How to Outsmart the Tax Man

How many of us like to pay taxes? Not many I would think!
How many more of us like paying more than we should? Even less.
One of the keys to operating “smart” is year-end planning. This is somewhat of a misnomer however, because planning for your company’s year-end should be an ongoing process with at least three areas to keep in mind.

However, to begin let’s go to an often overlooked, but very simple conversion exercise that is almost guaranteed to provide results! This is:

Converting your 10 largest expenses:

 

This is an ongoing process that should be done at least twice the first year. It’s not realistic to expect you will convert all of your biggest expenses the first time around because it’s too big of a task—this is a habit needing to be developed over time. Our largest expenses, habits, and businesses all change over time. As your life evolves, so should your deductions, so keep current.

Your Company’s Year-End Should Be An Ongoing
Process With At Least These 3 Areas To Keep In Mind:
1) Taxes
2) Corporate formalities
3) Year-End planning

Here is a look in greater depth at all three of these steps:

Taxes
Something that walks hand-in-hand with these three steps is up-streaming income through working with your tax year-end. So, let’s see how it works!

Up-streaming income
The goal of up streaming income is to shift income from this tax year to the next tax year. Whatever your operating account balance is on December 31 will get added, as of January 1, to your last year’s income. If you have a $50,000 balance, for example, going into the next year, that’s taxable income. You therefore should upstream the money, making it no longer taxable for that year. You can make this applicable to you if you have an S Corp, partnership, limited partnership or sole proprietorship.

How does it work?
Up-streaming income is accomplished by setting up a new entity such as a management company with a different year-end than your business. A business’s income can then be shifted out of the 2007 tax year to 2008. You will want a contract and invoices to reflect this agreement between your business and your management company. Move the $50,000 balance to your management company with a June 1 year-end, for example. The money should be moved ideally at least on a monthly basis, not just once at the end of the year. I recommend taking 5 to 10 checks out of your checkbook and put them in a file for the upcoming year. In January, if you find out you had some expenses you missed—it would be a lot better to have a check in sequence that you can write from December.

Corporate Formalities
These are the ongoing, documented, and scheduled events that the IRS requires be available as proof you are running a legitimate business. Don’t jeopardize all you have built by neglecting this very important aspect of business.

The power of documentation—Shifting the burden of proof
For those who have an LLC (opposed to a sole proprietorship, S Corporation or C Corporation), it’s always better to over-document. By keeping a tax diary, you shift the burden of proof from yourself to the IRS, who then has to disprove its validity.

Annual meeting—An opportunity to have some fun
Make sure you’ve done your annual meeting by the end of the year. Why you’re at it, you might as well make it fun. You can hold it anywhere in the continental United States without a problem: and you can hold the meeting abroad or Hawaii or Alaska if you can show why you needed to hold the meeting there.

Get corporate minutes and meetings in line.
1. Prepare a notice or waiver of notice (available on Pathfinder’s web site if you happen to be a student). When you have a corporation, you need to notify in writing by certified mail all the shareholders of the meeting. If you’re the only shareholder, you certainly do not need to send a notice to yourself; instead, you can print out a waiver of notice because the notice is unnecessary.

2. Print out a form for the meeting’s minutes. Minutes are what you discuss at the meeting (or think about, if it is just you at the meeting). You can hold your annual meeting in Aspen and ski. When you’re in the lodge thinking about what you want to do the next year for marketing, etc. and jotting down ideas, this could be your annual meeting.

3. Extracurricular things need a resolution. Resolutions are decisions you made at the annual meeting. You don’t need one to take a client to dinner or attend a seminar. You do, however, need one if you rent new space, open up a new bank account, and buy a car. It’s better to be safe than sorry and have a resolution.

4. This is a good time to make sure you have a medical reimbursement plan in writing. (Again, it is available for Pathfinder students on the website). For everyone else, obtain a copy and keep it in the corporate kit. Use the same advice in regard to your educational assistance plan. Preparing this document does not take long, but it’s very important.

Smart Year-End Planning —
Planning for the next year

I believe there are 4 cornerstones that need to be firmly in place to support maximum growth and income for the following year.

1. Operations—what are one or two areas of your business that can be improved? How can you improve your service, stay in better touch with clients, close the gaps in your system? Ask your customers, clients and employees for suggestions. People like the fact you ask, even if they don’t have suggestions. For constructive feedback, you need an environment where people can take criticism or self-critique, not pointing fingers but rather give non-accusatory feedback.

2. Marketing—make it a goal to adopt one new marketing strategy or lead generation strategy per quarter for the next year.

3. Steams of income—add one or two more streams of income for the next year. If you flip
property, try hanging on to one or two to rent. If you have a Web marketing business, add one or two new products or services.

4. Joint Ventures or product—many of you have a product or book in you.

Tie up loose ends and hit the ground running at the year-end.
Write down your goals now and about halfway through the year. Revisit what you wrote down.

You will be stunned at how much you’ve accomplished.

Keep it Simple and Strategic

There Are Several Keys To
Handling Your Business Record Keeping…

* The first is keeping complete and accurate records.
* The second is separating the business from your personal finances.

Let’s start with this part first..
Some people make the mistake of running their business from their personal check book. This is a mistake for two reasons:

1) From a tax planning perspective it’s too easy to lose valuable business deductions when you lump all your finances together.

2) From an asset protection standpoint, it leaves the door open for a creditor to claim that you and the business were in fact one entity, not two. This gives them the opportunity to “pierce the corporate veil” and make claims against your personal assets.

That’s very bad and also completely unnecessary.

Here’s What I Suggest:
Open A Business Checking Account

Here’s what I suggest: first, open a business checking account at your favorite bank. If you’re doing business as a sole proprietor (perish the thought) you can file a d.b.a. (doing business as) certificate, giving the business its own name. That name should appear on the account and on your business checks.

Buy Bookkeeping Software

Next, run to the nearest computer store and buy Quicken or QuickBooks. There is other bookkeeping software available, but these are the most commonly used. They are easy to learn, and most accounting firms are familiar with them. You probably don’t need the latest version or the one with all the super duper features. Buy last year’s version and save yourself $50. You can upgrade later, if necessary.

What’s the difference between Quicken and QuickBooks? In a nutshell, Quicken is an electronic checkbook. It allows you to print checks, add deposits and balance your check book. It can even provide you with simple reports. QuickBooks is a complete bookkeeping package. It does everything that Quicken does, plus provides full financial statements. It has lots of components and add-on modules to handle more complex accounting. It’s got everything you need and more.

That doesn’t mean it’s more difficult to use or learn. I think it’s just as easy, and the added features are there for you or your accountant to use when you want. For that reason, I’d take the plunge and buy a one or two year old version of QuickBooks to get started. It will save you many, many hours or tedious work, and by using the system of your choice you’ve taken a big step in the right direction in terms of record keeping. Yet, there are still a couple of more things to do.

Organize Yourself With Folders

Each year, my bookkeeper sets up folders for each type or expense the business has. There’s a folder for utilities, auto expenses, rent, travel, etc. The folders follow the chart of accounts pretty closely. Each time she gets a bill; she pays it, writes the check number and date on the written invoice, and files it in the appropriate folder. For example auto expenses: at the end of the year, she has every auto expense we paid that year in one place, one folder. At the end of the year, she sets up new folders and starts over again.

Bank Statements and Cancelled Checks

I keep the monthly bank statements for each checking and savings account in separate folders. After the account is reconciled each month, I file the statement in the appropriate folder and keep the checks in numerical order (depending on the number of checks you write per year, the stack can get quite high!)

Audit Proofing Your Records
There are just two more steps you must take
to audit-proof your records.

1) The first is to notate your receipts and keep them.
2) The second is to enter certain types of receipts into a tax log or diary. For example, expenses like travel, meals, entertainment, and auto expenses, while deductible, require an extra step.

Here’s what I do. If I take a customer out to lunch and we discuss business, the cost is fifty percent deductible. The key is to log the answers to those critical five distinct questions, remember? Who? What? When? Where? How Much?

I pay for the meal by my business credit card, and make a notation on the receipt something like “Ted T. regarding Jacksonville seminar.” Three of the questions are answered on the pre-printed receipt; the other two are in my note. When I return, I give the receipt to Mary (I hate paper work and she’s a great organizer) and she transcribes it into a tax log. It looks something like this:

Who, What, When, Where, How Much

My accountant has actually set it up in a color-coded excel spreadsheet, but you can use a table like the one above, a ledger book, or a yellow pad. It doesn’t have to be fancy it just has to be accurate. This certainly isn’t meant to be the definitive guide to corporate books and records. However, it’s a great starting point and if you follow the guidelines I’ve laid out for you, you will be off to a great start and your accountant and bookkeeper will have what they need to make the necessary adjustments as you move forward and grow your business.

The Average American GIVES UP 42% to 55% In TAXES

In order to accelerate your movement along the wealth building curve, you absolutely MUST have your own business. I don’t care if its real estate investing, a sales company or a service business. But you must own it yourself or with a partner. Why, because the tax laws are tilted in favor of people who are in business for themselves. Let’s take a closer look. If you are not in business for yourself, you are earning your money as a W-2 employee. Unfortunately, this is the highest tax form of income that there is.

In fact, the average American gives up between 42% and 55%
of his or her income in the form of taxes.

Sounds high? Well, consider this: Currently we have a federal tax rate of approximately 39%. States can charge as much as 9.6% and some of us even have to pay a city income tax as high as 3%. Then, there is the Invisible Killer Tax known as FICA or Social Security.

Why do I say that it’s the Invisible Killer? Please let me explain. Social Security tax is broken down into two components. The first component of 7.65% is paid directly by the employee. It’s taken directly from your paycheck before you even touch it. In addition to that, your employer must “match” your contribution by paying another 7.65%. All this happens BEFORE you see a nickel of your paycheck. It’s like the government is playing a game of now you see it, now you don’t with your money. Isn’t it true that if your employer has to pay that money to Uncle Sam, it’s less money that he could be paying to you?

THAT’S OVER 15% OF YOUR HARD EARNED MONEY
THAT YOU ARE LOSING RIGHT OFF THE TOP!!!!!
Can you see how hard it is to get ahead when you are paying out roughly half of your earnings in taxes?

There Are Two Income Tax Systems In This Country:
One For The Educated And One For The Uneducated.
Decades ago, a Supreme Court Justice named Learned Hand made the following observation: To paraphrase, he said “there are two income tax systems in this country: one for the educated and one for the uneducated.” I want to give you the opportunity to become one of the educated and accumulate wealth instead of giving all your hard-earned dollars to Uncle Sam.

The following two diagrams hold the secret to tilting the tax laws in your favor. The first one illustrates the tax system for the UN-educated: “Earn, Pay Taxes, Spend.” The second illustrates the tax system for the Educated: “Earn, Spend, Pay Taxes.” Both systems start, of course, with earning income. However, in the UN-educated tax system, your taxes are immediately deducted from your paycheck, BEFORE you ever see it. Then, you have to live on what’s left over.

Let’s Apply Some Numbers To The Uneducated System:

Earn = $100,000 Income, Pay Taxes = $ 50,000, Spend = $ 50,000. That is: what you have left to live on. Not such a pretty picture. Want to do better than that. It’s easy: read on!

Contrast This With The EDUCATED System:

“Earn, Spend, Pay Taxes.” We start with earning income. Then look closely at the next line. In the EDUCATED system, you get to spend your money BEFORE you pay taxes. Can you see how this could have a HUGE impact on your financial well-being? This is the first step. This is one of the strategies that people like Ross Perot, Donald Trump and Bill Gates use to reduce their taxes from the 50% that the average American pays all the way down to 4%-5%! That’s right: 4% – 5%.

Now you know the first step, You MUST have your own business.

That’s not all folks. Think about the possibility of 300 deductions that are already available and sitting waiting to be used: by you! – a bona fide business owner! Let me show you how to put some of these deductions to work to dramatically reduce you taxes!

What is the Smartest Way to Pay for My Fun?

In his best selling book, “Rich Dad, Poor Dad“, Robert Kiyosaki warns people against the dangers of buying what he calls “doodads” – you know, junk, spur of the moment items. Those things that you didn’t know existed until you read about them in an in-flight shopping catalogue and now that you know about them: you just can’t live with out one.

Many people have basements that are packed with such items as electric pet feeders, remote-controlled shoulder massagers, barely-used camping equipment, fishing poles, baby toys and clothes etc. These are the same items you see being sold at garage sales just a short time later, for about 5% of the original purchase price.

Some people take this to mean that the only way to become financially free is to stop spending money. That’s simply not true. The trick, however is to manage your spending by focusing on buying more assets (things that put money in your pocket) and less liabilities (things that take one out of your pocket).

This Begs The Question:
“What is the smartest way to pay for my fun?”
The first way is to make your fun tax deductible whenever possible.

Did you know that things like season tickets and tickets to concerts can be tax deductible? Same thing with country club memberships!

Now, here are some fun questions for you to get your mind thinking.

Are you trying to get into shape and wondering how to pay for it all? Answer: You can deduct the cost of a personal trainer and your corporate gym.

Or how about taking the family on that terrific vacation they so deserve: simply make it part of your annual meeting and let Uncle Sam underwrite the cost!

How about new furniture, ski equipment or golf clubs? Would you like to learn to cook, fly or meditate? Or, would you like to have your own swimming pool and health spa? No problem!

All of these things can be done with pre-tax dollars with a
HUGE net savings to you.

How to Make the Tax System Work For You!!

Tax Saving Strategies Available To You As A Business Owner

Reducing your taxes can save you thousands of dollars a year no matter how long you have had your business or whether you are incorporated or unincorporated. Fortunately for all of us, these strategies are based on two U.S. Supreme Court decisions. First, the Supreme Court ruled that it is your constitutional right to arrange your affairs as to minimize your taxes. Second, the Supreme Court said that there are two tax systems in this country: the uneducated tax system and the educated tax system.

Uneducated Tax System vs. Educated Tax System
The line under your income on your pay stub is where these two systems differ.

• With the uneducated tax system, you deduct the three lines under your income and the remainder is what you receive.

• With the educated tax system, the first line is your reported income as with the uneducated tax system. However, the second line is the money you spent on the business, and you pay taxes on what is left. This is because when a business spends money it is called a business expense or tax deduction. Therefore, having your own business and being in the educated tax system, you can reduce your taxes by 40-70%. To break this down even further: If you are making $35,000 a year this could save you up to $10,000. That means it does not matter if you are making millions of dollars or a few thousand dollars. These strategies apply to you! A marginally profitable business can become a thriving business by applying these strategies.

CPAs And Accountants Are Inherently Conservative
And Are Not Taught To Apply These Tax Strategies

 

Surprised? Having been involved in this very enterprise for some time now, I have reached the conclusion that this is really not that uncommon. I have found that CPA’s, while well intentioned, are not trained or paid to search out every possible avenue with which you can save money. They (generally speaking) work extremely well within the W2 guidelines provided to them by the IRS. This is the same entity that wants to make as much income from you as possible!

In addition, CPAs and accountants are inherently conservative and are not taught to apply these tax strategies. Finally, they are not proactive. Think about it. They are so busy during tax season that they usually do not have the time to investigate these strategies and how they apply to you. It’s almost as if they work for the IRS, not you!

Think about it, have you ever come across a page on the IRS website that says here is a list of every single money-saving deduction that you can use with this particular company structure? NO!!!

This is why I have been personally involved with individuals who have been able to save well over $100,000. It is not slight-of-hand, it is not magic: it is simply utilizing what is already there in a proven fashion.

Just think what you could do with that money!

We can start by converting your largest expenses into business expenses. We can teach you lesser known deductions (e.g. travel and entertainment, medical, seminars, books, etc.) and shift them over to business expenses. You pay them with pre-tax dollars and not after-tax dollars, reducing your taxable income.

To summarize: The average person is giving up 50% in income taxes. You can reduce your taxes by 40-70% no matter how much you make. It is important to incorporate your business and utilize assert protection. Entity structuring can bullet-proof your assets against law suits.

Start Learning And Educating Yourself.
There Is No Better Time Than NOW!

While I happen to be personally biased toward my own company, and would love to help you achieve all that is possible: my main concern is that you utilize the availability of what is legally available to you. If that happens to be incorporating, or simply using every tax deduction possible for your particular situation. Start learning and educating yourself. There is no better time than now!

“S” Corporations and TAX DEDUCTIONS

U.S. Supreme Court wants you to SAVE TAXES

The next biggest obstacle we have is taxes.  We’ve already established the fact that we are paying somewhere in the neighbourhood of 50% in taxes between State, Federal and FICA.  Guess how much the big boys are paying in taxes?  About 4% – 5%!

 

The work that we do and the things we’re about to teach you comes from two U.S Supreme Court decisions.  This isn’t stuff that we’ve made up; they are backed by the U.S. Supreme Court.

The first decision says that it is your constitutional right to set yourself up so that your taxes are minimized and you are paying the least amount of taxes possible.  How many people got a call from your CPA or accountant saying “Did you know that you can legally minimize your taxes?”  I never got that call.  And it was because of that, that I got so infuriated and motivated that I decided to do something about that.  I decided that I had to teach myself how to save a bucket of money because I know that there are people out there that are paying a lot less tax than I am.  The point is that these strategies have been around for decades but our accountants and CPAs aren’t teaching them to us.

The other US Supreme Court decision says that there are two tax systems – one for the educated and one for the uneducated and you get to pick which one you are in. 

The first system works like this:

Income

 – Taxes

Spend what’s left

This is the system for the uneducated.

At the very same time there is another tax system operating right along side the first one that is completely legal, that has the endorsement of Congress, and the IRS and it works like this:

Income

 – Spend

Pay Taxes on what is left

Which system do you want to be in?

You’re saying, “Wow I get to spend all the money that I want first and then pay taxes on what’s left.  That sounds pretty good.”  What do we call that spending?  Business expenses, business write-offs, and business deductions.  The problem is that you aren’t taking but about 10% of the deductions available to you.  The most sophisticated and savvy investors and businessmen that come into our program are not taking but 10% of the deductions available to them.  And where do you think the other 90% goes?  Right down the toilet.

How to PROTECT YOUR ASSETS – VIDEO

How To PROTECT YOUR ASSETS – TaxSavingsTools.com

Two asset protection power tools are Limited Partnerships (LPs), and Limited Liability Companies (LLCs).  I could go on for days about why we use them and the distinctions between them and about why you’d use one versus another but I’d like to make one point at the start.  Did you notice I did not mention “C” Corporations or “S” corporations for asset protection?  Some of you are holding real estate in an “S” Corps. and that can be a fatal mistake. “S” Corps and “C” Corps., while they do provide some asset protection do not provide nearly the protection that these other ones do.

There is a magic tool that comes along with LPs and LLCs and it’s called: “Charging Order”.  This is your new best friend.  Charging order is a legal concept that was developed and applies only to Limited Partnerships and Limited Liability Companies.  It does not apply to “S” Corps, “C” Corps, Sole Proprietorships, and Partnerships.  If your lawyer has not told you about Charging Order and the benefit of it and why you have to have one of these two entities somewhere in your asset protection structure, he/she has done you a terrific disservice.

Here is what a charging order does.  Number 1 it says: “You can not reach that asset”.  Imagine you have a million-dollar building sitting inside an LLC or LP.  Can the bad guy get at the million-dollar building?  No, he cannot.  But what it will do is open up the door for the bad guy to get at the profits.  Let’s pretend there is $100,000 in profits.  The bad guy can’t get at the building but at first glance it seems like he can get at the $100,000.  But we’re not going to stop there.  You see when we work together we’re going to set up more than one of these entities and one of them is going to be a management company.

If there’s $100,000 in your LLC that is subject to attachment and we have a management company over here that is going to manage, in a better way, our million-dollar building, do you think that management company should be allowed to charge a fee for that service?  Of course!  And how much do you think they will charge?  The answer:  about $100,000.  Now how much money is left for the bad guy to get?  ZERO!!

So far we have protected the million-dollar asset and shifted our profits to another company so that the bad guy cannot get it.  This is where the Charging Order steps in and introduces you to your new best friend and partner – the IRS.  Let’s say the bad guy gets $100,000 in income.  Do you think that income will be taxed?  Absolutely!  The bad guy is left standing with his hands in the air saying: “But Judge, these guys were working with Drew Miles!  I didn’t see a nickel of that income because they did this thing where they shifted the income out of the company!”  Guess what the IRS would say to that:  “TOO BAD.  You are going to pay tax on that money because we are going to impute the income to you!”

And now the bad guy is left in the position where he has to pay about $50,000 in tax on MONEY HE NEVER GOT.  How’s that for asset protection

TAX TIPS WITH DREW MILES