Tax season is in full effect Wallstreet Jackboyz fam. As capitalists, it’s our goal to hold on to as much of our money as possible within the guidelines of tax laws. Under the Trump regime, there have been lots of changes to tax policy. It’s important for you as a trader/investor to understand the impact of those tax changes on your bottom line so that you can manage your portfolio efficiently. It could be the difference between saving or losing money. Fortunately for us traders, the tax laws favor investors over 9 to 5’ers, so it is in your best interest to be an investor.
Trumps new tax reform bill called the Tax Cuts and Jobs Act(TCJA), has switched the game up for all taxpayers. The ramifications will be felt from now until 2025. Although corporations received massive tax cuts to grow the American economy most individuals will also benefit under TCJA through lower taxes. Nothing has changed with the US progressive tax framework which means the higher your taxable income the more your tax rate will increase. Additionally, we still have 7 brackets as before but the bracket rates are not the same.
Pretty much everyone making less than $157,500 and above $400k will be saving money. However, individuals earning between $157,500 to $191,650 and $200K to $416,700 will pay more taxes than before. Sad to say but those folks are losing money which had been the root of discontent among his critics.
The old tax rates are as follows:
The new TCJA rates are as follows:
To make it simple… if we compared hourly pay single taxpayer with no adjustments under old tax law vs TCJA savings, the yearly savings with the new plan are listed below:
- $10/hr – $19,200 annually = $300.25/savings
- $15/hr – $28,800 annually = $588.25/savings
- $20/hr – $38,400 annually = $876.25/savings
- $25/hr – $48,000 annually = $1164.25/savings
Capital gains tax laws apply to profits made in the stock market. It’s split between Long Term(LTCG) vs Short Term(STCG) positions. Any position that you hold for over a year is considered long term and will be taxed at the lower LTCG rate. This would be lower than the income tax bracket that you fall in. Meanwhile, short term capital gains are taxed at your regular income tax rates.
Prior to the TCJA changes Long Term Capital Gain rates were linked to your income tax brackets. The 2018 TCJA Long Term Capital Gains rates maintain the 0%, 15%, and 20% but they are no longer linked to your ordinary income tax bracket.
Let’s demonstrate how this would work out for you. If you file as single and your taxable income is under $38,600 then you will pay no taxes on your long term capital gains. If your taxable income ranges from $38,601 to $425,801 then you must pay 15%. If you make over $425,801 then you will have to pay 20% in taxes. These rates are far better than what 9 to 5ers pay under ordinary income tax rates and is another attractive reason why you should participate in the markets.
These are the brackets for LTCGs and Dividends:
Short term capital gains(STCG) are trades that you hold for less than a year. You will pay more taxes on those versus the LTCG because they are taxed at your normal income tax rate.
For example, if you have a taxable income of $38,400 per year and you did a swing trade on a stock that you held for a week and made $2500 profit, you would have to pay 25% under the old law. Conversely, under Trumps TCJA you only pay 12% which would give you $325 in tax savings in comparison to the old tax laws. You can see how that’s a win, right?
Although personal and dependent exemptions have been eliminated the new standard deduction has been doubled from $6K to $12K(single) and $24K(joint) which helps offset the loss of exemptions.
Also, the child tax credit was increased from $1k to $2k per qualifying child which is something to look forward to if you have children.
This barely scratches the surface of all there is to know of the new tax policy. Everyone’s tax situation is different. I wanted to highlight some of the more popular points in my research. Although you can save money by doing your own taxes, I would advise you to hire a CPA or tax attorney to help maximize your tax benefits. Remember you pay for what you don’t know. Take the time to learn how to make the TCJA policy work in your favor. It could equal out to that extra boost in your yearly bottom line.
Check out last years tax article here. Happy trading Wallstreet Jackboyz and Girlz!