Taxes and Investing

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Reduce Your State Tax to Zero with an Inversion

By Keith Taxguy / September 7, 2016 / 0 Comments

Americans who read the news even poorly know large corporations use tax inversions to avoid massive amounts of taxes due the U.S. government legally. What most Americans don’t know is they can use the same strategies on a smaller scale to never pay state income tax again. My guess is fewer than ten accounting firms in the U.S. utilize these strategies to protect their clients from state taxes. Today I will show you how to use the tax inversion without the help of an accountant.

A tax inversion happens when a major corporation buys a smaller company in a low or lower tax country or municipality. The acquiring company then moves its headquarters to the acquired company’s country. We will not get into the minutia of corporate tax law as it is not the focus of this post. We will use techniques of large corporations where they are applicable to small businesses, landlords, and retired taxpayers living or working entirely within the U.S.

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Structured Giving

By Keith Taxguy / September 3, 2016 / 8 Comments

There comes a time when your responsible spending and investing habits grow your net worth to a level you will never spend in a lifetime. As the years pass you discover charitable causes you want to help. Giving is something that brings meaning to our lives. By making a difference, our hard work and intelligent planning creates the real reason we choose the life we lived.

The hard part of charitable giving is the number of worthy causes to choose from. Another issue is maximizing the value of the gift.  There are three issues connected to charitable giving: choosing the charitable organization, determining the level of gifting, and using the tax code to maximize the value of your gift.

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Low Income, High Net Worth: The Best of Both Worlds

By Keith Taxguy / September 2, 2016 / 17 Comments

In the United States, and I suspect in most countries around the world, people are taxed for spending and rewarded for saving. Almost all the tax revenue raised by the federal government comes from spending. This idea taxes are too high or the rich get a better deal is false because the middle class has the best deal going for it than at any time in history.

The reason taxes are so high for many people is they spend too fucking much money! In America, for example, the taxes levied against spending are massive while savers and investors are rewarded with low or even negative tax rates. This constant complaint of taxes being too high is annoying at best. Taxes are not too high when the people bitching about them volunteer to keep paying them. Here are a few of the extra taxes you pay when you spend: sales and use tax, property tax, excise tax, and corporate tax. Yes, corporate tax! Do you think businesses don’t pass all their expenses on to the buyers of their goods and services? Of course they do. And you pony up with a million dollar smile (when you are broke) and pay all those extra taxes and complain about how high taxes are.

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Tax-Free Cash Rewards From Credit Cards

By Keith Taxguy / August 30, 2016 / 9 Comments

Whenever I speak to an organization if I mention you can travel for free or get $10,000 or more per year tax-free, I am always asked to come back and speak again on this single topic. It is incredible how many people either don’t know or don’t use on a regular basis what I am about to reveal. I am talking about tax-free money just for the asking and every kind of free travel imaginable.

A lot of people opt for the travel benefits because they enjoy traveling and the benefits are usually worth a bit more if used for travel. For me, cash is king. I like money, especially when I don’t have to report it as income.

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Signs It Is Time to Sell an Investment: The Unfolding Lending Club Fiasco

By Keith Taxguy / August 22, 2016 / 2 Comments

I started investing in Prosper, the micro-lending platform where you can invest as little as $25 on a loan, back in June 2012. By investing a small portion in a large number of loans risk is spread out; no one loan going bad has an outsized effect on performance. I started withdrawing money after the returns plummeted after changes were made to the platform. Because it takes time to collect payments from loans held, it is an illiquid investment. My original investment of $13,400 is still worth $979 after withdrawing $15,430. Not great, but not bad either.

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Should I Pay My Mortgage Off Early?

By Keith Taxguy / August 20, 2016 / 4 Comments

Low interest rates have raised concerns if it is proper to pay off debt early. The good news is there are ways to determine if you should pay down debt, including the home mortgage, or invest funds to accelerate net worth building. Low interest credit card teaser rates and equity lines of credit add another dimension to the ever evolving world of personal finance. There are two factors to consider when balancing between reducing debt or increasing investments: the return on the investments over the cost of capital and the risk factor.

Personal finance can learn a thing or two from corporate finance when it comes to debt and investment. Just like a business, when a household decides to pay down debt there is a tradeoff. Accelerating debt reduction takes money from other areas, mostly spending or investment, but also reduces risks associated with debt servicing. In this post I will assume you have reduced your spending to a reasonable level and the trade-offs are between debt retirement and investment only.

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Audit Proof Your Tax Return

By Keith Taxguy / August 19, 2016 / 1 Comment

The IRS has audited tax returns the last several years at a historically low rate. Individuals faced a 0.84% audit rate in 2015; millionaires, 9.55%; Schedule C sole proprietor taxpayers, 4%; partnerships, 0.51%; and S corporations, 0.40%. (Source: The Kiplinger Tax Letter: Vol. 91, No. 4) None of this makes a difference if your number comes up. Over the years I developed methods to reduce risk of audit. My clients are audited at a fraction of the national rates due to the steps applied to all tax returns leaving my office.

IRS audits are expensive even if you did nothing wrong. Hiring an accountant to navigate the audit process is time consuming regardless of guilt. Unlike criminal law, in tax matter you are guilty until you prove yourself innocent. The burden of proof is on you to provide proof of income and deductions should the government come knocking. Below are several tips to reduce your risk of getting an unfriendly letter from Revenue.

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10 Ways to Legally Stop Paying Taxes

By Keith Taxguy / August 17, 2016 / 9 Comments

Years ago I started a book project called The Zero Percent Tax Bracket. The idea was to write a book with all the ways a person can bring in money and legally not report it as taxable income. As I started pulling information together it became clear marketing such a book would be difficult. Since I was not focusing on tax protesting or other such BS it would not attract the wing nut crowd nor was I interested in becoming the next Charles Givens. A book called The Zero Percent Tax Bracket would probably languish on the back shelf of a bookstore with only modest sales. The idea was sound but I did not like the marketing plan.

Today I am resurrecting the idea. As a book it would need a serious shove to turn a profit for the publisher; as a series of blog posts it is an excellent way to outline all the ways to line your pocket without owing a penny in tax. You will not find all of these tax-free methods listed in the tax code. It is the unusual interpretation of tax law that always appeals to me as long as jail time is not involved. (Jail time might be okay if it is a fairly short stint of three-hots-and-a-cot, plus free healthcare at the expense of the taxpayers. Taxes are no fun, but collecting benefits—even free jail lodging—does.)

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