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Passive income from investments can be taxed at a lower rate from "summary" of Tax-free Wealth by Tom Wheelwright
Passive income from investments is a powerful way to build wealth because it is often taxed at a lower rate than earned income. This is due to the favorable tax treatment that the government provides for investment income. When you earn money from investments, such as dividends, capital gains, or rental income, you may be subject to capital gains tax or qualified dividend tax rates, which are generally lower than ordinary income tax rates. For example, long-term capital gains and qualified dividends are typically taxed at a maximum rate of 20%, compared to the higher marginal tax rates that apply to ordinary income. The government incentivizes investment by offering these lower tax rates to encourage individuals to save and invest for the future. By taking advantage of these favorable tax rates, investors can keep more of their investment income and accelerate their wealth-building efforts. It is important to note that tax rates can vary depending on the type of investment and the investor's tax bracket. Additionally, tax laws are subject to change, so it is essential to stay informed and consult with a tax professional to maximize the tax benefits of investment income.- Understanding the tax implications of investment income can help investors optimize their tax strategy and make informed decisions that support their financial goals. By leveraging the lower tax rates on passive income from investments, individuals can enhance their wealth accumulation and create a more tax-efficient investment portfolio.
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