11 Principles for Creating Wealth Through Tax Efficiency

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1. Own your tax efficiency plan and hire an expert tax advisor.

I talked about this in the Facebook Live last week, but a really key element is that everybody hires accountants to do their taxes. They either do it themselves, or they hire an accountant. This is actually not the right move. We actually want to hire a tax attorney.

Let's talk about the differences between a tax attorney and an accountant. A tax attorney when you communicate with your tax attorney, there's attorney client privilege on all communication. Whatever you say to your attorney, is held in confidence between the two of you. It's not permissible in court. It's not able to be subpoenaed. When we work with a tax attorney, the attorney works on behalf of you, the client. When you work with a tax attorney, you have a legal opinion that backs the structures you use for tax efficiency. When you turn in your tax return, a tax attorney will review it and in some cases even submit a letter of opinion with the return letting the IRS know in advance that everything you're doing is indeed lawful. It is indeed backed by law and the tax attorney is validating that, and when you work with a tax attorney if there's a mistake, the attorney can be held liable for the tax structure. If the IRS comes in and blows up the tax structure, if an attorney guide you to a structure and it turns out it doesn't work, he's actually liable for that. This is a huge shift from what people are used to. Most people don't even know this.

When you work with an accountant. The communication between you and the accountant, so if you talk with your accountant about how to minimize your taxes, what you talk about is actually submissible in court. The accountant has to balance the interests of you the client and IRS regulations because he can get in trouble with the IRS so it's debatable about whether he's actually working for you or he's working for the government. An accountant cannot give you a legal opinion on the tax structure, and if you look when you get your tax return you have to sign off on it. If you read when the accountant signs it the account is basically signing off to the fact that he is not liable. That he cannot validate the numbers and you are signing off that you are indeed liable. You're liable for the information, you're liable for the deductions, you're liable for the return which is very different than a tax attorney.

Most people never think of hiring a tax attorney, but if you have any kind of income at all, hiring a tax attorney is a must. You have to own your plan. You have to be aware of what's going on. You can't be ignorant. You have to take the time to understand, to communicate to the tax advisor what your goals really are, and then understand what he's telling you.

2. Your tax plan will be one of the best investments you ever make.

Because the money you spend, you're gonna get back in multiples in tax savings. If I came to you and I say look, what if I could give you a $50,000 a year raise and you don't need to change anything. You'd be ecstatic. You'd make 50 grand more. You need to understand that when you invest in a tax plan. It's the same thing. You don't have to work any harder, but you actually get more money.

3. Deduct expenses against highest tax income and minimize expenses against the lowest tax income.

 For example, traders often have an ordinary income component and a capital gains component. Well ordinary income tax is much much higher than capital gains. We want to take all of our expenses against ordinary income and pay just tax on capital gains.

4. Most of your life expenses are deductible.

Especially in certain situations. Your house, your car, your travel, your health care... these are some of your biggest expenses, school expenses, education. All of these things if they're set up properly, can be deductible.

5. Focus on reducing taxes on the rest of your income.

What you want to do is you want to live on pre tax income you want to pay to live, then pay tax. Then you focus on reducing taxes on the rest of the income that you actually pay the tax on.

6. Your optimum tax rate will come from a blend of tax strategies

 What's going to happen is you may have a strategy that you only pay 5% tax but you may only be able to put $100,000 through it, and you may have another strategy that you pay 10% tax and that one you may wish to put 500,000 through it. Then you may have another strategy that pays the 12% tax and you can do that up to a million dollars. Well now you're having a blended rate of all three strategies and that's taking your effective tax rate down from a higher number down instead of let's say 12%, maybe down to nine and a half. The optimum tax rate will be a blend of tax rates.

7. Seek to own nothing but control everything.

We have an ego attachment about owning things, we don't need to own them. All we need is the satisfaction and joy that those things give us so we want to control them so we can have the joy in our life but we don't care who owns them.

8. Maintain control in your tax structures.

This is important. This is why early in my career I had lots of people come to me with different tax strategies, and I always said no. They're like you're gonna save a lot of taxes and I'm like, but I don't control the money. I'm giving the money to a third party who I have no say over. I don't trust them. I can do better. than they can even at a higher tax rate. It's important that we maintain control.

9. Be an expert at tax efficiency in your niche.

 We don't need to know everything about the code. That's freaking impossible, but we do want to understand the important aspects of our core business. If you're a trader, if you're a stock trader, you need to understand the tax structures and the tax rules around equities. 

10. All tax planning must have a business purpose other than reducing taxes.

You can't just do stuff to reduce taxes. If you set up a company it's got to have a legitimate reason for being set up. It can't just be a shell.

11. The better tax benefits often have more complicated rules.

This is not a surprise the ultra wealthy can afford tax attorneys, and they have influence in Congress, and so when Congress passes a bill and you hear after the fact that they passed a bill but it was actually 1100 pages. Well, there's all this little stuff. There's all these little carve outs in those 1100 pages that are for specific groups who have money. It's kind of a bullshit game, to be honest, but that's the way it goes. There's often great tax savings, but you have to have somebody who's smart enough to know where they are and how to structure things. This takes us all the way back to number one and the importance of having a great tax advisor.

We spent so much time focusing on how to invest better how to trade better what's the holy grail strategy? The reality is, is that the best return on your money is in getting tax efficient, getting tax effective, because that's guaranteed return. You don't have to risk anything. You don't have to invest in a strategy and lose 10-20% of your capital to see if it works. You just get the upside. People do not think enough about this. Your greatest expense is your taxes. It's not your mortgage. It's not your student loans. It's your taxes. If you want more money, have to figure out how to lower your taxes.

Now the great thing is we have an amazing workshop, and we work with one of the top international tax attorneys in the United States who comes in and supports our workshops and is available to our students. I'll put a link [HERE] and in the YouTube channel you can click on if you're interested in finding out more information on our Five Pillars of Wealth workshops. There's two of them. There's the building the dream workshop, which is the foundation of building a great financial wealth, and then there's the billionaire formula where we get into all these advanced techniques, some of which we talked about today generally, to help you build, and to help you really save, invest in compound, be tax efficient, and asset protected. We'll show you how to do that at a world class level.

(Plus we're running a special deal for Black Friday. Click HERE as It expires at 11:59 PM ET on 11/25/22)

That's this week's trader Tip Tuesday. I'll see you next Tuesday when I come with additional tips that will help you take your performance to an elite level. God bless. Have a great week. Bye.