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Can a Paid Tax Strategist Get You to $0?

“The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing.”

— Jean-Baptiste Colbert

Is it possible that a tax strategist could get you to zero dollars in tax pay?

I think it’s absolutely possible!

If you’re a high earner (aka: paying over $100,000 a year in taxes) you have an even greater chance of doing this.

I was able to get my tax bill from 25% to about 1%.

But before we get into it, I want to be clear that there is a difference between tax evasion and tax avoidance.

Case studies, like this one from Cambridge University Press, outline the key differences between the two:

Tax avoidance reduces taxes by taking advantage of loopholes in legal provisions.

Tax evasion is when you deliberately misinterpret the facts of tax law.1

With that out of the way, let’s jump into it!

1. What is a Tax Strategist?

We’ll start out simple by asking a few questions:

What is a tax strategist?

Isn’t my CPA a tax strategist?

There’s actually a big difference between the two.

That’s not to say there’s not some crossover.

Tax strategists typically are CPAs or have CPAs as a part of their group to provide tax advice.

Not many CPAs offer tax strategy services on their own.

A CPA will ask for all of your tax documents and usually stop there.

Tax strategists will look at everything you’re doing.

They will assess your situation and assess all the possible options to reduce taxes.

This includes government incentives, investments, and tax shelters.

Typically, this is a fee-based plan.

It costs money to save money.

Tax strategists will often do a free intro call to understand your situation.

If you decide to work with them, there will be a fee.

Ideally, this won’t matter much, because you’ll get paid back 10 to 1 or 20 to 1.

That’s the beauty of working with professionals:

Pay a little bit to get a lot back later.

2. Strategies to Get to Zero Taxes

Now that we know about tax strategists, let’s get further into strategies.

I’ve met professionals who pay hundreds of thousands or even millions of dollars in taxes each year.

But they don’t have to!

There are strategies out there to reduce taxes significantly.

The first one is called REPS, which stands for Real Estate Professional Status.

This is an IRS designation for real estate professionals.

In order to qualify, you need to have 750 documented hours a year working in real estate or 51% of your working time.

If you have a spouse, they can get the designation and it will benefit both of you.

You can also cut down to part-time and work 20 hours in your first profession and 25 hours in real estate.

Real estate agents also qualify if they have the right number of hours.

Being a REPS allows you to take depreciation from investments.

According to this article in The Journal of Business, the best tax depreciation method considers:

·       The asset’s service life

·       Estimated salvage value

·       The firm’s cost of capital2

We’ve invested in ATM machines, car washes, and multifamily—they’re all front-loaded depreciation.

Depreciation is not total losses; it’s paper losses.

You can use those losses against ordinary income as a real estate professional.

In my book, Fire Yourself, I talk about having two buckets.

You’ve got your ordinary income in one bucket and your investment income in the other.

You can’t use depreciation against the first bucket unless you or your spouse is a real estate professional.

Only then can you can use that depreciation in both buckets.

Another way to reduce taxes is through maxing out retirement accounts.

A lot of people suggest you do this.

It’s a very traditional method.

Another way is called infinite banking.

That strategy involves using whole life insurance policies.

I haven’t personally done this (I much prefer REPS), but I know a lot of people who have found that strategy very helpful.

3. Real Life Example

Let’s get into an example of how these tax reduction strategies have worked for people I know:

A pair of medical brothers I know in California own a couple of medical practices and sold them for $5 million to a private equity group.

As you can imagine, the tax bill was huge!

$2.4 million.

They were able to reduce this amount to $125,000.

It would have been almost zero, but they live in California.

California doesn’t recognize a real estate professional the same way as other states.

Both of their wives are real estate professionals.

They put a lot of the money they would have paid in taxes into assets that depreciate 100% in year one.

Because of their status, they’re able to write all that off.

They were also able to take advantage of something called a conservation land trust.

(You can read more about it here.)

This is in the California state tax law.

From what I understand, it works like a syndication or a pooled investment.

There’s no return, so you’re basically doing conservation.

My friends put $125,000 in there, and the fund gave them 4.5x that amount in tax credits.

There’s been some limits in the conservation land trust recently, but they’re still available!

This is where a tax strategist will be able to help you.

My friends worked with somebody like that, and look how well they made out!

So, if you need a referral to a tax strategist, we’ve got plenty of referrals.

(You can send an email to [email protected]!)

We’re all about trying to reduce taxes here.

It’s my view that there are more efficient ways for people to spend and create wealth outside of paying taxes.

Now I want to hear from you!

Will you invest in a tax strategist to reduce your taxes?

Let us know in the comments.

Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.

If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.

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Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.

Work Cited

1.     Anil K. Jain. “Tax Avoidance and Tax Evasion: The Indian Case.” Modern Asian Studies, 21 (1987): 233 – 255.

2.     Sidney Davidson and D. Drake. “The “Best” Tax Depreciation Method-1964.” The Journal of Business, 37 (1964): 258-258.

Bronson Hill

Bronson used to work as a consultant for a medical device company but switched to investing in apartment buildings to make his money work for him. He started with a single rental property that made good money and, after some advice from a family member, moved into bigger real estate projects. Now, he's all about helping others get into this kind of investment to earn money without having to work all the time. When he's not dealing with investments, Bronson loves to travel, write songs, stay active, and help fight modern slavery through his work with Dressember. He believes in working smarter, not harder, and wants to share how that's possible with everyone.

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