11 Principles of Creating Wealth Through Tax Efficiency - Part 2

Hopefully you watched last week when we went through principles one through five, we'll just review the 11 principles quickly and then we'll move on into principles six through 11. Principle one was own your tax efficiency plan and hire an expert tax advisor. Number two, your tax plan would be one of the best investments you ever make. Number three, deduct expenses against highest tax income and minimize taxes against your lowest tax income. Principle number four, most of your life expenses are deductible. Principle number five, focus on reducing taxes on the rest of your income. 

Okay, now this leads us to number six. Number six is your optimum tax rate will come from a blend of tax strategies. So there is no magical tax strategy. This is one thing you want to understand there is no magical tax strategy, everybody's situation is different and ideally, it ends up being a blend of plans that gets you the best results. Almost every plan has a limit to what you can put into it, or a limit in its structure. So what you end up as you end up maxing one structure, then you add another structure, then you add another structure and the combination of these structures gives you this really low rate. Another thing we want to do is we want to get rid of garbage taxes, garbage taxes are FICA, Medicare, these are the employer taxes. We want to get rid of these and try and maximize their deductions and expenses against them to get rid of them. We want to maximum fund our retirement accounts and this is something we spent a lot of time on. People contribute to their retirement accounts, but they really do a begrudgingly. Kind of like, well, I get a tax break for doing it, so I'll do it, but I have no idea what to do with the money. 

If this is you, you want to pay attention. Because one of the things that we're really good at is, one showing how you can put the maximum amount of money away, way more than probably your accountant is telling you. Two, once you put it away, one of the things that we do a really good job of is we have really good strategies that you can put the money in, that you can get really good returns, and only take you an hour a month to get be able to do that. So now, you'll be able to put all this money away, but it's actually growing for you at a good rate of return that most people do not have. So it's one of the things we can show you how to do. We're going to structure in LLCs, which helps us with asset protection, it helps minimize impact from any lawsuits and we're gonna use depending on your situation, again, this is a more advanced situation, but if you're more advanced, you use international structures that also helps you reduce your taxes. We utilize a layered use of structures to create the blended tax rate and segregate out our risk. We want to concentrate on high return investments and get them into low or no tax structures. We want to watch out for single cell large investments to make sure that we not only have tax savings, but that we can protect them. We want to concentrate income into low or no tax structures and that's going to be a big piece as well. 

Then we move to number seven. I remember I first heard this from Robert Kiyosaki, Robert Kiyosaki would say you'd want to seek to own nothing, but control everything. You see, ownership is really about ego. Like we have this belief that owning something gives us power, or gives us some sort of distinction, but the reality is, is that for most of us, all we really want is the feeling that that thing gives us. If you want a Ferrari, why do you want a Ferrari? Well, at some level, you don't really care about a Ferrari, what you care about is the feeling you get when you drive a Ferrari around, you feel powerful, you feel strong, you feel admired, whatever it is, it's something like that. Well, guess what? You can feel those things without a Ferrari, or if you want a Ferrari, you can lease it, you can rent it. You can do all kinds of things that dramatically reduce the cost of the Ferrari and I can tell you what, if you go, let's say you go to Turo, and you rent a Ferrari for the weekend and then you drive it to an event. Those people at the event are not going well, that guy rented it at Turo. They have no idea what you did. They're like wow, cool car dude. Yeah and you even have to tell them that you rented it. 

Another example, more minor version of this is like I lease almost all my cars. I either buy a used car, or I lease a new car. Why do I lease it because it dramatically reduces my cost of capital and instead of putting all the money in the car, I can take that money and I can trade with it, I can invest with it, and get a much higher rate of return, than jamming it into a car and having to be debt. There's a saying is that you invest in assets that appreciate and you rent assets that depreciate, so your car is always depreciate, so rent them, least them, okay? We don't need to own things, we just need to control them. So you can set up structures that give you full access to your capital, in terms of being able to control it, direct it where you want, but you can set these things up so they're almost somewhat arm's length. That gives you better returns, better options, lower taxes, okay. 

Number eight, you want to maintain control in your tax structures. So you need to have a mechanism so that you can dictate or substantially influence what somebody does with investing your money in a structure. A great example, this is insurance, you go and you get an insurance policy, and then you write a check, and it goes to an insurance company and then you might have some a handful of choices of what you can do to invest it, but they're not great or you set it up in a way that they do it for you. While you've given control over to the money, it's not your money anymore. It's the insurance company's money. Those are the kinds of things you don't want to do. When I was younger, I was always being approached with different structures, and they had tax advantages, but I wouldn't do them because I would lose control of the money and that was one of my guiding principles is that I need to be able to control my money. This really played in here where I started to learn that I can actually control my money without having to own assets, I can control the asset without owning the asset. 

One quick thing on this, if you ever go look at the Kennedy family, which all of you know and you go look at Chappaquiddick, which is a famous story. That's a classic example of what I'm talking about. Because when Ted Kennedy crashed the car Chappaquiddick and the girl died, that car was not owned by the Kennedys. It was owned by an entity, and it had insurance and so when they went and he tried to sue the Kennedys for Ted Kennedy's negligence, they couldn't get any money. All they could get was the insurance payout. That was an insurance policy from the entity, because it was set up with really good asset protection. So the Kennedys are great at. So as a great example of how you control something when you don't own it. Ted Kennedy did not own that car, the entity owned it. 

Now, number nine, you want to be an expert at tax efficiency in your niche. The tax code is incredibly calm complex, you're never going to know it all, but what you can know is what your niche is. Let's just say you own a restaurant franchise, well, you should know everything about tax law for franchises. If you're a trader, you should know everything about tax law, and your type of trading and then that helps you because your tax advisers play a key role, but you have to be able to discern whether what your advisor is telling you is really good, or it's bullshit. My partner Mark, one of the things I love about Mark is Mark is so good in tax, that he can sit down with an advisorand know like, this guy really knows his stuff, or he doesn't know anything and as because that's one of his hobbies. He loves studying this. If you're a real estate investor, you want to understand real estate tax, you get the idea. 

Number 10. All tax planning must have a business purpose, other than reducing taxes. So I said this in part one, everything we're doing is legal. We're not doing anything illegal, it's not worth it. Everything we're doing is legal within the boundaries of the code. This is why we're doing it and part of this is we can't just make it up. There has to be a business reason why we do things. If we keep things simple, we use some creativity we can create legitimate business uses for why we do what we do and then those tax advantages are available to us and we can totally defend them. 

Number 11. The better tax benefits often have more complicated rules. This is gonna be why you need a tax advisor. You're not going to know all this, but the tax advisor will. This is one of the things I say, Do not DIY your taxes, it's one of the worst mistakes you could ever make. Don't go cheap on your taxes, don't go hire the cheap accountant. If you're going to h&r block or something like that, God help you. That is not good tax planning. Okay, so I have a I have a student who we taught him one of our structures, and he went and tried to do it on the cheap, save himself 300 bucks. Went and had a structure put together, took it to the broker, and the broker flat out said, we don't accept this. He's like, What do you mean, you don't accept it? I know this works, he's like we don't accept it. Well, if he had gone to the advisor that we recommended, the trust company that we recommended who does these, this is what they do, they're experts at it, they would have done it right, he would have to pay $300 more, but it would have worked. Instead, he had to go spend more money and more time and more effort to redo the whole plan to be able to get it to where it could actually be accepted by the broker. So do not go cheap on your advisor, be willing to spend the money, you will get it back in spades. Some of the best tax benefits, they have more complicated rules. So you're gonna have to get the setup, you're gonna have to pay for the maintenance, but this will be worth it for you. This is big. 

So I've shared with you these 11 principles of creating tax efficiency. Now, in our Trader Tip Tuesdays, we just share information. So I've given you a mindset of how to think about tax, which is worth a lot. A different angle to this. So this is helping you This is meeting the objective. What we do at Trader Tip Tuesday, is to share techniques share mindsets with you like this, and it helped you. In this case, reframe what you do. One way to take your performance to an elite level is pay less in taxes. Really easy. You guys just keep way more money. It's the same as going out learning something new. You make more money. So we're making the objective here of doing that and having said that, in these few Trader Tip Tuesdays, I just want you to be aware of this offer this link. If you want to figure out how to save massive amounts of money on your taxes, click on [this link] to take you to a landing page and you know, explain what we're doing. For some of you, for a lot of you, this is a no brainer. Check it out and in the meantime, I will see you next Tuesday. God bless.