How much I pay in taxes on a $163,800 per month income

What's up you guys? It's Graham here. So, as most of you probably know, I don't have a life because I'm constantly sitting here reading and replying to all the comments. And it's a good thing I do that because anytime I see a recurring question or any sort of comment, it just gets liked all the way up to the very top of the video. Chances are I will make a video answering it. No joke, I either got a few hundred comments on my previous video going over my income breakdown about how much money I pay in taxes.

So, of course, I'm going to break it down for you guys and share with you exactly how much I pay in taxes. Because yeah, for anyone wondering, the income I listed of a hundred and sixty-three thousand eight hundred dollars per month was before I've paid taxes on it. Which means that after I pay taxes, I am left with a considerably smaller amount because I pay a lot in taxes.

But before I answer exactly how much I pay, I just want to say the topic of taxes is something that is so important for you to understand. And this is the stuff they will never teach you in schools. Most of the time you have no idea how it works until it's too late—either when you see a huge bill from the IRS and you're sitting there pulling your hair out wondering how you're gonna pay all of it, or you just hire a really good CPA who handles all of it for you. But usually by then, it's a little bit too late, and it's so important just to understand the basics.

So, hopefully this video brings some clarification to everyone watching and answers the question of how much I pay in taxes. Because I gotta say, when it comes to the tax code, it is so unbelievably complicated. And when it comes to me, I would not have learned any of this if I didn't get to the point where all of a sudden I was looking at my tax bill and realizing that I was paying over fifty percent of my top income on taxes. I realized I gotta learn how this stuff works so I can save some money.

So, if you just watch this video to the very end, you will learn how the tax code works, you'll also learn how much I pay in taxes, and you'll also learn how to smash that like button if you haven't done that already. Because this video takes me forever to do! A video like this, so if you just wouldn't mind for the YouTube algorithm, hitting a like button, it does help out the channel tremendously. If you just do that, I'm good.

And here's all your information. So here in the United States, you first have what's called the federal tax bracket, which determines how much money you owe the IRS depending on how much money you make. In 2019, here is how this works. So, as you can see here from the charts, if you're unmarried, when you make under ninety-seven hundred dollars a year, you won't owe any federal income taxes once you take the standard deduction. After that, you'll pay twelve percent tax on all income between that and thirty-nine thousand four hundred and seventy-five dollars.

Then you'll pay a twenty-two percent tax between that and eighty-four thousand two hundred dollars. This continues until you make over five hundred ten thousand three hundred dollars in a year, in which case all further income is taxed at a federal tax rate of thirty-seven percent. Now, it's really important for me to mention this: it does not mean if you make one dollar above a certain threshold that now all of your income is being taxed at the new higher rate.

Like I've seen stories about people who are refusing to take a thousand dollar raise because they're concerned it's going to bump them into a higher tax bracket and they'll lose more money than they gain because they'll suddenly pay more in taxes. That's not how this works. You only get taxed on the little bit of higher income in the higher tax bracket, not the entire thing. It's just that the more money you make, that money is taxed at the higher rate, not the entire thing. This is how that works.

Now, the thing is, in addition to federal income taxes, if that is not depressing enough, we have what's called state income taxes. And here's how that works: almost every state has what's called state income taxes, and this is completely separate from what you would owe the IRS. As you can see from this chart on the screen, some states have zero income tax, like Nevada, Tennessee, Florida, Washington, and so on. And other states range anywhere from a few percent of your income all the way up to 13.3%.

And of course, lucky me, guess which state I live in? That's right, it's the one with the highest state income taxes of anywhere in the United States—it's California. Just like the federal income taxes that you would pay the IRS, there are tiers to how much you would end up paying to the state. Like here in California, you'll pay 1% in state income tax up to the first eighty-two hundred and twenty-two dollars that you make. Then you'll owe two percent from that up to nineteen thousand four hundred and ninety-four dollars, and so on, all the way to 13.3% for tax on all income above a million dollars.

Your own state tax rate will vary, and will chances are to be a lot lower than this. But wait, there's more! If you think it doesn't end there—if you think it can't possibly get any worse than that—it does. Because the majority of the income that I make is considered self-employment income, which is subject to self-employment taxes, which here in the United States is 15.3%. This covers both Social Security and Medicare taxes.

And here's how that works: if you work for a company as a W-2 employee, that company is responsible for paying 7.65% of those taxes, and then you are responsible for paying the other half of those taxes. But the thing is, if you're self-employed, then you are responsible for paying all of those taxes because you act as both your employer and your employee. So that means if I had a million dollars worth of net self-employment income, I would basically pay a lot in taxes to start.

I would owe the IRS three hundred and thirty thousand four hundred and seventy-four dollars in federal income tax. I would then owe the state of California one hundred and seven thousand six hundred and eighty dollars in state income tax. But of course, we're not done yet! I would then owe an additional one hundred fifty-three thousand dollars in Social Security and Medicare taxes. That means in this hypothetical scenario, if I had one million dollars of net self-employment income, I would owe five hundred ninety-one thousand one hundred and fifty-four dollars in taxes. That's right, over fifty-nine percent of my income would go towards taxes.

So for every one hundred dollars that I make, I only get to keep about forty-one dollars of that that's left over. But don't worry, it's not all bad news. Here's where the good news comes in! The reality is that here in the United States, self-employed business owners have the advantage of having a lot of write-offs and tax deductions available to bring down their taxable income and save on taxes.

Whether or not you agree with the tax system, this is how it works, and this is how it's meant to be followed. This is meant to encourage business owners to not only continually reinvest into their business, reduce their tax bill, but also hopefully give them more profit left over to reinvest back into the economy, in a sense of hiring more employees, buying more equipment, buying a $0.20 iced coffee, and so on.

I think it also incentivizes people to start a business and hire employees because it means they can fully utilize the tax code as it's meant to be used. And when it comes to me, I've been self-employed since 2008, working as a real estate agent. Meaning that any expense I have relating to the business is considered a business expense and therefore a tax write-off. Like, if I go and lease an office space to work from, that is a tax write-off. If I go and lease a $5,000 a month Lamborghini to drive clients around in style from house to house, that is a tax write-off.

Same thing applies to also making YouTube videos. If I go and purchase new camera equipment or lighting equipment or new sound equipment, all of that is a business expense and is considered a tax write-off. Or even if I go and get an office space to make YouTube videos from, that is considered an expense of the business, and therefore I will owe less in taxes.

And the reality when it comes to this is that the more money you end up making, the more valuable the tax write-offs become because you're reducing that income from your top tax bracket. So if someone is making a million dollars a year and writing off a hundred thousand dollars as a business expense, that money is worth a lot more money back than from someone earning one hundred and fifty thousand dollars a year. That's exactly how it works for me. I'm in a very high tax bracket, so when I do have a tax write-off, it's reduced a lot further than from someone who's earning less money.

Here's an example of how this works: I'll throw this up on the screen right now. If someone is self-employed making six hundred thousand dollars a year, their top income bracket would pay thirty-seven percent in federal income tax, fifteen point three percent in self-employment tax, and about eleven point six percent on average to the state of California. That means that sixty-three point nine percent of all income between five hundred thousand and six hundred thousand is lost to taxes, which works out to be sixty-three thousand nine hundred dollars.

And after taxes, you have only thirty-six thousand one hundred dollars left over. But if instead that person spent a hundred thousand dollars as a business expense, that one hundred thousand dollars is not counted as income. That money is not taxed, so they can get one hundred thousand dollars worth of value while only spending thirty-six thousand one hundred dollars because that's what would have been left over had they just paid taxes on the money without reinvesting it.

That's just the reality of some benefits of being self-employed and running a business here in the United States. And this is really how the tax code is set up to operate. All of this is legal; none of this is breaking the law; none of this is evading taxes.

Now, in addition to that, though, if you're self-employed, you also have the option of opening up what's called an S Corp. I have this set up where all of my income and expenses go through the corporation and then to me, separately as an employee of that corporation. Now, without getting too complicated here, the way this works is that I take a salary from my S corporation, and then what's remaining in the S corporation after all of my tax write-offs is given to me as what's called a distribution.

Now, the thing is when you take a distribution from an S corporation, that distribution that you get is not subject to Social Security and Medicare taxes, meaning I could save about fifteen point three percent of taxes by doing that. But still, whatever money you do take out from that S corporation is still taxed at your normal federal income tax rate.

Now, I do realize that this topic is way beyond any other video I've made in terms of nuances and complexity. But I will just say this: I make sure to hire the best CPA who handles everything for me. I basically know enough about this to run my own calculations and kind of figure out which might potentially be the best route to take, and then I pay someone thousands of dollars every single year to make sure everything is done correctly. I don't break any laws; I follow everything as it should, and therefore I make sure that I am in the clear.

I want to always stay aboveboard and make sure I am doing everything to a tee, exactly as I need to. So really, in terms of how much money I would owe in taxes, it really just depends on what my gross income is at the end of the year and then how much of that I choose to reinvest back into the business as a write-off. Like at a certain point to my tax bracket, it just makes sense to continually reinvest back into the business in terms of better equipment, maybe a better YouTube studio, and other things that will improve the channel in such a way that also lowers my tax liability.

But of course, to answer everyone's question, how much will I pay in taxes if, let's just say, I make hypothetically 1.6 million dollars worth of gross income in 2019? Well, the thing is, if I run this through my S corporation with no tax write-offs whatsoever, I would first start by paying about five hundred and sixty-five thousand dollars towards federal income taxes. In addition to that, I would probably also have about one hundred and eighty-seven thousand dollars that I would owe for state income taxes, and then roughly, I'm guessing, around another eighteen thousand dollars in Social Security and Medicare taxes.

That means if I don't write off anything for the business, I would owe about seven hundred and seventy thousand dollars in total taxes in 2019, which would work out to be about half of my income. Now, running it through an S corporation saves me about two hundred and twenty thousand dollars, but still, I am just in a very high tax bracket in a very high income tax state, and that's all there is to it.

Now yes, I do have the option to move out of California into another state without state income taxes, and I won't say I won't ever do that, but at the same time, I do really like Los Angeles, so we'll see.

But if there's any takeaway from watching this video, let it just be this: the reality of making money and becoming wealthy first begins with saving money. You must save your money and invest it wisely if you ever want to be financially independent or wealthy later on. There's no other way around it. But then you'll eventually get to a point where you cannot feasibly save any more money.

It's at that point that you should begin to focus on making more money. Now, it's at this time that you keep your expenses the exact same, but as you increase your income, you're just able to save the difference. But then you get to a point where all of a sudden you're making so much money that all of a sudden tax reduction has a better impact than making more money or also saving more money.

In fact, the more money you make, the more time you should be spending on tax prevention than on making more money, because that's going to be your highest ROI. This is exactly why Grant Cardone went and bought a Gulfstream 550 jet. It's also why you see many multimillionaires buying six thousand pound cars like the Rolls-Royce Cullinan or like the Tesla Model X to take advantage of what's called the Section 179 deduction. Those are all just strategies to help keep the money that you make.

Because at the end of the day, no matter how much money you make, what's really important is how much of that you get to keep. Now, I don't usually cover topics like this because most of the time it's extremely complicated. It's very nuanced, and for people in this situation, they usually just end up hiring someone to handle it for them.

But for anyone wondering how the tax system works or how much money I pay or whoever hopes to be in a position one day where you have to worry about how much money you're paying in taxes, at the very least, I hope this video was able to provide some level of clarification for you. And maybe it gets you interested in taxes because it's something not a lot of people talk about. It's not really that interesting until they see how much money they can save by utilizing it.

So, with that said you guys, thank you so much for watching. If you guys enjoy videos like this, please hit the like button, please subscribe, please hit the notification bell so YouTube notifies you anytime I post a video, which is three times a week. Also, add me on Instagram; I post there pretty much daily. So if you want to add me on there, just go ahead, add me on there. Thank you again for watching, and until next time!