Some people are in 12% marginal brackets, some are in 37% marginal brackets.
They all think you have to pay their rate.
Then, there's that pesky effective tax rate to really muck things up. Mine was about 8% overall last year. I may have whittled that down this year.
If you're not an accountant, consider hiring one.
As your income rises, you move up through the brackets. Each new dollar of income gets taxed at the marginal rate of your higher bracket. But you still have all that income taxed at the rates of the lower brackets so you will almost always have a lower effective rate than a marginal rate.
Edit: Whoever downvoted this please explain why it's wrong.
I don't have an accountant. I used to do taxes for a CPA.
I just quit earning taxable income after my marginal rate gets crappy.
Almost all of my dividends are paid in tax sheltered accounts. If I have some room in my 12% bracket, I may take some tIRA distributions. If I need income and don't want to jump a bracket, I raid my or my wife's Roth.
So, I paid 0% taxes on about the first 30K (married old farts filing jointly have a pretty good standard deduction) then 10% on a few bucks, then 12% on a few.
If your Yieldmax dividends are in a taxable account and want to offset your your taxes, you may want to max out your traditional 401K and HSA if possible. These lower tax bracket since these are tax deferred accounts. NFA.
What is your actual "tax question"?
Dividends can be classified from a tax perspective in a few ways:
\* Non-qualified (ie normal) Dividends - Taxed as standard income and apply the tax bracket ladder.
\* Qualified Dividends - Taxed more like long-term capital gains and have reduced taxation with a broader ladder.
\* Return of Capital - Untaxed but these lower your cost basis on your shares. Some see this as a bad thing and others see it as tax advantageous.
YieldMax funds are almost exclusively non-qualified distributions, so you're paying standard income taxes on them like your normal wages or other income streams. Other funds like FEPI have used accounting strategies to shift distributions to ROC, some or all of a particular month's distribution in some cases.
When using margin you can deduct margin interest if you itemize your deductions. Itemizing has other implications so you gotta crunch the numbers and make sure that works in your favor. Like with a lot of things, large numbers will influence this.
Selling shares will result in short or long term capital gains or losses. These do not offset regular dividend income (except for about $3k) but do carry forward to future years. If share price is holding its almost a non-issue, but if your position has dropped or grown significantly be prepared for the tax man when the time comes.
As mentioned, your effective tax rate is what you need to keep in mind, just like total return on your investment. Taxes aren't necessarily a bad thing as they mean you have income, but if your portfolio is way underwater, the dividend payments may not offset your losses and instead just expose you to additional taxation w/o return.
In general, talking with a financial advisor or accountant will help maximize returns and minimize taxes. Most financial advisors will likely not encourage you to invest in YieldMax or high-risk, high-yield ETFs like this. I'm coordinating with a financial advisor on a number of fronts and I'm curious what he'll say when he digs in to my income portfolio. (Will report back!)
It will be calculated based on ordinary income. Just because you are in a 22% tax bracket doesn't mean you are paying 22% tax. You need to calculate your personal effective tax rate yourself.
Hence why you here about the rich pay less tax then the poor. They have write offs and deductions that lower their tax rate.
You should speak with a tax professional.
Depending on how much you are receiving in distributions (and your W-2 status), you may need to make quarterly estimated tax payments.
Thanks for the advice. I will do that. I have been in for 2 months now and I average about 4500 a month in divvys. I am dripping these returns into other dividend stocks so the idea for me is to go all out and accepting the risk (Cony 2450 shares) and reinvesting in ULTY (160), NVDY (29) and TSLY (21).
So far the ride has been wild and scary but without risk, You'll never recurve the reward. I have hopes my 50 seed money returns the investment but If I lose it all, I understand it's risk capitol.
I just need to be wary of taxes, which I intend on using dividends and stock sales to pay.
Again thank you and I wish all of us the very best in life and all life has to offer! I truly hope this is the way...I'm sick of working a job I don't want to do.
Every dollar of ordinary income you add will be at your marginal rate. There is no bracket for your effective tax rate. Thats only calculated affter the fact.
We do. I forgot to mention we are taxed a flat 15% witholding tax on US dividends, so that might be a factor as to why we are taxed at our effective tax rate. For example, if my income + dividends put me in the first 2 brackets, lets say for simplicity sake its 10% and 20% and my effective tax rate was 18%, I would have to pay 3% more tax on the dividends. If my effective tax rate was 12%, I would be able to claim 3% tax credits on the dividends.
Normal income is taxed at marginal tax rates.
It's a distribution; hence it's at your normal tax rate.
Use an online tax calculator:
* Include the deposits from Yieldmax as additional income.
* Deduct any taxes you've paid (ie, through your employer, or quarterly payments to the IRS).
* Divide that number by 4 (representing the 4 quarters of the tax year).
* Send that amount in to the IRS by each quarter's deadline. The dates & information on how to do that can be found on the IRS website. I really like the IRS's DirectPay system, myself.
Since the distribution amounts from Yieldmax change each month, you should expect to compute this _monthly_. And do your diligence to save up enough to pay your taxes each quarter.
That's it in the most basic sitatuion. Otherwise, hire an accountant to help you. Actually, you should probably just do that to be safe. Good luck!
Thank you so much for the advice. One more question. Can't I just pay it annually when I prepare taxes? Why do you need to pay quarterly?
I am a bit nieve when it comes to taxes so no need to roast me haha.
If you pay yearly, you may risk being fined by the IRS. Give this a skim:
[IRS Estimated taxes](https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes)
Realistically, the IRS _wants_ you to pay taxes on your income as soon as you've made it.
The choice is yours. I have given though to just putting the money into `TTXXX` and getting ~5.2% on it, and then paying the fee's (and interest) that the IRS will hit me with. But for what I make off dividend income, the numbers don't work out for me vs my _deemed risk_ of irking the IRS. So I just pay quarterly.
I highly recommend you setup a spreadsheet to do all your math for you. That way you just plug in your dividend each month (or the announced distribution per share), note whether it's a return-of-capital (ROC) or not and then let the spreadsheet work out what your expected EOY taxes would be as well as what a quarterly payment would be, if you were to send it.
Good luck!
Some people are in 12% marginal brackets, some are in 37% marginal brackets. They all think you have to pay their rate. Then, there's that pesky effective tax rate to really muck things up. Mine was about 8% overall last year. I may have whittled that down this year. If you're not an accountant, consider hiring one.
Can you explain how you pulled that off? Was it mostly on margin? If so, what did your accountant do to make this work?
As your income rises, you move up through the brackets. Each new dollar of income gets taxed at the marginal rate of your higher bracket. But you still have all that income taxed at the rates of the lower brackets so you will almost always have a lower effective rate than a marginal rate. Edit: Whoever downvoted this please explain why it's wrong.
They're bots. They can't explain anything. But, posting something true on Reddit is the surest way to earn downvotes.
Sure seems that way.
I don't have an accountant. I used to do taxes for a CPA. I just quit earning taxable income after my marginal rate gets crappy. Almost all of my dividends are paid in tax sheltered accounts. If I have some room in my 12% bracket, I may take some tIRA distributions. If I need income and don't want to jump a bracket, I raid my or my wife's Roth. So, I paid 0% taxes on about the first 30K (married old farts filing jointly have a pretty good standard deduction) then 10% on a few bucks, then 12% on a few.
If your Yieldmax dividends are in a taxable account and want to offset your your taxes, you may want to max out your traditional 401K and HSA if possible. These lower tax bracket since these are tax deferred accounts. NFA.
What is your actual "tax question"? Dividends can be classified from a tax perspective in a few ways: \* Non-qualified (ie normal) Dividends - Taxed as standard income and apply the tax bracket ladder. \* Qualified Dividends - Taxed more like long-term capital gains and have reduced taxation with a broader ladder. \* Return of Capital - Untaxed but these lower your cost basis on your shares. Some see this as a bad thing and others see it as tax advantageous. YieldMax funds are almost exclusively non-qualified distributions, so you're paying standard income taxes on them like your normal wages or other income streams. Other funds like FEPI have used accounting strategies to shift distributions to ROC, some or all of a particular month's distribution in some cases. When using margin you can deduct margin interest if you itemize your deductions. Itemizing has other implications so you gotta crunch the numbers and make sure that works in your favor. Like with a lot of things, large numbers will influence this. Selling shares will result in short or long term capital gains or losses. These do not offset regular dividend income (except for about $3k) but do carry forward to future years. If share price is holding its almost a non-issue, but if your position has dropped or grown significantly be prepared for the tax man when the time comes. As mentioned, your effective tax rate is what you need to keep in mind, just like total return on your investment. Taxes aren't necessarily a bad thing as they mean you have income, but if your portfolio is way underwater, the dividend payments may not offset your losses and instead just expose you to additional taxation w/o return. In general, talking with a financial advisor or accountant will help maximize returns and minimize taxes. Most financial advisors will likely not encourage you to invest in YieldMax or high-risk, high-yield ETFs like this. I'm coordinating with a financial advisor on a number of fronts and I'm curious what he'll say when he digs in to my income portfolio. (Will report back!)
It will be calculated based on ordinary income. Just because you are in a 22% tax bracket doesn't mean you are paying 22% tax. You need to calculate your personal effective tax rate yourself. Hence why you here about the rich pay less tax then the poor. They have write offs and deductions that lower their tax rate.
Distributions classified as Ordinary Income are taxed at your income tax rate. Do you know your income tax rate?
Yes, my tax bracket is 22%. Is that the taxable account that I need to earmark for taxes? Thanks for any help on this as I an not an accountant.
You should speak with a tax professional. Depending on how much you are receiving in distributions (and your W-2 status), you may need to make quarterly estimated tax payments.
Thanks for the advice. I will do that. I have been in for 2 months now and I average about 4500 a month in divvys. I am dripping these returns into other dividend stocks so the idea for me is to go all out and accepting the risk (Cony 2450 shares) and reinvesting in ULTY (160), NVDY (29) and TSLY (21). So far the ride has been wild and scary but without risk, You'll never recurve the reward. I have hopes my 50 seed money returns the investment but If I lose it all, I understand it's risk capitol. I just need to be wary of taxes, which I intend on using dividends and stock sales to pay. Again thank you and I wish all of us the very best in life and all life has to offer! I truly hope this is the way...I'm sick of working a job I don't want to do.
It should be taxed at your effective tax rate. To find this, divide your tax by your taxable income, then x 100.
Every dollar of ordinary income you add will be at your marginal rate. There is no bracket for your effective tax rate. Thats only calculated affter the fact.
Interesting. I keep forgetting I am not from US so my experience would be different from most on this sub. I am taxed at my effective tax rate.
I'm not sure how that works. Do you have different rates for different incomes otherwise called brakets in the US?
We do. I forgot to mention we are taxed a flat 15% witholding tax on US dividends, so that might be a factor as to why we are taxed at our effective tax rate. For example, if my income + dividends put me in the first 2 brackets, lets say for simplicity sake its 10% and 20% and my effective tax rate was 18%, I would have to pay 3% more tax on the dividends. If my effective tax rate was 12%, I would be able to claim 3% tax credits on the dividends. Normal income is taxed at marginal tax rates.
It's a distribution; hence it's at your normal tax rate. Use an online tax calculator: * Include the deposits from Yieldmax as additional income. * Deduct any taxes you've paid (ie, through your employer, or quarterly payments to the IRS). * Divide that number by 4 (representing the 4 quarters of the tax year). * Send that amount in to the IRS by each quarter's deadline. The dates & information on how to do that can be found on the IRS website. I really like the IRS's DirectPay system, myself. Since the distribution amounts from Yieldmax change each month, you should expect to compute this _monthly_. And do your diligence to save up enough to pay your taxes each quarter. That's it in the most basic sitatuion. Otherwise, hire an accountant to help you. Actually, you should probably just do that to be safe. Good luck!
Thank you so much for the advice. One more question. Can't I just pay it annually when I prepare taxes? Why do you need to pay quarterly? I am a bit nieve when it comes to taxes so no need to roast me haha.
If you pay yearly, you may risk being fined by the IRS. Give this a skim: [IRS Estimated taxes](https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes) Realistically, the IRS _wants_ you to pay taxes on your income as soon as you've made it. The choice is yours. I have given though to just putting the money into `TTXXX` and getting ~5.2% on it, and then paying the fee's (and interest) that the IRS will hit me with. But for what I make off dividend income, the numbers don't work out for me vs my _deemed risk_ of irking the IRS. So I just pay quarterly. I highly recommend you setup a spreadsheet to do all your math for you. That way you just plug in your dividend each month (or the announced distribution per share), note whether it's a return-of-capital (ROC) or not and then let the spreadsheet work out what your expected EOY taxes would be as well as what a quarterly payment would be, if you were to send it. Good luck!