your employer and you become the employee. This means that you could be paid a reasonable base salary and then all the profit is given to you later as a distribution. Why does this matter? Well, distributions made from an S Corporation are not subject to Medicare and Social Security taxes, which could save you 15.3% of your money, and that adds up quickly.

For example, if you have a business that makes $120,000 a year in profit and you pay yourself $60,000 a year, you're saving over $9,900 in taxes by taking that remaining $60,000 as a distribution through an S Corp. Now, obviously, this is something you should be talking to a CPA about. There are a lot of very specific requirements that need to be followed, and you shouldn't just listen to some guy on YouTube for your tax information, but I figured I would at least plant the seed, and if you want to water the seed and grow it into a tree to save 15.3%, be my guest.

Now fifth, while we're on the topic of S Corps, if you live in a state like California, New York, or New Jersey, or practically any state with an income tax, there's some good news and what's called a SALT cap workaround. See, in 2017, the Tax Cuts and Jobs Act limited the amount that you would be able to deduct for state and local taxes, like property taxes or state income taxes on the federal level. This meant for a lot of people they wound up paying a lot more money in tax than they did before.

However, that wasn't until recently. Some states have issued guidance on what they call a SALT cap workaround that allows you to deduct your state income taxes in their entirety, saving you a ton of money. And here's a very simplistic view of how it works: instead of the S Corp owner paying themselves the full distribution and then the owner being required to personally pay the state income tax, the S Corp will pay its portion of the state taxes as a deduction since that's not limited by the $10,000 cap.

And then that credit will transfer to you on the individual level, essentially allowing you to use it as a tax write-off. Don't believe me? Well, so far 30 states have already approved the strategy, and the IRS even issued their guidance on how to proceed with it. Of course, you should check with a professional; it's not going to work in every situation, and don't rely on some guy on YouTube or anybody in YouTube for advice like this. Go and consult a professional, but it is something that you might be able to discuss with a CPA to see if it's possible.

Next, for all of the homeowners, there are substantial tax breaks you might not be aware of. So here's a pretty extensive list: one, the capital gains exclusion. This allows you to sell your primary residence and pay no tax up to the first $250,000 worth of profit if you're single or $500,000 worth of profit if you're married, as long as you've lived in the property for two of the last five years.

To show you just how good this is, imagine you bought a property in 2018 for $500,000, and today it's worth a million. Ordinarily, if you to make $500,000 as a long-term capital gain, you would have to pay 20%, or $100,000 in taxes, but with this, you pay nothing. The downside is that this doesn't apply to state taxes, but still, a 20% tax savings is something to absolutely keep in mind.

Second, we have the 1031 exchange. If you own a rental property, one of the benefits is that you're able to indefinitely defer paying taxes when you sell as long as you exchange that property for another one within a certain time period. For example, let's just say you bought a rental property for $100,000, and today it's worth $300,000. Normally, in that case, if you were to sell, you'd have to pay taxes on $200,000 worth of profit.

But instead, if you did the 1031 exchange, you'd be able to sell that property for $300,000, move that into an even bigger deal and all of a sudden you've just traded up without paying any tax upfront. And no, you can't do this on a primary residence, but if it's a rental property, this is absolutely something to look into.

The third, depreciation. This is often how people can make thousands or even tens of thousands of dollars a month in profit, but on paper they're showing a loss, and no, absolutely nothing. And here's a really simple breakdown. According to the IRS, your property structure has a lifespan of 27.5 years. Their reasoning is that the property over time tends to deteriorate; things need replacing, and this needs to be factored into the cost of ownership.

So this is where depreciation comes in. If you have a structure that's worth $275,000, you would take that, divide it by 27.5 years, and all of a sudden now you have $10,000 a year in depreciation that you could write off against any profits. Now separately, if you want to get really fancy with this, there's also a term called cost segregation analysis that allows you to depreciate all of these items upfront in a much quicker time frame, and then when you have nothing left to depreciate, you can 1031 into a new deal and start the process over again, potentially deferring millions of dollars in taxes.

However, full disclosure here, it's very complicated; you have to leave it up to the professionals. And fourth, if you don't want to sell but you still want to have access to your money, then you also have a refinance. Now unfortunately, this one doesn't make too much sense with mortgage rates as high as they are, but when and if interest rates eventually come back down, it is a strategy that's worth discussing.

And it's just this: in the eyes of the IRS, any loans you take out against assets aren't technically income because you didn't technically sell, and as a result, you don't owe any tax. As an example, let's say you have a property that you bought for $100,000 and today it's worth $200,000. If you were to sell, you'd have to pay tax on that $100,000 profit, which could be 15% or 20%. In that case, you could avoid taxes entirely by taking a refinance, borrowing against the equity you already have in the house, and because you didn't sell, you owe absolutely nothing to the IRS.

And finally, fifth, we have a very nuanced, very specific tax break that not a lot of people know about, and that would be the real estate professional status. See, typically if you have a W2 income, you're very limited in terms of your write-offs. For the most part, your income is your income, and there's not much you could do about it.

However, if you or your spouse qualifies as a real estate professional, that is where some of the magic happens. In this case, you would be able to use all of your real estate paper losses to offset your W2 income, and all of a sudden you owe absolutely nothing to the IRS. As an example, let's just say you make $100,000 as a W2 employee, your spouse qualifies as a real estate professional, and you have $100,000 in real estate losses through cost segregation.

This would imply that the paper losses through real estate cancel out all the income as a W2 employee, and all of a sudden $0 in tax. Now obviously, being a real estate professional is something that you'd actually have to back up to the IRS in the event of an audit, and this includes spending more time doing real estate activities than all other business activities combined and spending at least 750 hours a year in real estate. But if you qualify, you're welcome.

And lastly, just make sure to hire a good CPA. The main purpose of this video is just to be able to give you ideas and strategies to look into further, but at the end of the day, the tax code is so unbelievably complicated. Every strategy is going to be different; there are a million moving parts, and you should always rely on a professional for any advice that you take. I spend well into the five figures every single year on tax advice to make sure everything is done correctly, and even though I doubt you need to spend anywhere close to that, you need to hire a professional for this; it's not really something you'd be able to just do yourself.

My thought is that a good CPA hired early in the year is going to give you the best tax strategies possible to be able to structure your business in order to pay the least amount of tax possible. And if you wait and do this later, some of them might not be available. That's why I'm choosing to make this video as early in the year as possible, so that that way you could get on top of it, do everything you need to correctly, consult the professional, and no matter what, subscribe and hit the like button if you haven't done that already.

So with that said, you guys, thank you so much for watching, and don't forget that you'd be able to get some free stocks down below in the description worth all the way up to a few thousand with a PID affiliate link when you make a deposit. Yes, I get a commission; yes, I get a commission when you do that, but you also get free stocks. So let me know which free stocks you get. Thank you so much, and until next time!