This video explains six legal ways to reduce taxes on your investments, helping you keep more of your earnings. It covers strategies like investing in municipal bonds and U.S. Treasuries for tax-exempt income, as well as understanding qualified dividends for lower tax rates. The video also discusses advanced techniques like separately managed accounts, tax loss harvesting, and strategic asset allocation to optimize after-tax returns.
Key Takeaways
1
Municipal bonds can offer interest exempt from federal and sometimes state income tax, making them attractive for high-income investors despite lower nominal yields.
2
U.S. Treasuries are federally taxed but exempt from state and local taxes, providing a safe, liquid investment, especially beneficial for those in high-tax states.
3
Qualified dividends are taxed at lower long-term capital gains rates (0%, 15%, or 20%) compared to ordinary income tax rates, significantly increasing after-tax yield for eligible stocks or ETFs.
4
Separately managed accounts (SMAs) offer customized portfolios and active tax optimization strategies, such as tax loss harvesting and strategic bond ownership, tailored to an individual investor's specific financial situation.
5
Tax loss harvesting allows you to sell investments at a loss to offset capital gains and reduce up to $3,000 of ordinary income per year, but be careful to avoid the wash sale rule.
6
Strategic asset allocation involves placing less tax-efficient assets like bonds or REITs into tax-deferred or tax-free accounts (e.g., 401k, IRA, Roth IRA) while keeping tax-efficient stocks in taxable accounts.
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0:00
Hey guys, I made this much and the
0:02
government is taking this much and I'm
0:05
left with this much. [laughter]
0:07
So taxes are one of the biggest
0:08
invisible drags when it comes to your
0:10
investment income. Everybody knows that,
0:12
but it doesn't have to be. So today
0:14
we're breaking down six tax advantaged
0:16
income strategies that can help you keep
0:19
more of what you earn and build
0:20
investment income more efficiently.
0:22
Let's dive in. Okay, so here's the
0:24
entire point of this video in one
0:26
sentence. The less you lose to taxes,
0:29
the more you keep compounding year after
0:31
year. So, think about it like this.
0:32
Instead of paying Uncle Sam 30% of your
0:35
income, what if you only paid 10% or
0:38
even zero in some cases? That's money
0:40
that keeps working for you long term.
0:42
Let's get into the six ways right now.
0:44
So, number one are municipal bonds. So,
0:46
if you're a highinccome investor, MUN
0:48
bonds are like a cheat code for income.
0:51
So they typically pay interest that's
0:53
exempt from federal income tax and
0:55
sometimes state tax too if you live in
0:57
the same state as the issuer. So yes,
0:59
the yields can and you'll see they will
1:01
be lower uh than taxable bonds, but the
1:04
after tax return often doesn't end up
1:07
being higher because Uncle Sam doesn't
1:09
take his cut. So let's take a look at
1:10
some examples here. So basically the 10
1:13
the green bar is the 10-year taxexempt
1:16
MUN bond yielding 2.63%.
1:19
So on the surface that seems very low
1:21
and you're thinking like dude I get more
1:23
than that in my high yield savings
1:25
account, right? But let's take a look at
1:26
these when compared to different tax
1:28
brackets. Okay, so the green is the tax
1:31
exempt UNI bond yielding 2.63. The
1:34
yellow is the 10-year taxable US
1:36
Treasury yield uh and it's yielding
1:38
4.34.
1:40
So, if you look at this, if you're in
1:41
the 24% tax bracket, uh you can see that
1:44
obviously uh you're going to want to be
1:46
in the US Treasury yielding 4.3% because
1:49
you're making 330 income after 200 after
1:52
taxes compared to 263.
1:55
Now, if you're in the 32% tax bracket,
1:57
it actually starts to get closer. 38.8%,
2:00
it's almost identical. And then if
2:02
you're in the 40.8% tax bracket plus uh
2:06
3.8% 8% net investment income tax,
2:09
you're actually going to be better off
2:10
being in the MUN bond. So, at this
2:12
point, you're probably thinking, "Well,
2:13
Marco, I'm in the 24% or whatever."
2:16
Again, this is just one strategy out of
2:18
the six. Let's get into the next one.
2:20
And very quickly, before we dive into
2:21
number two, I do want to show you this
2:23
calculator from Fidelity. They basically
2:24
give you an equivalent of the after tax
2:27
yield. Um, so they're comparing
2:29
different product types. So let's say
2:30
like you know you have a CD uh you have
2:33
corporate bonds instate muni out of
2:35
state muni treasury which is uh we're
2:37
going to talk about next but basically
2:39
say you're comparing a CD that yields 4%
2:42
uh to um I don't know let's say you make
2:45
$100,000
2:46
you're married filing jointly in Ohio
2:49
local income tax of 2%. So if you hit
2:51
calculate this will actually show you
2:53
the tax equivalent yields based on the
2:55
security type. So although your CD is
2:57
earning 4%, you would only need an
3:00
instate mUN to earn 3.3% to basically be
3:03
equivalent or an outofstate MUN to earn
3:05
3.46%
3:07
to be equivalent to your 4% CD yield. So
3:10
this is a pretty useful uh calculator if
3:12
you want to compare different products.
3:14
That way you're comparing apples to
3:15
apples with the after tax net gain.
3:18
Okay. Number two are US treasuries. So
3:20
for those of you that have watched my
3:22
channel for a long time now, you're
3:23
familiar with these. you're familiar
3:24
that I invest in ESG. Um, and I'll show
3:27
you how to do all this stuff. And I have
3:28
other videos that show you step by step
3:30
on how to buy US treasuries. Um, but for
3:32
those of you that aren't familiar,
3:33
unlike most bonds, treasuries are
3:35
federally taxed, but they're exempt from
3:38
state and local tax. So, if you live in
3:40
a high tax state, that can make a big
3:42
difference. So, they're also super
3:44
liquid and safe, so you get income plus
3:46
peace of mind. So, when I was getting my
3:48
finance degree, uh, treasuries are
3:50
basically considered a risk-free
3:52
investment. Uh so you're getting a
3:54
risk-free rate of return. Uh it's backed
3:56
basically by Uncle Sam. So however much
3:58
faith you have in the US government to
4:00
pay back their debt. Um that's you know
4:02
how you should be looking at this risk
4:04
profile. So basically uh you have
4:06
different types of treasuries. You have
4:07
treasury bills. You have cash management
4:09
bills, US notes, bonds, tips, all these
4:12
different things, right? The the easiest
4:14
way for me to describe this is if you
4:16
want to buy a treasury, you can either
4:18
do it through a brokerage like a Schwab
4:20
or Fidelity or whoever. But if you want
4:22
to go through uh the government
4:24
themselves, you go through
4:25
treasurydirect.gov.
4:26
I will say that this website, you know,
4:28
it's not archaic, but it's also not, you
4:30
know, 2026 levels. But if you want to
4:33
see what uh treasuries are going for
4:35
right now, you can just go to the
4:37
auction results. So this will give you
4:38
auction results from anywhere from a
4:40
4-week treasury, meaning literally, you
4:43
know, it issues on uh let's call it
4:45
January 20th, 2026 at the time of this
4:47
recording, and it'll mature 4 weeks
4:49
later, February 17th. and you'll be
4:51
getting an investment rate equivalent of
4:53
3.655%.
4:56
Okay, you have CMBBS, you have notes,
4:58
you have bonds, you have tips, you have
5:00
F FRNS. Don't worry about these for the
5:02
sake of this video, but all you need to
5:04
know is T bills go from basically 4
5:06
weeks uh to uh 52 weeks. And you can see
5:09
all those equivalents here. So, if
5:11
you're looking for something a little
5:12
bit longer duration, potentially higher
5:14
yield because you're locking your money
5:16
up for a longer period of time, uh you
5:18
can look at notes here. If you see this
5:20
blue highlighted section on the top of
5:21
your screen, you can see the security
5:23
term is a little bit longer on the left
5:25
hand side here. And you can see the
5:27
interest rates in some cases are lower,
5:29
some are higher. So for a 10-year, for
5:30
example, you'd be locking it up for 4%.
5:33
Now, if you're looking to treat
5:34
something like a high yield savings
5:36
account that trades like an ETF or an
5:38
index fund or like a stock, for example,
5:40
uh you can take a look at ESG. I have a
5:42
big chunk of cash parked here. Uh the
5:45
reason for that is because I live in a
5:46
state that does have state income tax.
5:49
Um and this is much higher than a uh
5:52
high yield savings account after tax
5:54
equivalent. Again, that's the whole
5:55
point of this video. So this is ESG by
5:57
BlackRock u by Eyesshares and you can
6:00
see basically everything about this
6:02
here. Um at the time of this recording,
6:04
I think it's yielding somewhere around
6:05
like 4% in that neighborhood. Uh the
6:08
12-month trailing yield is about 4.09%
6:12
and the 30-day yield is about 3.6. 63.
6:15
Now, if you compare this to like a high
6:17
yield savings account, you know, that's
6:18
earning you 3.6%,
6:21
you're still going to be ahead on this
6:22
because you don't have to pay um the
6:24
local and state taxes. Okay, so number
6:26
three are qualified dividends. Not all
6:29
dividends are treated equally by the
6:30
IRS. Qualified dividends get taxed at
6:33
the long-term capital gains rate, which
6:36
is much lower than ordinary income tax
6:38
rates, especially depending on your tax
6:40
bracket. So owning dividend paying
6:42
stocks or ETFs that meet the qualified
6:45
dividend rules can dramatically increase
6:47
your after tax yield over time. So let's
6:50
take a look at this infographic from the
6:51
MLY fool. This is the easiest way to
6:53
describe it to you guys. So qualified
6:55
dividends again are taxed at the
6:57
long-term capital gains rate. That's
7:00
either going to be 0% 15% or 20%
7:04
depending on an investor's income level
7:06
and also you know how they're filing
7:07
their taxes. Now, the non-qualified or
7:10
ordinary dividends, they're going to be
7:12
taxed at anywhere from 10 to 37%
7:15
depending on your um ordinary income tax
7:18
level. So, they must be paid either by a
7:20
US corporation or by a qualified foreign
7:23
corporation and the investor has held
7:25
the underlying stock for more than 60
7:27
days during a 121-day period beginning
7:31
60 days before the X dividend date.
7:33
That's basically uh by the time that
7:35
security the underlying security or ETF
7:38
pays out that dividend. So if we take a
7:40
look at an example here's a YouTube
7:42
favorite uh CHD uh you can see that they
7:46
have an expense ratio of pretty much
7:47
nothing. It's 06% and then also they pay
7:51
out qualified dividends. Um so this
7:53
hasn't performed that great you know the
7:55
past few years but typically they do
7:57
raise their dividends which is good um
7:59
past the rate of inflation. Um, and also
8:02
they pay qualified dividends. So if you
8:04
want to create a little cash generating
8:05
machine, SCHD is just one example. If I
8:08
were you, uh, if you're maybe older age
8:10
or you are a dividend investor, um, and
8:12
you want to receive qualified dividends
8:14
and don't want to realize that tax, uh,
8:17
event, then I would take a look at
8:19
qualified dividends because with some
8:21
situations, you can even be taxed 0%,
8:23
especially married filing jointly. So I
8:25
would check that out as well. So for
8:27
2026 qualified dividend tax rates,
8:30
they're pretty interesting here. So if
8:31
you are married filing jointly, uh so
8:34
again, this is most likely two people in
8:36
a household. Uh if you're making
8:38
anywhere from basically $99,000 to
8:41
$613,000
8:43
as a household, those dividends are only
8:45
going to be taxed at 15%. If you make
8:47
under 100,000 married filing jointly,
8:49
it's going to be 0%. If you make more
8:51
than 613,000, it'll be 20%, but it's
8:55
still significantly less than the
8:56
unqualified dividend. Now, if you're
8:58
single for 2026, it's basically 0 to 50
9:02
grand is 0%. 50 grand to $545,000
9:06
is 15% and above that, you're at 20. So,
9:10
again, unless you're making half a
9:11
million, uh, this is a pretty good deal.
9:14
Number four is one that I bet a lot of
9:16
you never even considered or heard
9:17
about. But before we drop this gem,
9:20
let's get into today's video sponsor, US
9:22
Gold Mining, Inc. All right, quick
9:24
sponsor shout out. And this one actually
9:25
lines up perfectly with what's happening
9:27
in the macro world right now. Some of
9:30
the world's biggest banks are calling
9:31
for $5,000 gold as early as 2026. And at
9:35
the same time, copper shortages are
9:37
becoming a real issue. So, the sponsor
9:39
of today's video is US Gold Mining Inc.,
9:42
ticker symbol USGO on the NASDAQ. They
9:45
own the Whistler gold copper project in
9:47
South Central Alaska, which is one of
9:49
the closest large undeveloped gold
9:51
copper projects to Anchorage. That
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matters because infrastructure and
9:55
politics matter, and right now both are
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turning promin. The Trump administration
10:00
has issued two executive orders aimed at
10:02
boosting domestic mineral production,
10:04
and Alaska is clearly back open for
10:07
business. On top of that, the Whistler
10:09
Project has already seen visits from
10:10
Alaska's governor and US lawmakers.
10:13
Resource-wise, we're talking about a
10:15
gold deposit plus copper and silver,
10:17
both of which are now classified as
10:19
critical minerals. The Whistler Project
10:21
mineral resource estimate comprises an
10:24
estimated 294 million tons at 68 g per
10:28
ton gold, equivalent for 6.48 48 million
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per ton gold equivalent for 4.16 million
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ounces gold equivalent inferred. What
10:45
really caught my eye is the ownership
10:47
structure. One shareholder controls 78%
10:50
with insiders owning more on top of
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that. And now the company has kicked off
10:54
a preliminary economic assessment right
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as gold and copper sit near record
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highs. do your own research, read the
11:01
company's filings, and do your own due
11:03
diligence. Okay. So, number four is what
11:05
we call separately managed accounts or
11:08
SMAs. So, these are individually
11:10
tailored portfolios where a manager can
11:12
customize tax moves every step of the
11:15
way. So, you have uh tax loss
11:17
harvesting, you have timing gains, you
11:19
have owning bonds strategically rather
11:21
than just buying a bond fund. So, the
11:24
key advantage is that you're not boxed
11:25
into a generic fund. you have
11:27
flexibility to optimize taxes actively.
11:30
So, how does this work? So, let's take a
11:32
look at this infographic from Fidelity.
11:34
So, the manager starts with a specific
11:36
objective in mind. So, depending on your
11:38
scenario, maybe you're a business owner,
11:40
maybe you're high income. Uh maybe you
11:42
have, you know, a thousand children with
11:44
different wives or different women. I
11:46
don't know. I mean, this may apply.
11:48
Never mind. I'm not even going to go
11:50
down there. So, basically, he builds a
11:52
core portfolio of stocks or bonds. So,
11:54
if this were a mutual fund, if you go
11:56
down right here where my cursor is,
11:58
investors would own shares of the fund,
12:01
not the underlying investments, and the
12:02
manager's future decisions would
12:04
basically apply to all investors in the
12:06
fund. However, if you go with this SMA
12:09
that we're talking about, investors own
12:11
the underlying shares, and the manager
12:13
makes decisions for each account. So,
12:15
the portfolios are unique to each
12:17
investor. So this is pretty interesting
12:20
because as the more complicated you get
12:22
um as your income increases um say you
12:25
own different investments, say you own a
12:26
bunch of real estate, say you own a
12:28
business, say you have you know the
12:31
different children from different
12:32
marriages, life can get complicated and
12:34
this is where an SMA really makes sense.
12:37
Okay, so number five is available to
12:39
everybody as long as you invest. This is
12:41
called tax loss harvesting. So, if you
12:44
hold shares of an ETF in a taxable
12:47
account and some of them are down and
12:48
you know you want to get rid of them,
12:50
you don't have to just sit on the loss,
12:52
okay? You can sell the losers, okay? The
12:55
ETFs that you don't like or the stocks
12:57
that you don't like to lock in that loss
12:59
and use it to offset gains on a
13:01
different investment. Okay? So, you can
13:03
reduce up to $3,000 at the time of this
13:06
recording of your ordinary income per
13:08
year. So, just make sure you avoid the
13:11
wash sale rule. So let me explain tax
13:13
loss harvesting first then we'll get
13:15
into the wash sale rule. So this is how
13:17
tax loss harvesting works. This is a
13:19
infographic I guess from physicianside
13:22
gigs.com. I just used this because I
13:23
didn't feel like creating my own. So
13:25
basically you have investment one. Okay.
13:27
Say you bought a 100 shares of whatever
13:29
you bought it for $10 a share. So 100
13:31
time 10 is $1,000. Okay. Now they're
13:35
worth $15 a share times 100. That's a
13:37
total value of $1,500,
13:40
which is a capital gain of $500. Okay.
13:44
Now, you have investment two. Say you
13:46
bought something else. Say you bought a
13:47
100 shares of it also for $10 a share.
13:50
That's a $1,000 cash outlay. Uh
13:53
currently worth $5 a share. 5* 100 is
13:57
$500. So now you're sitting at a
13:59
unrealized loss of $500. Okay? You paid
14:03
a,000, it's worth $500. Now, if you buy
14:06
another similar but different investment
14:08
for 500 bucks, and this is avoiding the
14:10
wash sale, which I'll explain here in a
14:12
second, you're actually offsetting the
14:14
gain of investment one with the loss of
14:17
investment two. So, your tax bill for
14:19
investment one without tax loss
14:22
harvesting is a capital gains uh tax
14:24
rate multiplied by $500. Remember, you
14:27
made 500 bucks on this investment if you
14:29
were to sell, especially short-term,
14:31
which is less than a year. Now, your
14:33
total tax bill if you take the loss on
14:35
investment two and realize the gains on
14:38
investment one is actually $0. Okay? So,
14:41
you're getting $500 of another
14:42
investment. You're selling the dog in
14:44
your portfolio and you're offsetting the
14:47
gains of investment one. Make sense?
14:50
Now, with the wash sale, so this happens
14:52
if you uh buy back into the same asset
14:55
too quickly, which disqualifies the
14:58
benefit. So wash sale happens when you
15:00
sell investment that um let's say it's
15:03
at a loss and then you buy the same or
15:05
substantially identical investment
15:06
within 30 days before or after the sale
15:10
which disallows that uh tax loss to
15:12
offset investment one and two which we
15:14
just saw. So instead of disappearing the
15:16
disallowed loss actually gets added to
15:18
the cost basis of the new investment
15:21
effectively deferring the tax uh benefit
15:23
if that makes sense. Okay. Finally
15:25
number six is asset allocation. So, this
15:27
is one of the most overlooked tax moves
15:29
out there. So, it's not just what you
15:31
own, but where you own it. So, if you
15:34
can take less tax efficient assets,
15:36
let's say like bonds or REITs, if you
15:38
guys don't know what a REIT is, it's a
15:40
real estate investment trust. Um, they
15:42
have to pay out a certain portion of
15:44
their income as distributions. And those
15:46
dividends are basically taxed at
15:47
ordinary income tax rates, which we
15:50
talked about with the um qualified
15:52
versus non-qualified dividends.
15:54
Basically, if you place these uh let's
15:56
call it a RED or a bond or whatever into
15:58
tax deferred or tax-free or tax
16:00
advantaged accounts uh 401k, IRA, Roth
16:03
IRA. So, you're keeping tax efficient
16:06
stocks in taxable accounts, you're going
16:08
to optimize the after tax return. Okay?
16:11
Now, if you put in a REIT and like a
16:13
taxable account, you're going to have to
16:14
pay ordinary income tax in that.
16:16
Especially if you're a high income
16:17
earnner, you're going to be at like 37%
16:20
or whatever the highest bracket is at
16:21
the time of this recording. um versus
16:24
something like a Roth where that's just
16:26
going to compound over time until you're
16:27
59 and a half and you can take it out
16:30
tax-free. Um the other I guess number
16:33
6B, I didn't really want to talk about
16:36
this just because it doesn't apply to a
16:37
lot of people. Um but you can use like a
16:40
I don't know tax advantaged annuity.
16:42
Okay, so if you look at like a
16:45
hypothetical example of this, this is
16:47
going to be for your higher income
16:48
earners and people that you know may be
16:49
a little bit older in age. U you can see
16:52
here the potential value of a $100,000
16:54
investment in 20 years at a 6%
16:56
hypothetical rate of return. Uh if you
16:59
just kept this 100 grand in a taxable
17:01
account, it's going to be about $222,000
17:04
after 20 years. Uh if you look at the
17:07
green, this is a tax deferred variable
17:09
annuity pre-tax with a 25 basis point
17:13
annual annuity charge. you're going to
17:15
be at uh the initial investment is going
17:17
to be 95,117
17:20
and you're going to end up with 305. And
17:22
then if you look at uh the tax deferred
17:25
variable annuity post tax assuming a
17:27
lump sum withdrawal, okay, uh lump sum
17:30
at 0% rate of return after annuity fees
17:32
are applied. You're going to be again
17:34
95,000 invested pulling out 239.
17:38
So this beats the taxable account in
17:40
both scenarios. But again, this isn't
17:41
going to apply to a lot of people. So,
17:43
listen, none of these are going to be
17:45
magic bullets and obviously taxes
17:47
shouldn't drive your entire investment
17:49
strategy. Um, you know, your goals,
17:51
timeline, age, risk tolerance, you know,
17:53
that those all matter first. But once
17:55
you have that foundation, uh, these tax
17:57
strategies can help you keep more of
17:58
what you earn and let compounding do its
18:01
thing over time. So, if you want to keep
18:02
more of your money working for you, tax
18:04
advantage income strategies aren't
18:06
optional. They're essential, especially
18:08
as you get older or as you get closer to
18:10
your retirement, whatever that age or
18:12
number may be. So, start by exploring
18:14
munis. We talked about that. Qualified
18:16
dividends, tax loss harvesting, if you
18:19
have some dogs in your portfolio, and
18:21
smart asset allocation to optimize less
18:24
tax efficient uh securities like a REIT,
18:27
for example, throw those into a 401k or
18:30
a Roth or some tax advantage account.
18:32
So, if you like this, as always, please
18:35
share the video with 12,000 friends,
18:37
subscribe, hit the like button, hit the
18:38
bell, do all that good stuff, and let me
18:40
know in the comments which strategy you
18:42
want a deep dive on next. I'm trying to
18:44
put out six videos a month this year.
18:46
It's a goal of mine. So, uh, shooting
18:49
for about 72 videos. Um, is that going
18:52
to happen? I have no idea cuz I get kind
18:53
of lazy around the summer. But uh please
18:55
if you have any ideas for future videos
18:57
or want want to make uh want me to make
18:59
a video on something that you are uh
19:01
dying to learn about, please let me know
19:03
in the comments down below. Also
19:05
remember to check out Whiteboard Finance
19:06
University. I go live there every
19:08
Thursday at 5:00 p.m. Eastern time. We
19:10
have full courses. Uh we have a vibrant
19:13
community in there, a live chat where I
19:15
show you all my trades uh like this one
19:17
and this one. And then um I may be
19:21
actually lowering the price for 2026.
19:23
The reason for that is because um it
19:26
it's originally $67 a month, okay? And I
19:29
said if you can't afford $2 a day, then
19:31
there's a bigger problem. You shouldn't
19:32
be paying for courses. You should be
19:34
increasing your income. Uh but I guess I
19:36
said it in a way that's uh my it's the
19:39
way you said it.
19:42
So, uh I may be lowering the price to
19:44
make it accessible to as many people as
19:46
possible. Thank you so much everybody.
19:48
And as always, have a prosperous
19:50
day. It's not the way you said it. It's
19:53
your tone. 1 + 1 is two. It's your tone.
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6 Ways To Pay Less Taxes On Your Investments (Legally)
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