“What is a loophole? If the law does not punish a definite action or does not tax a definite thing, this is not a loophole. It is simply the law.” — Ludwig von Mises
Have you ever wanted to pay less in taxes?
What about potentially reducing your taxes to zero?
Today’s blog is the one for you!
I’m going to share the secret strategy I used to reduce my taxable rate from 25% to less than 1% per year.
We’re gonna go over exactly how in three easy steps.
Let’s get into it!
1. The Secret to Reducing Taxes
The number one thing you can do is buy a Tesla.
You don’t have to buy a Tesla unless you really want to.
The actual number one thing you can do to reduce taxes is own a business.
When you own a business, you’re able to write off things on your taxes that other people are not able to write off.
Robert Kiyosaki talks about this in his book, CASHFLOW Quadrant.
He talks about four quadrants: E, S, B, and I.
On the left side of the quadrant, you’ve got E and S.
E stands for the employee.
They will typically pay up to 40% in taxes after deductions.
If you’re self-employed or a high-paid professional, which is the S part of the quadrant, you’ll typically pay up to 60% of your income in taxes.
In California, the top federal tax rate is close to 40%.
You’ll also pay another 13% in state income tax.
And then you have social security on top of that!
Isn’t that crazy?!
On the opposite side of the quadrant is the B, which stands for business owners.
Business owners typically pay about 20% in taxes.
If you’re an investor, which is the I, you’ll typically pay zero.
When you own a business, everything you do that’s related to your business is a write off.
If you have a home office, you can write off some of your utilities or even your mortgage.
If you use your car to commute for business reasons, you can write that off.
If you take a trip, you can write that off too!
I recently took a trip to Seattle to speak at a business meetup.
Because I went for a business-related reason, the whole trip could be a write off.
If you have a business, keep track of your expenses because you might be able to write a lot of them off when you do your taxes.
It’s a great way to reduce your taxable income.
2. How Do I Start a Business?
Now that we know all of the amazing tax benefits, how exactly do you start a business?
What’s the easiest way?
There’s a group called Wyoming Agents LLC.
It’s less than $150 a year.
You can sometimes get the service for as cheap as $25 or $50.
They will help you start the business, have it in good standing with the state, and even get you a tax person.
They can tell you what you can write off.
You can offset a lot of expenses and income through write-offs.
A lot of people I talk to are interested in real estate but they don’t have a business.
This is exactly the scenario for my last secret for tax reduction.
3. Real Estate Professional Status
The best thing you can do is have a business, but for some people that might not work.
If that’s the case, you can do what I did and become a real estate professional.
The real estate professional status is an IRS designation.
It’s a secret but it’s also not.
Not a lot of people know about it.
This might be because it allows people to reduce their taxes to zero.
With the real estate professional status, you can use depreciation and other expenses from real estate against ordinary income.
It’s really magical when everything comes together!
Picture two buckets.
You’ve got your real estate or passive income, and then you’ve got your active income and your W2 or 1099 or your business.
You can’t typically use depreciation for anything except real estate or other passive income.
But when you’re a real estate professional, you can use depreciation against ordinary income.
We’re seeing some phasing out of this.
This year it’s at 80% instead of 100%.
But even then, there’s still some incredible tax benefits.
You can use them if you’re a real estate professional or if your spouse is a real estate professional.
How does one become a real estate professional?
There are two numbers you should keep in mind.
The first is 750.
You want to put in 750+ hours per year to earn the designation.
The second number is 51.
You need to dedicate 51% of your working time to real estate.
I did this while I was still working another job.
I dialed down the job to 20-25 hours a week and documented everything.
Eventually, I got to where my hours in real estate were significantly higher.
When you meet those milestones, you can get the designation and enjoy all of the amazing tax benefits!
Now you might be thinking: Why would the government give these incentives?
When you own a business, you start creating jobs over time.
Around 50% of jobs are from small businesses.
The government wants to provide incentives for business owners to run their business and create jobs.
Another reason is due to a shortage of three to seven million apartment units.
The government has had to provide tax incentives to try and tackle the problem.
In these scenarios, you’re partnering with the government because they can’t efficiently provide these services.
It works pretty much the same in almost every country.
I actually share this next story a lot:
We know a couple guys live in California.
They sold their medical practice using the real estate professional designation.
Because of their designation, they were able to get the tax payments from over $2 million down to $125,000.
There are ways to replicate this.
There are tax strategies.
We help people find their way through unique investing opportunities in alternative assets that can really benefit them.
Now I want to hear from you!
How do you plan to reduce your taxes to zero?
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.
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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.