ShmoopTube

Where Monty Python meets your 10th grade teacher.

Search Thousands of Shmoop Videos

Finance: What is the Difference Between Load and No Load? 45 Views

Share It!

Description:

What is the difference between load and no load? Load and no load are terms used for different mutual funds. Load mutual funds charge a fee or commission when purchased. No-load mutual funds don’t charge fees unless they are cashed in early. So the choice of which to purchase depends on how confident the investor is in the length of time they want to hold the fund.

Language:

English Language

Subjects:

Transcript

00:00
finance a la shmoop -what is a tax deduction ah taxes love them hate them
00:08
you can't leave them. but you can lower them legally by being you know
00:13
thoughtful about how you spend your earnings. all right how do we do this?
00:16
well let's start with the largest tax deduction in America the home mortgage. [man stands in front of house]
00:21
and you use a dentist who makes a hundred fifty grand a year for putting

00:26
your fingers in wet mouths. well remember, that for individuals versus corporations [man sticks finger into open mouth]
00:31
we pay a graduated or quote progressive unquote tax rate - like almost nothing on
00:38
the first 15 grand we earned than about 10 percent from 15 to 30 grand, and then
00:43
about 20 percent from 30 to 60 grand and so on. that's progressive. so on the last
00:48
20 grand of earnings you make well you might pay say 40 percent in taxes and [chart shown]
00:53
yeah we know the numbers aren't exact we're just illustrating a point here. you
00:56
have a mortgage of $300,000 on a home you bought for $400,000 right so you put
01:01
a hundred grand down and borrowed three hundred .the mortgage costs you 6% per
01:05
year in interest, or eighteen thousand dollars to rent that three hundred
01:09
thousand. before you owned the home the IRS thought of you as a hundred fifty
01:14
grand a year earner, but a hundred percent of the interest on the home is fully [the number 100 on screen]
01:20
tax-deductible .so what about that last 20 grand ie the money you earned from 130K to 150 K? well as far as the IRS is concerned, now that you have a
01:30
home, you get taxed as if you earned just 132 grand,
01:36
hundred fifty K you actually earned .why? because that eighteen thousand dollars
01:40
in interest comes right off the top of your earnings. see? there's the math right
01:45
there. 150 minus 132 in taxable earnings. it's as if you didn't earn that money
01:50
ever [piggy bank shaken. confetti falls out]
01:54
all right well if you'd had no deductions on that last $20,000 of
01:59
earnings you'd have paid 40 percent or $8,000 in taxes. but now on that last
02:04
$20,000 thanks to your mortgage deduction, well you only have taxable
02:09
income of $2,000 and yes you pay 40 percent on that 2,000 or 800 bucks. and
02:15
you mumble though thank you government for largely splitting the cost of my
02:19
mortgage with me. the American Dream is alive and well yeah that's what you said. [ man in suit stands in fancy room]
02:23
okay. and thank you Jay. there are other deductions beyond home mortgages of
02:28
course but well you give the gist here of how they work. from a taxpayers
02:32
perspective deductions like those from your home mortgages are a good thing.
02:37
common personal deductions also include things like prepaid health care costs,
02:42
and the cost of feeding quote dependent unquote children. ie those noisy things [kid jumps on a bed]
02:47
sleeping in your spare bedrooms until they're 18. okay so those are personal
02:51
deductions. things that individual citizens take. but what if you're a
02:55
corporation? well in a way it's kind of easier. think of most corporations as
02:59
having a flat 30% tax from the first dollar they make just to keep things
03:03
simple. participation trophy company Inc made a hundred million dollars last year
03:07
and paid 30 million in taxes. they netted 70 million after tax. the company really
03:13
needs a new trophy smelting machine because with so much demand for [metal melts in a fire]
03:18
participation trophies of late while the old one is running dull with mediocrity.
03:23
the company spends 40 million bucks on the new machine knowing that it will be
03:28
worthless in 10 years either because it wears out or because the country gets
03:31
real. or you know simply remembers to you know have a nice day, yeah participation [smiley face]
03:37
trophy land. well they depreciate 40 million dollars in
03:40
equal parts of 4 million bucks each year over 10 years so that in the next year
03:44
when they again earned a hundred million dollars well they now get to deduct 4
03:49
million bucks in depreciation from their smelting machine against their hundred
03:54
million dollars in earnings. so again as far as the IRS is concerned they didn't
03:58
really earn a hundred million dollars even though they did. they earned quote
04:02
only unquote 96 million. and yes they still pay their 30 percent tax only now [equation on screen]
04:07
instead of paying it on a hundred million bucks it's paid on 96 million of
04:11
earnings or 0.3 times ninety six or twenty eight point eight million in
04:17
taxes. they deducted from their taxes the four million bucks ,expected value
04:22
decline from their smelting machine. right it goes down four million a year
04:26
in value from the 40 they paid. and they received essentially a credit on their
04:30
taxes of 1.2 million dollars. so instead of that years depreciation costing the [equations shown]
04:36
company four million bucks well it really cost them more like 2.8 million
04:41
if you ignore a bunch of other things like the original capital cost of the
04:44
machine and what else they might have done with that money other than the you
04:47
know buy a smelting machine. think think corporate jet yeah those G-6 are [furnace shown]
04:52
surprisingly tasteful.
Full Transcript