​Demystified Blog Archive #53 – BONUS CONTENT before and after year en

It’s official!

The Federal Reserve is totally insolvent!

Yesterday, the Fed released its latest quarterly financial statements, showing that the value of their bonds is now $66.5 billion less than what they paid.

And that $66.5 billion unrealized loss is far greater than Fed’s razor-thin $39 billion in capital.
This means that, on a mark-to-market basis, the largest and most systemically important financial institution in the world is objectively insolvent.

I’ve been speaking to you A LOT about different ways to soften the blow of a potential economic collapse through putting extra cash in your pocket via legally slashing your tax bill.

In fact, the best return on investment you’ll ever make is to take legal steps to reduce your taxes.

Cutting your tax is like boosting your investment return by 10%, 20%, or more, without taking on any risk. You’ll never generate that kind of return so easily anywhere else.

The interesting part is that we’ve been brainwashed to believe it’s our patriotic duty to legally pay more in tax.

This makes absolutely no sense.

Judge Learned Hand, United States Court of Appeals for the Second Court, 1951 said…
“Anyone may so arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury. There is NOT even a patriotic duty to increase one’s taxes”

Does anyone seriously believe that ‘patriotism’ is defined by the amount of money you throw into a failing system?

Or that it’s somehow ‘unpatriotic’ to follow the law and take legal steps to reduce what you owe?

Are people being unpatriotic when they put their kids on the payroll, maximize their IRA contributions, or even shop in a duty-free store?

Planning to legally reduce your tax bill is a sensible thing to do.

With that said, here are a few sensible tax planning ideas that you should consider before and after the year end.

1. Foreign entities, foreign banking, foreign residency, citizenship, etc. SHOULD BE CONSIDERED for the nature of the individual and the nature of the business. There are major tax incentives to open a business, invest, etc. into a foreign country, a well capitalized banking system, and a stable currency not financed by huge amounts of debt.

2. Puerto Rico offers huge tax incentives. Act 20 cuts corporate tax rates to 4%. Act 22 cuts capital gains taxes to zero for investors and traders.

3. If you are an American living abroad consider the foreign earned income exclusion and foreign housing exclusion. No income tax (but, yes, to Social Security and Medicare) on earned income for individuals that qualify.

4. If you use foreign brokerages to invest in stocks in foreign countries, and never filed for tax reduction, chances are you overpaid. Tax treaties between government’s of certain countries are required to withhold a certain amount when dividends are paid. These amounts are typically different that what was actually withheld.

5. Establish your Opportunity Zone fund, cash out any large gains stocks, bonds, real estate, business, etc. Pay no tax now. Invest in qualified OZ investment.

6. For high net worth individuals, if you are a professional or a business owner, consider setting up a captive insurance company. There are huge tax incentives to this type of entity structure.

7. Setup your US LLC now to be effective 1/1/18. If you are an ordinary income business we can only realize the HUGE tax benefits of the S-Corp election as of the date of incorporation moving forward. If we are holding rentals we should plan on deeding the property to the LLC by 1/1/18.

8. Defer your income, if possible, to the next year by waiting to invoice, collect payments, deposit to the bank, etc. Accelerate your expenses by purchasing any needed equipment or supplies with a credit card. Get the write-off now and don’t pay off the credit card until next year. Consider the time value of money, opportunity cost, and getting use of your funds now in 2017 with a lower tax bill and than a lower tax rate.

9. Purchase a vehicle if you need one and it makes sense to do so. There is bonus depreciation and special depreciation to consider for new cars or trucks. In addition, if you purchases an SUV or truck with a Gross Vehicle Weight Rating (GVWR) in excess of 6,000lbs, you may be able to deduct depreciation expenses of up to $25,000. Large trucks with a 6ft or greater truck-bed can deduct up to $500,000.

10. Close on that rental property deal before year end. We can take deductions for certain closing costs, mortgage interest, mortgage insurance, real estate taxes, and depreciation.

11. Shift your income from a higher tax bracket to a lower tax bracket by paying your children for bona-fide services they provide to your business. However, if you don’t actually show payment, you cannot claim it. Remember, you don’t have to withhold FICA or payroll taxes from payments to your kids under age 18, and you can 1099 your older children helping them create their own business. In addition, there are more advanced income-shifting strategies we can use with parents, grandparents, etc. using entity structuring, gifting, etc.

12. Now is the time to setup your healthcare strategy which might include open enrollment on the exchange, exploring insurance plans outside of the exchange and paying the penalty, setting up an HSA (typically low out-of-pocket medical expenses), setting up an HRA (typically for high out-of-pocket medical expenses), or a healthcare sharing ministry.

13. Now is the time to setup your Solo(k), make sure to properly set this up before 12/31/18. Also start considering maximizing contributions your Pension, IRA, Roth IRA, SEP, SIMPLE, 401(k), Roth 401(k), etc. In addition, this could be the perfect time to convert your Traditional IRA to a Roth IRA for the purpose of paying tax now at a lower tax rate and not having to worry about paying tax on your distributions in the future. In addition, we can also “undo” the conversion with a re-characterization up until the date of our filing just in case we cannot pay the additional tax on the conversion, stock prices increase, etc. While on the topic of retirement accounts we should also consider the special circumstances we can borrow, rollover, etc. from an IRA, 401(k), etc. If you are over the age of 70 1/2 and have a traditional IRA, you are required to take required minimum distributions (RMD) form your account each year. The deadline for 2018 RMD’s is December 31, 2018. There is a 50% excise tax penalty for failure to take RMD’s. If you don’t distribute the money to yourself from your IRA in time, the IRS will just take half of it to penalize you. Roth IRAs are exempt from RMD rules.

14. Get your estate planning setup with a Revocable Living Trust (RLT), Pour-Over Will, Power of Attorney, Healthcare Directive, etc. We want to make sure our RLT is on title to certain assets and that our RLT is properly “funded”. For very high net worth individuals we want to consider reducing our taxable estate through different trusts, gifting, discounts, etc.

15. Sales tax, Property, GST, VAT, etc. should all be reviewed for property reporting procedures, assessment of value, etc. There are also ways we can legally reduce state-level taxes through credits, discounts, subsidies, etc.

16. Review your asset protection structure.

17. Mitigate your fear of an audit by working with a tax professional who provides an audit protection plan, has good personal skills, and knows how to work with an auditor.
Please take ALL of these strategies into consideration. The savings can be HUGE.

Of course, there is always additional information you should consider when setting up any type of business, finance, or taxation strategy plan. And, you should always be working with a team of professionals to help mitigate the risk of any investment.

To your investment freedom.