"Anyone 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.
Doesn't sound in-line with current complaints that Donald, Elon, Amazon and Google pay little to no taxes, does it? Warren Buffet only pays a 17% tax rate. Donald Trump likely pays zero due to his enormous real estate depreciation, and Jeff Bezos is disassembling European bridges to get his new yacht through, likely pre-tax. So, why pay more than these guys?
JAM VIEWS members spend their intellectual energy learning how to create wealth for themselves and others, realizing how to protect those assets from the bad people, and this week understanding simple tax deductions the U.S. Government has clearly laid out in the 5,800 pages of the tax code. It is your patriotic duty to follow the government's inducements to generate the type of investments which they are nudging you to make.
It is simply irresponsible to not 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 Treasury Department gladly accepts all 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 seemed to have become more prosperous and secure despite earning similar incomes.
We do not have to make huge salaries or apply exotic tax structures. We must simply choose to educate ourselves on what is available, as well as choose to spend our limited funds in the same manner as Warren, Jeff, and Elon. Today, order yourself a copy of Tom Wheelwright's book Tax-Free Wealth to review these simple strategies while the kids play in the pool this summer. Then order the free Tax Guide for Small Business, IRS Publication 334 on irs.gov.
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. Warren doesn't eat a Whopper without his accountant deducting this expense (he sold his stake in Burger King in 2020). Remember this next time he claims on MSNBC we all should raise the tax rates to "pay our fair share." He doesn't care because he's not paying the same rates you will have to if you don't say to yourself, "WWWD? (What would Warren do?).
Let me give you a short list to get your brain juices (technical economic term) flowing:
1. QuickBooks is $12.95 a month online. Get it, learn it, love it. Become the Quicken nerd. You will be shocked at how simple it really is, and your family 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 on eBay, consult, sell something cool to all your friends, or best of all make your current 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. But first, you must understand.
4. Your car, phone, computer, subscriptions, supplies, and education should now be pre-tax expenses.
5. Your travel and most of your restaurant tabs should be pre-tax expenses. You will travel to industry conferences, to evaluate property acquisitions, and to meet with potential partners or vendors - mostly pre-tax. You will employ your spouse and children, or give them ownership in your LLC, and they will travel with you mostly 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 Christmas sweaters. 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 where you will discuss business with your partner-spouse.
8. Make sure you add at least 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 the 4% a year growth (real estate's historical rate) to equal in comparison a 30% per year growth in another investment asset. Check my math.
9. Once successful, have your LLC taxed as an S-Corp, pay yourself a reasonable salary (on which you pay the employment taxes), and then flow the rest of the net income to you personally without paying payroll taxes. Google for details.
10. Master 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, and 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 WeCrashed and Super Pumped and, instead, spend this time implementing these simple tips - you are not as tired as you whine about. Soon you will be bumping into Warren, Donald, Jeff, and Elon 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
* The above information is not to be construed as tax, investment, or legal advice. Please consult your advisors (and pay them pre-tax).