Tax minimisation

edited September 2011 in Life

Even though the majority of people here are janitorial engineers earning MAXIMUM WAGE i thought i'd share something legal that works.

Its called a margin loan.
Just as interest payments on a property investment are tax deductible against the income derived from said investment - the margin loan (a loan taken out with stocks as security) can generate a tax deductible sum and if you invest correctly a profit.

In Australia theres plenty of stocks that are doing quite well, but im happy to pick something stable that will track along the market increases -/+ 5% that offers a good franked dividend.

A franked dividend has already had tax paid on it by the company (who are employing people to make their tax burden tiny all year around) so you dont get taxed on it again.

Theres two good stocks that i've been getting about 8% a year in dividends from on the asx: MLB & BWP - the latter is more stable than the former.

But you get 8% p.a returned on your borrowed amount (eg, invest 5k, margin loan 10k = 8% of 15k or $1200) and a tax offset of the interest your charged on the loan (~9% so ~1200).

So you get yourself an extra $1200 from investing and then a $1200 tax credit for the interest payments on the loan.

Thats a sweet $2400.

Again, i have no knowledge of american tax laws - but if you hold the stocks for more than 18 months your capital gains tax is halved.


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