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How Is Your Income Taxed? In this episode of the Small Business Tax Savings Podcast, Mike breaks down the basics of taxation so that listeners can create a roadmap for their own businesses.

Mike explains two main types of tax – ordinary income tax and capital gains tax, as well as self-employment taxes and FICA taxation for W2 employees. He covers the different types of income taxes, such as earned income, passive income, and portfolio or investment income.

Tune in now as Mike uncovers the complexities of taxation and learn how it can help you become informed on ways to pay the least amount of taxes legally possible!

[00:25] Understanding How Taxes Work

• Today’s episode is, “How Is Your Income Taxed?”
• There are two main types of tax: ordinary income tax and capital gains tax
• Ordinary income tax rates depend on factors such as marital status, household status, etc.

[01:29] The Difference Between Ordinary Income Tax and Capital Gains Tax Rates

• Ordinary income tax rates depend on factors such as marital status, household status, etc.
• Capital gains tax are taxed at preferred rates of 0%, 15%, or 20% compared to the ordinary income tax rate
• Short-term capital gains, assets held for less than a year, are taxed at an ordinary income tax rate
• Earned income is taxed at the ordinary income tax rate and self-employment taxes may apply

[12:40] The Benefits Of Passive Income and Investment Income

• Passive income is not subject to FICA or self-employment taxes
• Passive losses can only offset passive income
• Portfolio or investment income is taxed at ordinary income tax rates
• For assets held for more than one-year, a preferred capital gains tax of 0%, 15%, or 20% depending on the income is applicable 

[15:38] Closing Segment

• Mike shares his knowledge in order for listeners to uncover the complexities of taxation and learn how it can help you become informed on ways to pay the least amount of taxes legally possible!
• Final Words

Key Quotes

“I would never advise every business owner to fully understand taxes. That's why we have accountants. That's why, we come in and help clients in certain areas. But having a basic understanding of how tax works is so key to a really painless amount of taxes legally possible. It's important for you as a business owner to have that foundation knowledge.” – Mike Jesowshek, CPA

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Podcast Host: Mike Jesowshek, CPA - Founder and Host of Small Business Tax Savings Podcast

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