How To Pay Zero Taxes On Passive Income

It’s hard being a rich person. Sure, you can afford to live in any major city in the world and enjoy all sorts of amenities, but there is always someone who isn’t quite as fortunate.

Some people may not have enough food to eat or a place to sleep at night, and it’s definitely not fun being around them when they are.

There are also those individuals who seem to get lucky very quickly, while you struggle just to make ends meet.

It is tough being jealous of others when you feel like you haven’t been given as many opportunities in life.

However, everyone is not born with a silver spoon in their mouth, which makes it difficult for some to relate to what “rich” people go through.

Many people cannot understand how successful people managed to work hard and earn their money, whereas they themselves could barely do anything after high school.

Buy and sell things

how to pay zero taxes on passive income

A rising tide doesn’t lift all boats, but it does raise some. For example, as more money is poured into buying and selling goods, prices also rise for those goods. As sellers are paid more for their products, they have extra income, which they can use to buy other things or improve their own lifestyle.

The thing about this situation is that while these new purchases benefit the people who made the investments, you (as an outsider) don’t see the effect of the investment. You never get to enjoy the product yourself nor do you get to watch others use the product to gain value from it.

As with investing in stocks, if someone else was paying the price for your passive income tool, then it lost its status as a “passive” source of income. It cost active resources to acquire and maintain the product, so it isn’t truly passive anymore.

Invest your money

how to pay zero taxes on passive income

The easiest way to avoid paying taxes is to invest in assets that carry no tax liability whatsoever. These include cap investments, dividends, and large-value stock purchases.

The vast majority of wealthy people used these strategies to enjoy their wealth. By investing in companies and products that have little or nothing to do with making money, you can keep your taxable income low.

It’s easy to start investing in such stocks if you don’t already hold some. There are many free resources available to help anyone get started investing.

And once you’re invested, you can use investment distributions (such as dividend payments) to reduce your overall tax burden.

Given how much revenue major corporations generate, most offer special discounts to individuals who pay through a personal account rather than an employer-sponsored one. And even if you aren’t able to avail yourself of those savings, it’s still possible to lower your tax bill by electing to report all investment earnings as passive instead of active.

Consult your accountant about which strategy is best for you.

Stay out of the red

how to pay zero taxes on passive income

The best way to avoid high tax burdens is to minimize your debt. You can do this by staying away from expensive, unnecessary spending, paying off all debts, choosing education options that don’t require too much money (or any money at all in some cases), and investing in assets or income sources that don’t produce large dividends or capital gains.

It’s important to note that although it’s great to have less debt, you should never make an effort to go into debt in order to reap the benefits of low taxes. Debt comes with penalties for using it badly, so be careful about how you spend your money!

Another option is to live below your means. This doesn’t mean going hungry every day, but instead referring to the word “means” as strictly savings rather than including entertainment, daily coffee drinks, and other non-essential items.

By living within your means, you will pay lower taxes because you’ll owe no more in deductions than what you actually paid for your monthly expenses.

Stay out of the yellow

how to pay zero taxes on passive income

The term “net income” means your gross income less any deductions you are allowed. Most people confuse net income with what is usually referred to as taxable income.

Net income or earnings, however you want to look at it, is how much money you have left over once all your bills and expenses are paid. It is typically reported along with tax information in yearly filings such as taxes, statements of assets and liabilities, and so on.

But there is another important number that most people don’t focus on when calculating their net income: savings. More often than not, many people spend more than they make each month!

This isn’t necessarily a bad thing unless you’re spending every last penny of your pay check just to survive. If this is the case for you, then your savings may be nonexistent (or very small).

Fortunately, there are ways to increase your savings while also paying zero in taxes one day. Plus, even though increasing your savings may take some time, it can still be a smart investment.

Here are three easy ways to save lots of money without using too much energy.

Know your tax bracket

how to pay zero taxes on passive income

The next step in maximizing your savings is knowing what kind of income is taxed at which rates. Each year, there’s always a very popular day when people go crazy and pay all their taxes on one day because it seems like they get a huge refund.

But this is actually the worst time to do it since most people are in a higher tax bracket now than during those days!

By paying high taxes today, you're really only giving yourself a small discounting period before everything gets much more expensive.

It's important to understand that not every source of income is treated the same when it comes to taxation. For example, dividends and capital gains are typically considered passive income sources, but many wealthy individuals spend lots of time and effort ensuring they're as efficient as possible.

This is why some people make a lot of money without working too hard- by investing well, staying within their means, and living an ethical lifestyle. They're smart about how they allocate their resources, which helps them keep spending less.

And although it may feel good to get a big fat refund each month, remember that these funds will likely be spent soon anyway. By timing it right, you can save a significant amount of money over the long term.

Max your deductions

how to pay zero taxes on passive income

The second way to reduce your tax burden is to max out all of the deductions you have. This includes itemized deductions such as for medical expenses, charitable donations, and home office deductions.

By maximizing these deductions, you increase your taxable income margin by those categories, which lower your effective tax rate.

Furthermore, professionals will look at whether or not you are able to maintain an adequate savings account balance, given that you’re paying so much in taxes!

Taxes eat up a large part of our national budget, making it very difficult to defend the status quo. However, we can still keep some money left over after paying our bills!

Experts agree that setting aside 10% of your income for retirement is the most prudent approach. Unfortunately, this means only people who maximize their deductions will be able to stay within this guideline.

Copyright 2017 LiveIncomeWealth.

Stay positive

how to pay zero taxes on passive income

This will be difficult at times, but you must believe in yourself and your abilities constantly. If you ever start to doubt yourself, if you feel like giving up, do not!

Thinking about all of the things that you have done up until this point can give you strength. You have worked hard, you have spent time studying, you have invested into your career, you are living proof that with hard work and dedication anything is possible.

With each challenge that you face you will need to reevaluate your beliefs and what you know about life, it’s easy to get distracted by the people around you who may not agree.

Keep looking ahead and don’t let others talk you out of your dreams.

Take charge

how to pay zero taxes on passive income

The best way to reduce your tax burden is to adopt an active income style of spending, and the easiest way to do that is to increase your passive income.

There are many ways to achieve this, but one of the most effective is investing in dividend paying stocks.

Dividend payouts are the company’s profit re-invested back into their business for growth.

As such, they’re typically returned to shareholders in the form of increased earnings or raised dividends.

Both of these result in higher returns on investment which can be distributed as additional payments or capital gains. These capital gain distributions are then taxed at lower rates than ordinary income.

By investing in companies that pay out large amounts of cash every quarter, you get twice the benefit – not only does it earn more money, it also lowers your taxes!

And since we’ve talked about how important it is to invest, this makes sense too.

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