“The avoidance of taxes is the only intellectual pursuit that carries any reward.” – John Maynard Keynes
I want to talk with you today about how to effectively reduce your taxes to zero.
You may be thinking I’m crazy!
How could someone pay no taxes?
I’m telling you not only is it possible, it’s legal.
The government actually incentivizes you to be able to take tax breaks.
This incentive can potentially reduce your taxes to zero.
How do I know this?
I’ve done it!
Everybody’s situation is different, of course.
But just because you haven’t seen it doesn’t mean it’s not real, right?
It’s important when you see something you don’t understand to take a closer look.
Let’s talk about how to legally reduce your taxes in three easy steps.
1. Learn About Your Options
How can somebody in our complex tax system pay no taxes?
The government gives people incentives within the tax code to pay less or no tax.
Why would the government do that?
They want to find ways to subsidize things like workforce housing or energy.
They will do that so they don’t have to provide those services themselves.
So they provide certain services to reduce people’s taxes.
There are ways this can be done against ordinary income.
It’s important to first look at The Cashflow Quadrant.
This is Robert Kiyosaki’s second book after he published Rich Dad, Poor Dad.
The Quadrant goes a little something like this:
You’ve got an employee, a self-employed, a business owner, and an investor.
Where do you fit in there?
If you’re on the left side of this equation, you’re going to typically pay around 30-60% in taxes.
Tom Wheelwright, a tax expert with Rich Dad, always says: “If you want to change your tax, you’ve got to change your facts.”
This doesn’t mean you have to stay on one side of the Quadrant.
You just have to change where you are.
I moved from the left side to the right side.
It took a lot of work and a lot of time.
Maybe you have a job and you are an investor as well.
You can have different aspects where you pay less in taxes.
On the right side, typically business owners, people usually pay around 20% in taxes.
It can be less or more, but that’s about what it is.
A lot of investors pay zero in taxes or close to zero.
If you’re a well-paid employee, it’s hard to pay no taxes.
But I’m here to tell you it still is possible.
We’re going to get into that in step number two, so keep reading!
First, I want to go through a loophole.
This is one that me and my real estate friends have used.
The IRS has something called the real estate professional designation.
You have to do a certain number of hours per year.
It’s got to be the majority of what you do as far as work.
This allows you to take your ordinary income and reduce it by passive losses you have in real estate.
Normal employees can’t do this.
If you are a real estate professional, you can.
You can do it through something called cost segregation or a cost segregation study.
This is a thing happening in investments.
They allow you to do this through the tax code using an engineering firm on a multifamily property investment.
You’re able to use a lot of the money that was invested in year one.
You can take all the depreciation that’s typically used over 10-30 years and use it in year one.
The downside is you have to recapture when you sell the property.
Let’s say you sell it five years later.
Whatever you didn’t use from those prior depreciations, you have to catch up or pay back
Effectively, it allows you to defer.
If you keep doing bigger deals, you kick this can further and further down the road.
Let’s say somebody got $100,000 from their job as a real estate professional.
They’re able to depreciate $100,000.
This effectively gets them to zero, which is amazing!
I’ve done this.
A lot of people I know have done this and continue to do it.
It really makes real estate an unfair asset class.
The government also incentivizes it another way.
The second way is through a trust.
Every time you have a real estate deal, you can set up a way to put it into a trust.
Basically, it pushes everything out further to where you don’t have to pay taxes.
Now I’m not a legal person.
I can’t fully explain how this works.
I know a guy who has over $9 million in a trust.
He is not directly considered the owner, but he’s the one who has control.
The goal for some people is to own nothing but control everything.
The reason for this is so people can’t come after anything.
This way, you don’t own anything, but you do control these different assets.
2. Pay Zero Taxes in Your Job/Business
The first thing you can do is familiarize yourself with the tax write-offs you can take.
Maybe you can write off your home office.
Maybe you can write off your car.
Look into business-related expenses you can write off.
Work with your CPA to find ways you can reduce your basis.
That’s the easy first step you can take.
The next step is a bit trickier, almost like a Rubik’s Cube.
I was never good at the Rubik’s Cube.
My brother and I would actually take the stickers off and put them in the correct place.
We thought it was too hard to solve!
Sometimes when I’m looking at reducing taxes, it can kind of feel like that.
It feels like there’s really no way to get out of this.
But there are ways to creatively go at this problem and look at it differently.
There is a way to solve that puzzle.
The biggest thing a lot of people don’t know about is in the energy sector.
The government has provided all sorts of incentives where you can have an income reduction based on investing in certain things.
If you invest in oil and gas, it can be hit or miss.
But if you do, typically 80% of the amount invested can be reduced from your income.
That’s pretty amazing!
It’s even better if you hit oil and you make a ton of money on it.
This can be risky.
Most of the time when people drill for oil, they will not find it.
Another unique investment around energy is called carbon capture.
When companies get oil, they also get natural gas out of these wells.
They pay to have a service come in and capture the carbon so they can sell it.
The carbon capture companies get paid to do this service.
They also get paid to sell the CO2.
Typically, this investment allows for over 100% of the amount invested.
And that can be reduced!
If somebody invests $100,000, it’s over $100,000 that can be reduced against ordinary income.
That’s really magical.
We’re not just talking real estate against real estate stuff.
This can actually be reduced against ordinary income.
Not only are you getting that, but you’ll also get a pretty steady return.
To illustrate the point, let’s say you have a 15% IRR.
If this is the amount of return, not only are you getting the return, but you’re also reducing your income.
If you make $200,000 a year, and you put $200,000 into an investment like this…
Not only are you making a good return (around $30,000 per year!), you’re also reducing the taxes.
It could be a more than a 30% return when you consider the tax advantages as well.
This is where everything gets really, really fun.
You’re able to find creative solutions to a problem you did not think possible.
Instead of trying to pull the stickers off the Rubik’s Cube, you’re able to solve it.
This comes through research.
This comes through finding out things around energy.
The goal is zero net taxes.
I believe it’s possible as an employee.
It’s possible as an entrepreneur.
It’s possible as an investor.
3. Who Can Help?
This is not something you can always figure out on your own.
There are tax strategy firms that actually specialize in this.
They do cost money, but they will put you in touch with certain types of investments that can help.
There’s also alternative investment consultants.
I was just at the New Orleans Investment Conference.
They talked a lot about alternative energies and mining.
If you get out and learn, you’re going to meet people who will lead you to a new path you’ve never heard about.
If you send me an email, I’m happy to refer you to anybody that would be helpful to you!
I don’t have an incentive to do that, but I want to help you pay less taxes or pay no taxes.
I also put together this video that talks about cost segregation, particularly for real estate investing.
Make sure to check it out if you’re interested in learning more about the technicals of how that works!
It is possible to find the right person to help pay less or no taxes.
Now I want to hear from you!
What have you done to reduce your taxes?
Do you have any resources you want to share?
We will all get better if we help each other out.
Let us know in the comments below!
Before you leave, make sure to check out our special report about investing. It compares the stock market to real estate, and it also includes how the pandemic affects your investment future.
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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.