TAX-FREE

WEALTH
 TA X - F R E E W E A LT H
For most people taxes are the number one expense over their lifetime.

Understanding how the tax code works and how to use the tax code to your advantage
is a great way to grow your wealth, without having a larger than necessary chunk of it
spent by the government instead of by you.

When you’re in the S quadrant, you have a tough time reducing your taxes. The tax
law is fundamentally a series of incentives, and the incentives that it has are mostly for
business owners and investors in the B and the I quadrant.

If you’re in the E and the S quadrant, you generally end up with a very high tax bill. In
fact— on average around the world—if you earn your money as an employee in the E

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 TM

quadrant, you’re going to pay around 40% in taxes, and if you earn your money in the
S quadrant, you’re going to pay upwards of 60% or more in taxes!

This is because you’re not just paying your taxes…you’re paying the employer’s side as
well—due to you being self-employed.

When you move over to the B quadrant, you’ll find that your taxes will go down to
around 20%, and then if you can get to the I quadrant where you’re a professional
investor, you can actually get your taxes down to zero!

In the B and the I quadrants, the tax law is set up so that you don’t have to pay as much
taxes.

If you’re building businesses and creating employment, or you’re building real estate
or other investments that the government wants you to, then they’re going to give you
tax incentives to do that.

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WHY TAX LAW IS IMPORTANT

The reason why taxes are so important to understand is because taxes can destroy
your wealth, destroy your lifestyle and absolutely rob you of everything you’ve ever
worked for… or they can provide a path to building massive wealth. You get to choose.

First and foremost, though, I want

you to understand that the tax law is
fair.

This is because if two people do the

same thing, they’re going to get the
same tax result as long as they have
been given the right advice, and they
understand the tax law.

It also doesn’t matter how big a

company is.

If you are a small real estate professional, you will get the same benefits as a big real
estate investor, as long as you behave like a big real estate investor.

The same goes for small businesses.

As long as small businesses behave like big businesses, then they will get the same tax
results as big businesses…but as long as they’re behaving like a typical small business
owner, they’re going to get hammered.

Taxes are like debt—both debt and taxes will either make you rich, or they’ll make you
poor. It’s really up to you to decide which.

You can get the same tax benefits as big businesses…as in, exactly the same. In fact,
you can actually get more, because there are a few tax rules that apply to smaller
businesses and startup companies that don’t apply to a big businesses.

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The problem is that most small businesses try to take shortcuts, and this is dangerous.

Typically, when people go into a small business, they are transitioning from being an
employee. As an employee, everything was done for them.

You don’t have to worry about what type of an entity you have as an employee. You
don’t need to worry about making estimated tax payments. It’s withheld from your
payroll. You didn’t even have to worry about setting up your payroll. That’s already
done for you.

So when you move into the S quadrant, all of a sudden you have all of these
responsibilities that, frankly, you’re probably not prepared for.

When people transition to the S Quadrant, they create their own job, but they often
miss the part where creating your own job also means being responsible for everything
that was taken care of for you as an employee.

A lot of people keep behaving like they’re employees even though they’re business
owners. Because of this, they make very fundamental tax mistakes.

For instance, a lot of people want to be a sole proprietor when they move into the
S Quadrant. This is a huge mistake. Being a sole proprietor is fine if you want to
make a little money, but if you want to make a lot of money, then you better start
behaving like the business owner.

To do this, you need to start looking

at what type of an entity that you
want to create—whether it’s a limited
liability company, an S corporation,
a C corporation, a partnership, or a
limited partnership.

Once you take advantage of the

benefits that are there waiting for
you, then your taxes are going to go
way down.

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It doesn’t matter how big you are—all that matters is that you behave the way the
government wants you to behave. People are afraid of the tax law, I think, because
they think that the tax law’s out to get them. It’s not.

If your taxes are high, it’s because you’ve never learned how to really take advantage
of tax laws.

Now, I’m not saying take advantage in a bad way. I mean that you should do
what government wants you to do.

The government has laid out thousands and thousands of opportunities to reduce your
taxes if you do what they want you do to. One of the things that they don’t want you to
do is become a sole proprietor.

You get extra taxes as a sole proprietor, and you have five times greater of a chance of
being audited. I guarantee you, the IRS does not want you to be a sole proprietor. The
IRS—or the government auditors—want you to be an entity.

They will respect you more, they will come after you less, and you will end up paying
a much lower tax rate if you have the proper structure to your business. If you keep
behaving like an employee who owns their own job, though, then you’re going to get
hammered.

If you are wondering when to plan for taxes, the time is NOW.

People ask me, “When should I start planning for taxes? Should I wait until I’m in a
high tax bracket?” Then I say, “You want to wait until you’ve paid a huge amount of
taxes before you start reducing your taxes? Why would you do that?”

The people who are the most successful in reducing their taxes, start reducing their
taxes the minute they start thinking about investing, because there are things you can
do before you ever actually make that first investment.

I can’t imagine a possible situation where you wouldn’t want to set up the appropriate
entity and be structured properly before you actually get into any kind of business or

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investing.

BUSINESS ENTITIES

There are really two fundamental types of entities, from a tax standpoint…

1. Entities that pay their own taxes separate from the owner(s)
2. Flow through entities - Companies where the owners of the company pay the
tax. In other words, the income—or the loss—flows through to the owners,
and the owners pay the tax on their personal tax return.

For most smaller businesses, you’re going to want to be a flow-through

entity in your primary business activity.

This doesn’t mean you won’t use a C corporation…but it means that a flow-through
will be your primary business entity.

If you’re in an internet marketing, multi-level marketing, retail store,

wholesale, manufacturing, or any other similar business in the U.S., you’ll
generally want to be a limited liability company when it comes to your
legal entity, but you’ll want it to be taxed as an S corporation.

Now, an S corporation is a flow-through entity; so it works like a corporation, except

the tax is paid by the owner as opposed to by the entity. That means that there’s no
double tax.

With a C corporation, on the other hand, the tax is paid by the entity, and then when
it’s paid out as a dividend, any money paid out as a dividend, is taxed again. That’s
why—as a general rule—you don’t want to be a C corporation when you’re starting out
as a business.

I hear a lot of people giving bad advice on this. They say, “Be a C corporation, because
you get to deduct more things.”

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Really, about the only thing that you get to deduct in the C corporation that you don’t
get to deduct in an S corporation is medical expenses. At some point, you may want to
have a C corporation so that you can deduct your medical expenses, but for the most
part, you don’t.

Let’s say that I have $100,000 of income. Let’s also say that I’m in a 40% tax bracket,
just because the numbers are easy. If I’m in a C corporation, the corporation is going
to pay 40% on that money, and so that means there’s $60,000 left.

Then I distribute it as a dividend to the shareholder. I pay another 20% in capital-

gains tax, so I’m going to pay another $12,000. 20% of that $60,000. If I’m an S
corporation, I’m going to pay 40% of the $100,000, and I’m not going to pay anything
when I distribute it, because it’s one level of tax versus two levels of tax.

That’s why, as a general rule, for a small business you’ll probably want to be an S
corporation. You’ll want to sit down with your tax advisor and go through it to make a
final decision, though, because there are exceptions and your situation might be such
that you’d want to set up something different.

There are way more complex structures that you can set up that have great tax
advantages, but—from a standpoint of simplicity—if you’re just starting a business I
would probably start as a limited liability company because it has better protection.

A limited liability company is a legal entity. Because it’s not a tax entity you get to
choose how you tax it.

You can tax it as a partnership, a corporation, a C corporation, an S corporation, and

even as a sole proprietorship. You can tax a limited liability company (LLC) any way
you want.

Now, if you invest in real estate rental properties, you should NOT be
taxed as a corporation. There are some bad tax consequences if you put
your rental real estate into a corporate form… and I mean very bad tax
consequences!

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What you want to do instead is use a limited liability company (LLC),
and be taxed as a partnership.

That means there needs to be two or more people, but one of those people can be your
own entity, if you want it to. It can be your own S corporation or something similar.

You can be a one-person show and you can still be taxed as a partnership.A corporation
is considered a person, so you can actually have a corporation be a 2% owner and do
it that way.

If you’re married, then it’s pretty easy. The husband and wife are owners or the two
spouses are owners and then it’s a partnership. It’s easy.

If you do this, though, you have two challenges…One, you’ll lose some of your
protection and two, all your business activity won’t be on a separate tax return from
your personal return.

If you think about it, you give your personal tax return to a lot of people. You may give
it to the bank, and/or you may end up giving your personal tax return out to a lender
for whatever purpose.

You reduce your audit risk by having it in a separate entity, which means you have
another tax return to file.

So, to summarize: the general rule of thumb is that if you have some kind of business,
you’ll want to create an LLC, and tax as an S corp. If you’re doing something like rental
properties, you don’t want to incorporate as a corporation. It’s better to be an LLC
taxed as a partnership.

Remember, this is general advice. The best advice for you might be different depending
on your circumstances and goals. That’s why I’m going to emphasize over and over
again in this report to get professional legal advice.

When you do, you want to look at these 3 things…

1. The income tax aspect
2. The protection or the legal aspect

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 3. The estate planning aspect

If you’re brand new and you don’t have much in the way of assets, you’re probably not
thinking a lot about estate planning but down the road, you will.

ESTATE TAX
If you want to be wealthy, then you have to plan for estate tax early on.

Let’s say that things are going fine, but not great…then all of a sudden, your business
takes off. At that point, you may face a substantial estate tax burden. That’s why it’s
very important that you start planning early.

In the United States, the estate tax doesn’t hit you until you’ve accumulated millions of
dollars in assets. However, some states have lower thresholds, and if you plan on being
successful, you should also plan on paying an estate tax.

The key to reducing your taxes and being a successful business owner is the ability to
maintain flexibility. That way, if things change, you’ll be able to roll with the changes.
As you grow and develop, you’ll also have opportunities to improve your situation.

You are probably wondering what some basic things are that you can do to minimize
your liability with the estate tax, and what are things you can start doing right now in
the early stages of your business or your investing career to avoid those issues down
the line.

Well, I can think a couple of things.

One is to set up your entities

properly. That would be one of the
most important.
The second is to get your children
involved in your business. The
government actually encourages

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this, and there are all sorts of tax breaks when your children are involved in your
business.

For example, there is a self-employment tax in the United States. But, if you pay your
children (under 18) from your business and you set it up right, you don’t have to pay
social security taxes on the wages you pay your children. I don’t know about you, but
to me that’s a great incentive to hire your children!

So, why would the government care if you hire your children? What are the benefits
for them?

Well—from the government’s standpoint—they look at this as you teaching your

children business skills.

You are teaching them not only the value of hard work, but also how to be
entrepreneurial. This means that they have a lower chance of being reliant on the
government when they get older. They’ll most likely be able to make more money in
the future, so the government wants to reward you with tax benefits.

On top of that, children have something that all parents desire—a lower tax bracket.

In most countries—including the United States—there is a progressive tax rate system,

which means that the last dollar of income is taxed at the highest rate. It also means
that the first dollar of deduction is deducted at the highest rate.

Let’s say you’re in a 30% tax bracket. Everybody has a 0% tax bracket for the first few
thousand dollars, and then after that, they go to a 10% tax bracket. Let’s say you pay
your child $10,000 for work they do during the year. This does two things…

The first is it gives you a tax deduction in your business. This will be $10,000, which is
worth $3,000 to you in a 30% tax bracket. But that $10,000—taxed at 10%—will mean
you only have to pay $1,000, so you’ve saved $2,000 because you hired your child. On
top of that, that $10,000 is now no longer in your estate.

You’re estate planning when you give your assets to your children beforehand, if you
do it in a tax effective way.

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There are a couple of details that you’ll want to consider here. What you do with the
$9,000 that you are left with from your $10,000 after taxes, is very important.

One option is to put the money into a Roth IRA, which is a tax-free vehicle. You can
also invest it in real estate to build assets for their college tuition and their future. You
can even use it to pay for private school, or to go on a family vacation!

What you can’t use it to pay for is your rent, housing and so on. You’re required by
law to use the money that your children earn for them, but you can use that for a huge
variety of things.

This is an amazing, tax effective way to invest in your children’s future and build up
funds for their college education, and their future.

GOVERNMENT TAX CODE INCENTIVES

One question I am asked a lot is, “What are a few things that the government incentivizes
through the tax code that most people are unaware of?”

I want to walk you through some of the tax incentives that people either aren’t aware
of, or don’t even think of, so you can save more money.

Here are some things you can write off to help you to save money on taxes…
• Child’s college education
• Adopting a child
• Buying an electric car
• Solar panels
• Investing in oil (you’ll get a big benefit for this)
• Hiring veterans

There are literally thousands of opportunities…a lot of which are just day-to-day stuff.
Here’s an example:

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I work from home, so I have a home office. A lot of people are afraid of deducting a
home office, because they think that they’ll get in trouble and that this isn’t really okay
for them to do.

In reality, your home office is a business expense…as is your furniture, supplies,

office equipment and so much more. You can even write off a portion of your home
maintenance and utilities due to you working from home.

You can also increase the deductions on your car from having a home office!

The first time you go to work in the morning, you are commuting…which you can’t
write off. If you have a home office, though, that commute is only 20 feet. From there
on out, as long as you leave the “office” for business calls—like meeting a client or
checking out real estate—you can deduct these business trips on your taxes.

A lot of people are afraid of this being a red flag to the IRS, but really it’s only a red
flag if you are a sole proprietor. This happens to be another way that being a sole
proprietor actually ends up hurting you.

If you’ve formed an entity like an S corporation or a partnership, though, then you can
have your company reimburse you for office expenses, such as mileage, gas and your
office expenses.

I hate to say it, but missing out on these tax deductions is something that a poor person
in the S Quadrant does. If you are missing out on these tax advantages, you still aren’t
thinking like a rich person.

You need to behave like someone in

the B or I Quadrant if you want to get
the best tax results possible, while
also not sending up any red flags to
the IRS.

Also, keep in mind that there is a

specific code section in the Internal
Revenue Code that tells you that

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home offices are deductible, and how to write them off. Just remember, if you mess
this up, they’ll come after you.

As long as you do things correctly, though, you can reduce your taxes.

Make sure you are keeping track of the mileage on your automobile, for instance.
There are plenty of great apps to do this with. You already have GPS, so you can track
it very easily.

You’ll also want to track your receipts, and scan them into an app that can store them
for later. This can be for ANY business meeting. Any time you sit down with someone
and talk about business, save the receipt. This is a deductible expense. Just write down
what you discussed, scan the receipt and see the tax benefits.

If the IRS comes knocking for whatever reason, you can show them the receipts, and
you’ll be covered.

If you do what you are supposed to do with your taxes, and you do everything above
board, the government will reward you with tax benefits.

STATE AND LOCAL TAXES

It’s not just federal taxes that you have to worry about. State government and even
local government will want a piece of your business, so it’s important to understand
taxes for these levels of government as well.

The amount that you pay in state taxes, of course, depends on the state (or states)
that you are in. For instance, California has a 13% tax rate, which is very high. You are
invariably going to need a CPA to handle your taxes as a business in that state. Other
states, like New York and Maryland, also have very high taxes.

Things get even trickier when your company is in multiple states…as each state may
actually treat you differently.

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With some states, you’ll end up paying double for your taxes, while in other states
you may end up paying half or less. Actually, if you are able to set up your taxes in
multiple states that are the right state, it can actually be a tax benefit…you just have to
be careful when you’re doing this.

If you’re a small business and you’re local, you most likely aren’t going to need to
worry about multiple state taxes. If you sell things online through marketplaces like
Amazon, though, you may end up having to pay state taxes in states that had a high
enough amount of purchases in that state. California—of course—is one of them.

California has a threshold of $500,000. Keep in mind the income level doesn’t matter…
just the sales. If you go above that, you are going to have to pay taxes in the state of
California—whether or not your business is there, or you live there.

Even online products that you’re only delivering online, are subject to state sales tax.

Another issue that you may run into as a business owner is a “use tax.” Essentially
what this means is that if you buy equipment from another state and pay sales tax in
that state, the state that you are in may charge you an additional tax to “use” what you
bought!

Another tax issue that may crop up is if you start to travel to a state too often. If you
are traveling to a state on a regular basis, you may end up having to pay taxes for that
state.

If your business is online, but you warehouse your goods in another state, that state
could end up collecting sales tax from you. This is true even if you are utilizing an
online distributor, like Amazon. If Amazon has a warehouse in Kentucky and your
products are stored there, Amazon doesn’t pay the sales tax…you do.

In states like Maryland, you also have to deal with a personal property tax. This means
a tax on your furniture that you have to pay every year. Think about it like a real estate
tax…except it’s for your office equipment.

This is why it’s so important, though, to understand your local and state taxes. You
can’t simply hope that your state doesn’t have extremely high, or crazy, taxes.

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It’s also why it’s ESSENTIAL to build a great tax team around you.

FINDING A TAX ADVISOR

When you are dealing with taxes for
a business, it’s best not to try and do
it yourself. Instead, you’ll want to
trust a tax advisor.

If you are in the E Quadrant, you

are the target demographic for
companies like H & R Block and
Jackson Hewitt. These companies
are equipped to handle individuals
who don’t know how or are too lazy to file their own taxes. Even companies like
TurboTax are generally for people in the E, or possible the S, Quadrants.

Once you get into the B and I Quadrants, though, these companies aren’t going to cut
it. Instead, you are going to need to find tax professionals that are amazing at their job,
and that know what they’re doing.

The question that you need to ask yourself is, “How important are taxes to me?” You
also need to consider how important it is to hold on to your money, as opposed to
giving a large chunk of it away to the government.

If you want to keep your money, you’ll need to go with a tax professional that is right
for your business, and the size of your business.

For instance, if you are a really small business, you may do fine with an enrolled agent.
An enrolled agent is somebody who’s taken a test from the IRS that allows them to
represent you in an audit.

If you are medium to large-sized business, though, you are going to need to go a step
further and find a CPA.

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There are also different levels of CPAs, and you’ll want to consider this when you are
looking for someone to help with your specific business. This also may mean different
agents if you decide to branch out, or move into another Quadrant.

Also, like with any other specialist, there are levels of qualifications for different CPAs.
Just because someone is a CPA, it doesn’t mean they are the best in their
field.

For instance, if someone is a high enough level CPA, they won’t even deal with you if
you’re a small company. They are looking for the bigger clients, like major corporations,
that can pay them a lot of money.

Essentially, the best CPAs are going to be working for the major firms. These are CPAs
that you can’t afford, nor should you even try to hire, unless you’re a major company.

The next level down are CPAs that work at a local level, and are best for small to
midsize businesses.

Finally, there are the people that aren’t really good enough to work for private
companies. These CPAs—who often aren’t the best or brightest—usually end up going
to work for the IRS. I honestly feel sorry for them. People hate the IRS, so the CPAs
that work there have to withstand a lot of hate.

If you have a new business, or a smaller business, though, you are going to want to find
a CPA at a local firm. I say local as well because I don’t mean a chain firm, but a smaller
business that is local to your region.

Like with restaurants, local firms are higher-quality. Once things become a chain, the
quality generally begins to slip.

When you are considering a CPA, you’ll want to consider their perspective of tax laws,
and whether or not they see taxes as something that is meant to punish or reward
you. This may seem small, but it’s important. If they see taxes as something to punish
you with, they are going to simply try to protect you. If they see them as something to
reward you, they will do their best to get you the best reward possible.

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Finally, when you are looking for the right CPA, you are going to want to pay attention
to the kinds of questions that they are asking you. If they really care about helping you,
they are going to ask a lot of questions, and they are going to prod around a bit. Don’t
freak out.

Think about it like visiting a doctor.

If you go to a doctor and they spend time with you and ask you a lot of questions, you’ll
end up getting a better diagnosis, and you’ll feel comfortable knowing that they care
about you and helping you to feel better.

On the other hand, if you go to a doctor that only sits with you for five minutes then
rushes out the door, you’re going to get nervous…

Pick a CPA that cares about being thorough, and helping you to get the most out of
your taxes.

AUDITS

People are extremely frightened of being audited. Part of this comes from the lack of
knowledge of what the risks are, what happens during an audit and what they can do
to protect themselves.

While you could learn about tax law to try and handle an audit, if you go up against
the IRS by yourself, you’ll likely get crushed. It’s like someone playing high school
basketball and then trying to beat an NBA player one-on-one.

Instead, you are going to want to hire a tax advisor that will help you to navigate the
process and keep you out of trouble—or from getting into worse trouble than you are
already in.
I want you to make a commitment to yourself. Say this out loud:

I will NOT speak to the IRS.

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It’s not your job to speak
to the IRS, and the only
way they can compel you
to is with a subpoena…
which they rarely use. To
avoid speaking with the
IRS, have your tax adviser
do it.

A tax advisor should be

a staple member of your
team, like other team
members that come with
being in the B and/or I
Quadrants.

With the right tax advisor, you don’t have to freak out when you get
something in the mail from the IRS.

Still, for reference, if you get a brown envelope, it’s probably a refund check. Awesome.
Go cash it. If you get a white envelope, though, it’s probably time to call your tax
advisor…it’s likely a notice that the IRS wants to audit you, or found something wrong
with your tax return.

Another reason to have a tax advisor is the fact that you’ll never get to speak with the
IRS if you call them. Only about 60% of people that call will likely get through, and
that will be after a lengthy hold time.

Your tax advisor, on the other hand, actually has a special number to call to reach the
IRS. This is because they don’t want to speak with the taxpayer, but they don’t mind
speaking with a professional advisor.

You can also utilize your tax advisor when there are mistakes that were made, or you
may have penalties that you have to pay. A tax advisor will call the IRS for you and try
to get you out of the penalties if possible, and will help to take care of any mistakes…
which may include your audit.

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Whatever you do, though DO NOT TALK TO THE IRS!

If you get a notice that you are getting audited, it should go to your tax advisor. You
can then give them power of attorney to speak with the IRS on your behalf, and figure
out what is going on, and what the IRS needs.

Once your tax advisor knows what the IRS wants, they can get back to you and get the
information from you.

If you try to hand over information to the IRS yourself, you may end up really screwing
stuff up. This may be because you give them too much information, or the wrong
information…which can get you in MORE trouble.

By the way, how you prepare your tax return is going to affect your audit.

It could end up having a really big impact if you messed up some of your write-offs,
like your home office. Remember, if you’re a sole proprietor you could risk messing
up your home office. If you have an S Corp, on the other hand, you don’t even have to
disclose your home office.

While there are quite a few things that you can do to avoid an audit, it starts with
having a good tax preparer. They will help you to get everything in order so the IRS
doesn’t have any reason to audit you in the first place.

If you don’t use a tax preparer, or you end up using a cut-rate one that messes up,
make sure you find a qualified tax advisor to fix your mistakes and walk you through
the audit process.

It can literally mean the difference when it comes to a ton of fines, and even jail time!

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CONCLUSION

Just like with every other area of your business and investing, you’ll want to make sure
that there is a member of your team to handle your taxes. This is no small thing, and it
can lead to you holding on to a lot more—and possibly even all—of your money.

Seriously, building the right team is really important, and if you aren’t willing to
outsource or delegate responsibilities to employees that know what they’re doing,
your business is doomed from the start.

It will also help you to avoid speaking directly with the IRS, and of course, you should
NOT speak to the IRS!

You’ve also learned about different tax entities, and how they can have an impact on
your taxes and write-offs. You’ll definitely want to pick an entity that reflects the size
of your business, and you want to start acting like someone in the B or I quadrant right
away.

This means finding ways to lower

your taxes, as well as decrease your
chances of being audited.

Remember—the goal here is to make

more money, not less money. If you
aren’t properly handling your taxes,
you are throwing a lot of hard-earned
money down the drain.

Act like a wealthy person, and take care of your taxes properly. Don’t wait until the IRS
is knocking at your door because you were lazy, and you did your own taxes. This will
put your wealth in danger, and it may even land you in jail. It’s definitely worth the
extra money to hire a tax professional.

A good tax advisor will likely pay for themselves. They should help you to find a variety

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of tax benefits that you can take advantage of to hold on to the most money possible.

Add a tax advisor to your team, and let them handle the IRS for you.

If you do this, you won’t have to cower in fear of the IRS, and you don’t have to be
scared of either having to pay your taxes—or being audited—ever again.

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