THE GOVERNMENT HAS NO MONEY

THE GOVERNMENT HAS NO MONEY

(Jeff was unavailable this week, so we wanted to post one of the top-rated Posts from April 2018 which seems so relevant with our current Presidential campaigns.  Enjoy!)

     Recent generations of Americans have been raised and educated to view the Government as an omnipotent and never-ending caretaker, as if it is "the Alpha and Omega, the beginning and the end." We personify this caretaker with fatherly characteristics and responsibilities. We state, "They should pay for the poor...They should tax the rich...They should increase Social Security...They should pay for my childcare..." Why do we believe that because we were born, that some entity behind the green curtain should pay for our comfort, much less our survival? Is this belief inherent, or is it instilled?
     Remember that we must localize all monetary transactions in order to begin to understand how things actually work. In this situation, what we do not realize is that there is no "They." There is only you, me, and our neighbors. If I want someone to pay for my childcare, I should walk over to Mrs. Johnson's apartment once she gets home from work at the bottling plant and let her know that I need her to write me a check. Now, I will need to be prepared for the fact that she might belt out a little Michael Jackson, "If you can't feed the baby then don't have the baby," and moonwalk herself back into her apartment. But, at least I would feel like I had shown good character and asked her directly for her money.
     Governments are pass-through entities just like the Limited Liability Company (LLC) which you set up for your amazing Rodan & Fields skin care side business. "They" only have the money that you agree to give them (and yes, you have to agree - Another Post). "They" produce nothing, create nothing, and cannot survive without you - not the other way around.
     Now follow me on some of these numbers. A tip - read the numbers slowly and attempt to digest what they really mean. Human nature forces our eyes to glaze over when reading big numbers, and this is exactly what "They" are counting on. The U.S. federal budget this year is approximately $4.5 Trillion. This is the amount of your money which "They" are going to spend. But, it gets worse. You are only agreeing to give them $3.5 Trillion, so "They" are going to borrow another $1 Trillion from the Chinese, the Japanese, and the Germans so "They" can pay for all of the things we believe that "They" need to give us. Now since Mrs. Johnson gave you the moonwalk instead of a check, and since you still feel that someone else should pay for your childcare, "They" knocked on her door for you and took her money under threat of a long list of punishments, to include federal prison. For the rest of the money that Mrs. Johnson couldn't come up with, "They" went hat-in-hand to foreign countries and bartered away more of Mrs. Johnson's, and your, future in order to get the rest of the money.
     Now stay with me. since World War II, taxes have grown 15% per year faster than Mrs. Johnson's paycheck from the bottling company, and the federal government's spending has grown a shocking 50% faster than her paycheck. So each year, the IRS Agent knocking on her door takes a larger slice of her pay. But, "They" still don't have enough, so they travel the globe and beg other countries for more and more every year.
     Some big numbers again. Because of this trend, the National Debt (our Collective Mortgage) is about $20 Trillion, which equates to $50,000 for every man, woman, and child (so get Junior to work!). But, this does not count Social Security and Medicare, which also have no money. It will cost you and me another $80 Trillion to make up the shortfall we have not saved for the Baby Boomers. This is on top of the Social Security and Medicare taxes we will already be paying out of our paychecks for the indefinite future. This fiasco is called an "unfunded liability."
     Very important. When "They" tell you that Social Security will "run out of money" in 2032 (or whatever year they keep changing it to), what that really means is that will be the first of many years in which annual worker payments into the system will not be sufficient to make the payments out to the recipients of the system. There is no money sitting in a Social Security bank account holding all of the contributions you gave them out of your paycheck for all those years. The extra "savings" were raided by politicians years ago. There is no money.
     So because we thought it would be rude and even outrageous to personally ask Mrs. Johnson for her money, and we instead got "Them" to do it by force, we all now collectively owe $100 Trillion, not to include the money we are already obligated to pay each year into the future. I don't even know how many zeroes are in $100 Trillion. Fourteen?
     In another Post we will address different options for possibly saving this amazing country from bankruptcy, or at least a painful devaluation, like so many other countries have had to do throughout history. But until then, we need to understand that all economics are local. If you want to ask your neighbor to cover some of your expenses, then do it. If you want to pay someone else's bills, that would be a wonderful gesture. Just understand that there is not a middleman who is paying for what we feel we deserve. Not only that, but that guy has even already blown all the cash we gave him to hold for us!

"The perfect political party would promote as small a government as possible along with pure capitalism, while not promoting their personal beliefs on me."
   -   Jeff Martinovich , "Just One More: The Wisdom of Bob Vukovich," Ash Press, Spring 2020

* For more information on Jeff's Books, Blog, and Legal Challenge, please visit www.jeffmartinovich.com.

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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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PROTECT YOUR FUTURE

     Out of the thousands of business and investment mistakes I have made, some of the worst have involved not properly protecting my businesses, company assets, intellectual property, and personal homes and investment accounts.  Over the years, we helped thousands of families and corporations protect their assets, retirements, and legacies, yet I was embarrassingly naive about all of the bad things which could happen in my own world.
     As my net worth expanded rapidly, I never took the time to sit down our fleet of attorneys and accountants and ask, "But what if this happens, or this happens?"  After decades of fantastic growth, I never got around to implementing many of the strategies which we had formulated for others.  I still personally guaranteed everything, all of the business and personal assets were intertwined, and so many entities and properties were held under the same holding companies.
     So, when the black swan arrived, the perfect storm, everything went down with the ship.  So many terrible events all happened simultaneously, in parallel.  We could have never predicted such a confluence, but that is exactly the definition and the experience detailed in Nassim Taleb's 2007 telling business case study, "The Black Swan."
     This week, let's help everyone with some simple steps to avoid the mistakes I have made.  Also, we need to understand that these strategies apply to your costume jewelry side business just as much as to the million-dollar enterprises.  Let's not later lose what you work so hard to build by the bad actions of others who feel, for one reason or another, that you did not service them well, or they don't like you as a competitor, or even if they are simply jealous of your success (schadenfreude!).
     Again, your high school or college never taught you these important items, so you must read, read, read to be responsible for your own destiny.  You cannot blindly rely on lawyers and CPA's, as we have shown time and again through these posts, because these professionals many times do not know the right answers, and many times their self-interests are not aligned with yours.  Here's a short list to get us started this week, and we will cover more details in future posts:

1. Incorporate your business activities for the best liability and asset protection, as well as tax advantages.  You can choose from C-corps, S-corps, and limited partnerships, along with many others, but for most of us small business entrepreneurs and property owners, the Limited Liability Company (LLC) will be the most appropriate entity.

2.  Although for decades we used Delaware LLC's (incorporated in the state of Delaware), because if there were business problems Delaware's laws were favorable for the corporation, we now feel that Nevada and Wyoming LLC's are the best choices, while California is the worst (imagine that!).

3.  Nevada and Wyoming have no state income or corporate taxes, but remember that taxes must generally be paid in the state where the business is being generated.  Our investment firm MICG, headquartered in Virginia, had to file and pay income taxes in 42 states - that was a project!

4.  Nevada gives the LLC members (owners) the best asset protection from the bad people, requiring charging orders for anyone who wins a lawsuit against the LLC member.  This basically means that the successful plaintiff doesn't get to break up the business or take the assets, but gets to be "in that one member's shoes" when distributions are eventually made, if they are.

5.  For privacy protection, Wyoming LLC's are ranked #1, but Nevada also does not request or release the owners' information for any civil inquiries or investigations, only for serious criminal actions.  This issue is important, not for dodging responsibilities, but for dodging the scumbags of the world, and their scumbag attorneys, who are always attacking business owners whom build any level of wealth.  Conversely, these scumbags won't pursue you if they believe your assets are not worth their efforts, either in value or in the trouble to get to.  Many people own both Nevada and Wyoming LLC's for their different businesses, or even for different pieces of the same business, simply to deter these "ambulance chasers."

6.  Your outside state LLC, such as Nevada, can be "qualified" to own property or run a business in your state by simply registering this LLC with your secretary of state in the same manner you would initiate a new LLC.  Or, you can already have a Virginia LLC running a business and have the Nevada LLC own that LLC, for example.

7.  Go to the trouble of initiating separate LLC's for different properties or businesses, and do not hold these assets under one umbrella corporation.  If a renter at your beach house falls to their demise through a third-floor faulty railing, and your liability insurance is not substantial enough to cover the suit, then the plaintiffs may be able to take that house.  But, they won't be able to also go after your Vail ski lodge, unless you had that held in the same entity, or connected to, the beach house.  Logistics companies place each truck in a separate entity, with its own insurance, for these same reasons.

8.  Make sure you follow the simple formalities for maintaining your LLC shield, so the bad people cannot "pierce the veil" of your corporation.  These issues, termed alter ego cases, address people who claim that the LLC is really not a separate entity from you personally.  If you are lazy and don't follow these simple steps, people will try to sue you personally for all of your assets.  But if you do follow these steps, the courts will most likely protect your personal assets even if the suit against your corporation is successful:

   a) Maintain a separate bank account for the LLC, and don't commingle with personal funds and think you will get organized later.  Keep everything separate to show the business or property is not you.

   b) Prepare separate tax returns, and get an Employer Identification Number (EIN).  Again, I urge you to do this yourself so you learn and understand what is truly going on and why, even if you then take them to a CPA to review and approve.  Always remember that it is you signing the return, not them.

   c) Pay the annual LLC fee ($50-$300), and file the 1-pager annual filing.  At inception you also file Articles of Incorporation to initiate your LLC.

   d) Prepare minutes of your Annual Meeting, and keep them in your LLC folder in case you ever need to show that you held the required meeting of your members, or maybe of just you and a little Grey Goose.

   e) Make sure your LLC is "properly capitalized."  In general, this means that you have added the money necessary to pay your creditors and run your business, if applicable.

   f) Put everyone notice that you are functioning as a corporation by always signing everything as "Susan Jones, President, Awesome, LLC"  Always use the logo letterhead, have Awesome LLC on business cards, etc.

9.  We will cover tax advantages in a future post, but here is a short list of things you likely will now get to pay for with pre-tax dollars (Download the current Publication 334, "Tax Guide for Small Businesses"):

   a) Startup expenses such as attorneys, CPA's, printing, office expenses, licenses.

   b) Salaries, rents and utilities (% of home for home offices), % of automobile, cell phone, laptop, supplies.

   c) Travel, meals, health & life insurance, retirement plans.

   d) Dependant care, education, dues, subscriptions.

     Well that's enough for one week.  I wanted to give you the "30,000-foot-view" of taking the initial steps for protecting your creations, and to give you a glimpse of the incredible wealth-building attributes of owning your own corporations.  In future Posts we will also cover Irrevocable Trusts to add to the mix once your Awesome, LLC is printing tons of money.  This is how you build long-term wealth:  Ownership, legal tax advantages, and building equity value instead of focusing on high current income.  And, here is the part where I have to remind you that the above is not tax or legal advice and for you to consult your own advisors, as I am not a CPA or an attorney (thank God!).  Have a great week!

"For whom the gods wish to destroy, they first call promising."  -  Cyril Connolly

* Many thanks to the WSJ, Forbes, Fortune, and to Garrett Sutton, an asset protection expert, and his firm, Corporate Direct.  I highly recommend his services and their many books published on the above topics.

** 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 

* SUBSCRIBE TO JAM VIEWS

* PLEASE USE THE BELOW SHARE BUTTONS TO SPREAD THE WORD!