Demystified Blog Archive #48 – Create Permanent Tax Savings #1

If we look at the larger companies that make up the S&P 500 index, the current ‘CAPE ratio’ is now the second highest on record.

‘CAPE’ stands for ‘cyclically-adjusted price/earnings ratio’.

Essentially it refers to how much investors are willing to pay for shares of a company, relative to the company’s long-term average earnings.

And right now investors are willing to pay 33x long-term average earnings for the typical company in the S&P 500.

The median CAPE ratio based on data that goes back to the 1800s is about 15.6.

The only time it’s been higher was just before the 2000 stock market crash, when the dot-com bubble burst.

33 is higher than right before the 2008 crisis and it’s even higher than it was before the Great Depression.

There is no doubt that there is a lot of surface-level strength in the US economy right now.

However, I do not believe the economy can sustain this course for the long-term.

This is why it is important to create permanent tax savings.

Remember, every tax dollar saved is cash directly back into our pocket, bank account, etc. that can be re-directed, re-invested, etc.

A common permanent tax deduction that is missed is the business use of a personal vehicle.

Anytime your business uses your personal vehicle, there's a permanent tax deduction, whether the business use is 1% or 100%.

Your business can reimburse you tax free!

Your business should reimburse you for allowing it to use your car, even if you are the only one using it in the business.

When your business reimburses you, your business claims the reimbursement as a permanent tax deduction, reducing the amount of business income that is taxable, which in turn reduces your overall taxes.

In addition, the reimbursement you receive from your business is not taxable to you.

It is tax-free income.

To make this tax reduction strategy work, you'll want to track how many business miles versus total miles you put on your car in a year. Your business miles divided by your total miles is your percentage of business use. This is a very important percentage because it is the percentage of your vehicle expenses for which you can be reimbursed by your business.

Vehicle expenses include:

• Maintenance
• Tune-ups
• Replacement parts
• New tires
• Gas
• Oil
• Washes
• Car loan interest
• Depreciation
• Lease payments

Multiply your total expenses by your percentage of business use and that is the amount of reimbursement to collect from your business.

Alternatively, you can have your business reimburse you based on the standard mileage rate. The standard business mileage rate is currently 54.5 cents per mile. This rate changes on a regular basis and can be found on the IRS website. Multiply the number of business miles by the standard business mileage rate and that is the amount of reimbursement due to you from your business.

The standard mileage rate is used in lieu of other expenses. This means if you use the standard mileage rate, it is in lieu of your actual vehicle expenses for that year which include the expenses listed above.

Using the standard mileage rate method usually works best when your business mileage is high. If your business mileage is low, then using the actual costs will likely result in a greater deduction.

Regardless of which method you use, submit an expense reimbursement report to your business and have your business cut you a check. This is something you can do monthly or quarterly.

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