GET WHAT YOU GOT COMING!
"Any one may so arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury. There is not even a Patriotic duty to increase one's taxes." - Judge Learned Hand.
Sounds quite relative to the current complaints that Donald Trump, Amazon and Google pay little to no taxes, does it not? Warren Buffet only pays a 17% tax rate, and Donald Trump likely pays zero due to his enormous real estate depreciation, so why pay more than these cool guys?
JAM VIEWS members spend their intellectual energy learning how to create wealth for themselves and others, recently began learning how to protect those assets from the bad people, and this week turn to taking the simple tax deductions which the U.S. Government has clearly laid out in the 5,800 pages of the tax code. It is your patriotic duty to follow their inducements to generate the type of investments which they want you to make. Watch what I mean.
It is simply irresponsible not to treat tax tracking and tax reduction as your second job, and hopefully soon your only job. The great majority of Americans pay substantially more taxes than the code intends, and the Trasury Department gladly accepts all of this extra revenue. Yet, a very small percentage of Americans do take full advantage of the code, and these are the people we end up working for, or wondering why they take so many fabulous trips, pre-tax.
You do not have to make a lot of income and apply exotic tax structures. You, today, must simply choose to educate yourself on what is available to you, as well as choose to spend your limited funds in the same manner as Warren and Donald. Today, order yourself a copy of Tom Wheelwright's book "Tax-Free Wealth," to review some of these simple strategies while the kids play in the pool this summer. Then order the Tax Guide for Small Business, IRS Publication 334, on irs.gov, and you will have this clear, well-written guide within the week. Next, start planning your exotic trip with your savings. Better yet, let me talk you into reinvesting at least half of these savings in order to increase your wealth building leverage and velocity.
Once you get into the right mindset, you will understand how nearly everything you purchase and experience will be part of the tax-advantaged strategy, just like Warren. Warren doesn't eat a Whopper without his accountant deducting this expense. Remember this the next time he claims that we all should raise the tax rates to "pay our fair share." He doesn't care because he's not paying those same rates you will have to if you don't say to yourself, "WWWD? What would Warren do?"
I have been very fortunate to accumulate multiple businesses, properties and high-end assets, and contrary to public opinion, almost zero of these assets were purchased with my J-O-B salary. These were fortunate results of starting corporate entities (see Post "Protect Your Future", 6/8/19), investing in tax-advantaged growth assets, and accessing cash and lending at tax-free or low tax rates. This work is not rocket science. It is simply a choice to educate yourself and spend your time and energy on this instead of watching "American Idol" and "The Voice." It is simply a choice.
Let me give you a short list to get your brain juices (technical economic term) flowing:
1. QuickBooks for the Self-Employed is $10 a month online. Get it, learn it, devour it, love it. Become the Quicken nerd. You will be shocked at how simple it really is, and your daughter will be impressed with your color graphs!
2. If you don't have a side hobby which you can turn into a side hustle, get one. Crafts, one rental property, sell old CD's on eBay, consult, sell R&F amazing cosmetics to your girlfriends, or best of all make your J-O-B your own company. How many times do I have to harass you about this?
3. Do your taxes yourself this year. You again will be shocked at how simple it is, and you will likely discover what a lousy, vanilla job Joe-the-CPA was doing. Once you get some momentum, wealth and cashflow going, you can interview tax advisors to select the right partner for your long-term mission. First, though, you must understand.
4. Your car, phone, computer, subscriptions and education should now be pre-tax expenses.
5. All of your travel and most of your restaurant tabs should now be pre-tax expenses. You will travel to industry conferences, to evaluate property acquisitions, to meet with potential partners or vendors, all pre-tax. You will employ or give your spouse and children ownership in your LLC, and they will travel with you pre-tax.
6. You will deduct your insurance, health care expenses, and even property taxes and certain sales taxes.
7. You may choose to locate your office in the third bedroom currently housing the treadmill stacked with terrible Christmas sweaters, which you also haven't touched in years. Here you will pay rent to yourself or deduct a pro-rata share of the mortgage interest, property taxes, utilities and more. You will periodically hold business meals in there, at which you will discuss business with your partner-spouse and deduct the meals.
8. Make sure you add one piece of real estate into your plans, if not already. The tremendous tax advantages and ability to use leverage (the bank's money) allow 4% a year growth (real state's historical rate) to be equal in comparison to a 30% a year growth in another investment asset. Check my math.
9. Have your LLC taxed as an S-Corp, pay yourself a reasonable salary (on which you pay the employment taxes), and then flow all the rest of the net income to you personally without paying payroll taxes on all the rest. Google to get the details.
10. Bonus Class. Give 20% of your startup LLC to your elderly mother. You as Managing Member control the cash and tax allocations to Mom, or not (Let her take the cruise!). Then 10 years from now when she moves onto her next adventure, the business is worth $10 million, you inherit the 20% now stepped up to a $2 million cost basis on which you will never have to pay capital gains when you sell. Check it out.
Now turn off "Wicked Tuna" and "Naked and Afraid," and spend this time implementing these simple tips. Soon you will be bumping into Warren and Donald in some exotic locale, pre-tax of course. Have a great week!
"It would be a hard government that should tax its people one-tenth part of their income." - Benjamin Franklin
** Great thanks to Tom Wheelwright, CPA, and the IRS :) for their insight on many of the above details and strategy.
* For more information on Jeff's Books, Blog, and Legal Challenge, please visit www.jeffmartinovich.com.
** To access JAM Views directly please visit jeffreyamartinovich.blogspot.com
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