 How to use the law to make more money. That's going to be today's episode. So, you know, we have a very, very special guest in the studio with us today. Coming all the way from the beautiful city and state of Utah. You know, I'm in Denver, Colorado. And of course we are here live in Howlulu, Hawaii. So hopefully you guys and girls are having a great afternoon there in Hawaii. And for all the people that are catching the playback, don't forget to hit that like subscribe, comment and share button. I'm Prince Dykes. This is the Prince of Investment coming to you guys and girls live in a beautiful state of Denver, Colorado. Now, how to make more money with using the law? We know that in business and investing, you got the law, you got politics, so many other ways. Very interesting thing that came across my desk today. So, I brought in a very special guest, maybe a little soft introduction. He's an attorney, Lee R. Phillips. He's a counselor of the United States Supreme Court, which is very interesting. I thought when I saw that, you know, he has his degrees. He has his licenses, real estate, mortgage backing, security, life insurance, registered and investment advisor, RA's, all these type of things nationally recognized in the field of business structure, asset protection, financial planning, estate planning. And he is the founder of Legal Leagues Corporation, a company that specializes in solving asset protection and tax problems for high net worth individuals. So, without further ado, ladies and gentlemen, today, let's go ahead and bring in our special guest, Mr. Phillips. How are you doing today, sir? I'm great. How are you, Prince? I'm doing good. Definitely like to have you on. Did I botch your introduction by any way? Nope. I think it was more than, more than reasonable. Now I got to ask this question. One thing while I was looking at your bio, what have you written a book? I didn't see a book on you. I've written about 19 books. I haven't, I haven't, I didn't see the 19 books that didn't come across my desk. So you've written 19 books, right? Yes, sir. Nice. Nice. Okay. So since I missed that in your bio, can you tell us a little bit about yourself and, you know, so people who may not be familiar with you? Well, I have a really sorted background. I have a bachelor's in geology and physics and a master's in nuclear chemistry. And then a lot of agree. The short story is when I was 27, I got cancer, spent five months in intensive care and didn't work for three years and we lost everything. So asset protection kind of became a focus of mine. And then as I matured along, I figured out your biggest asset protection threat is actually the IRS, the government. They're taking a third of whatever you're making. That's an asset problem for me. And so I went pretty deep into taxes. I'm a US federal tax court attorney and, and do a fair amount in taxes. So if you're going to use the law, what we need to do is set up the structures so that you get the maximum tax benefit. You can't turn the crank any faster. You're, you're working as hard as you can. Everybody's working as hard as they can. But if we play the game a little smarter and we can maybe shave five or 10% off the taxes, that's a big deal. In fact, it's a bigger deal than most people think it is. You ever seen the dollar double 20 times trick, Prince? No, I haven't seen that one. Let's take a dollar and double it 20 times. One dollar, two dollars, four dollars, eight dollars, 16, 32, 64. I got it. Mm hmm. You end up with a million 48,000 in tax. But wait, wait, wait, there's no, no, uh, tax on that, is there? Excuse me. You end up with a million 48 and cash. Okay. Yes. Mm hmm. But there's no tax on that. Everything you do is taxed. I mean, you make an investment. You pay tax on it every year, right? Unless it's in an IRA or something. Mm hmm. So let's tax it. Let's tax it at 40%. Between federal and state, a lot of people, 40% tax. Okay. Uh, so I've got $1 and I double it to two. But I have to, uh, have to tax the extra dollar. So I don't end up with two dollars. I end up with a buck 60 because I taxed the extra dollar 40%. Right? Mm hmm. Double the buck 60, that's three 20, but I've got to tax the extra buck 60. So I don't end up with three 20. I end up with 256. So over here, I doubled it 20 times. I have a million and $48,000 plus. So a million bucks over here. I've taxed it at 40%. That means I've lost 40% of a million dollars. That's a big deal to me. So I'm going to ask everybody, do I have 600? Let's see if I tax 40% off a million. I got 600,000 left, right? Mm hmm. Do I really? Thanks. No way. Uh, do I have, okay, uh, do I have $400,000 left? Do I have 200,000 left? Do I have 100,000 left? Do I have 50,000 left? Do I have 25,000 left? How much do I have over here? Over here without the tax, I've got a million 48,000. Over here with the tax, I have a grand total of $12,089. That's all of the taxes. That's all the result of taxes. We went from a million 48,000 down to $12,000. What, the eighth wonder of the world is what? Compound interest. Mm hmm. Remember that one? Yeah. What people don't understand is taxes are compound interest in reverse. Uh, so if I say we can save you 10, 15, 20% on your taxes, that's a big deal. That's not $200 out of a thousand. That's millions of dollars over your lifetime. It's huge. So let's use the legal structures. We'll use them for asset protection. And we're going to use them for tax structuring. And a lot of people set up their LLC and I meet people all the time in live events. I do lots of live events. And the people come up to me and say, oh, I've got an LLC. And I say, okay, good. How is it taxed? And they look at me and they go, well, I don't know. Well, if they're taking 30% of your money, don't you think you maybe ought to understand how they're getting it? Because if I could save you 10 or 20 or 50% of that, that's a big deal. So let's tax it properly. Let's set it up properly. And that's how you use the law to make more money. Does it sound reasonable, Prince? Definitely sounds reasonable to, uh, like I would say tax avoidance. It's a big difference between tax evasion and tax avoidance. Huge, huge, huge difference there, you're right. So, you know, ways to limit your tax liability, right? It's always, you know, like you're saying, hey, you do the same thing you're doing, but I'm going to show you how to increase it by 15%. You know, like what's, you know, that's a very interesting thing. Myself, I have an LLC and I'm a registered investment advisor here in Colorado too. So when you say, hey, you got your LLC, how are you being taxed? What is your answer to that? What is a better tax effective way? Should I put you on the spot? Do you know how it's being taxed? You're, um, are you doing your financial business through your LLC? Yes. Okay. You are selling goods and services, aren't you? Mm-hmm. Income that you're getting is, we're going to call it non-passive or ordinary income, whatever you want to call it. Mm-hmm. Brants and royalties and stuff, they're passive income. You're doing earned income. So you need to have your LLC taxed under sub chapter S of the IRS code. That way, the law says you can take a reasonable salary and then the rest of it, we're going to distribute out, but this distribution is not subject to the social sphere can fight a feud and all that crap. So you save 15.3% immediately on distributed amount. I have to, according to the law, I have to take my reasonable salary, but then I can come in and I can distribute the rest of and save immediately 15.3%. Now, do I need to turn it to an S corporate in order to make this happen? Yes, you do. That's the only way you can make this one happen. So, and you would say that is the lick of prints right here is getting taxed. I'm going to take you out of the woodshed, Prince, and beat on you. You need to understand how you're getting taxed, because that's how they're getting your money. Yeah. And if you've got earned income, the best way to have it taxed is a sub chapter S entity. I can have a corporation or I can have a an LLC taxed under sub chapter S of the IRS code. Now, if your rents are coming from real estate, passive income, we call it. Then you want your LLC taxed as a partnership. That means you need more than one person as a partner, right? You got to have at least two owners. And in Colorado, and now in many states, Colorado was actually the first problem state. Well, welcome to the problem state of Colorado, Prince. There was a case early on and the judge set aside what we call charging order protection in an LLC. Just said, nah, we're not going to ignore it. So Colorado was the first to say that single member LLCs don't get charging order protection. You have to have at least two members. So you need two, two guys, two girls. I guess you could have a guy and a girl. I don't know. I guess we shouldn't even do pronouns anymore, right? Yeah, yeah. But, uh, but you need two people, okay. In order to get what we call the charging order protection. Do you know the charging order protection? No, I'm not familiar with the charging order protection. Okay. In legal entities, you've got the corporate shield, which protects me from what happens out in the company. Gotcha. Gotcha. All right. That's the corporate shield. Gotcha. There's a reverse of that. We need to protect the assets of the company, the piece of real estate, the apartment building, whatever it is that's held in the LLC from the personal problems of the owners. Uh, I can declare personal bankruptcy. If I declare personal bankruptcy or I get divorced or I hit a kid in the crosswalk on the way to church, those aren't business things. Those are personal. They come after me. Hmm. If they come after me, the question is, can they get the assets of my company? If it's a corporation, the answer is absolutely yes. If it's an LLC, the answer is no. Because the LLC has what we call charging order protection, which protects the assets of the company from what happens to the owners of the company. Now, if you're an owner of IBM, IBM could care less if you lose your stock in IBM, right? Mm-hmm. But if it's your little company, there's you and maybe one other guy. If you lose all your shares of your stock, that's a big deal. The company's gone. Mm-hmm. So the LLC protects the company from what happens to you. And that's a big deal. That's why you're always today, today, you're always going to use an LLC. Now, we just spoke about this, right? You were saying, hey, you got what you're saying for tax purposes, the S corpus better, but for protection, you got the LLC. No, no, no, no, no, no, no, I didn't say that, Prince. Okay. I'm, I said that you needed to have your LLC taxed under subchapter S. Got it. Gotcha. The IRS doesn't know whether you have a corporation or an LLC. They don't care. The only thing they know is you have a company that's taxed according to the rules of subchapter S. You could have a company, an LLC or a corporation taxed. Using the rules of chapter C. We call that the C corporation, but it's actually an LLC taxed under chapter C of the IRS code. So I can have an LLC taxed under the partnership rules of an IRS code. I can have an LLC taxed under the subchapter S rules of an IRS code. I can have an LLC taxed under chapter C of the IRS code. The IRS doesn't care how you tax an LLC. That's pretty cool. What if you're someone that has, hey, I have book royalties, I own properties. I have blah, blah, blah. It's like a conglomerate and it's an LLC. How would you, I guess, structure that tax tax wise? Well, two issues here. One is you're getting passive income from the royalties and the rents and stuff. You may be getting earned income or non passive income from your day job, so to speak, your financial planning, right? I would separate those into two separate LLCs. One taxed as a partnership and one taxed under subchapter S. Because I don't want to bring in the rents and stuff into this LLC because then I have to pay a reasonable salary based upon the addition of the rents into this LLC that's taxed under subchapter S. So I want the rents, the passive income separate. Also, the second issue is you've got a liability as a financial planner. You've got a liability as a business owner. That's different than the liability associated with your rental unit or your royalties from your book. I mean, you're not going to ever get sued because you're getting royalties from a book, are you? Helpfully. Let's keep those assets separate from the business because if the business has a problem, any of the assets in the LLC could be used to satisfy that problem. The corporate shield protects me, the owner, but the assets in the company are available to handle that problem. But if I have the book royalties and my rents over in this company, they're not available if there's a problem in the business. They're outside. They can't get those. Because of the charging order protection. They can sue me personally, but they still can't get these assets, the rents, the piece of property in this LLC. Even though there's a problem in the company, I have to declare bankruptcy in the company. They're still not going to get these assets in the LLC that holds my real estate properties. Okay. Now, as an attorney, right, some people say, well, you know, I get this question all the time. You know, hey, I got a nine to five. I have a W-2. My wife has a W-2. What are some ways I can, you know, limit my income, you know, my taxes? What are some ways you would say to that? Well, if you're a W-2, there's basically nothing you can do. Locked in. Your taxes are there. Your little company and your real estate are your two tax shelters. And the problem is your accountant never brings you in, puts his arm around you and says, you know, we really need to teach you how to use your little company. We really need to teach you how to use your real estate as a tax shelter. They don't do that. And yet your little company and your real estate, your rental real estate, is a tax shelter, a great tax shelter. And if you learn to use the company, if you learn to use the real estate as a tax shelter, you can make a lot of money. I mean, Trump can't let even the real estate investors see his tax returns. Because even the people who think that they know about real estate as a tax shelter, if they actually understood what could be done with real estate as a tax shelter, it'd blow their mind. It's mind blowing. I want to walk down that path. How is real estate a good tax shelter? How does that really work? We always hear about it. How does that work? Well, real estate gives you the ability, they say, to get an economic gain at a tax loss. Can I run some rough numbers by you? And you kind of think along with me. Let's say I buy a $400,000 piece of property. And I understand that that's the mud shack in the middle of Honolulu, $400,000. But I pay $400,000 for a piece of property. I have to put 20% down. That's $80,000, right? So what's my total investment in this piece of property? $80,000. Okay. I rent it. Let's say I get $3,000 a month in rent. And my mortgage payment is $2,500 a month. That means I get $500 in cash flow, right? So that means I get $6,000 over the year in cash flow, right? So on this piece of property, I can deduct the amount of interest that I pay on my mortgage, can't I? Yes. I can deduct the insurance and the property taxes and everything else. So in reality, and the other thing I can do is I can depreciate this piece of property, can't I? So depreciate or appreciate? Depreciate. So it's a $400,000 piece of property. I can't depreciate the land. So let's say the land is $100,000 just for round numbers. That means I'm depreciating $300,000 and that has to be done. I'm basically deducting it. I can deduct $300,000. But the law says I can't deduct it all at once. If this is a residential piece of property, I have to deduct a little piece of that, one 27th and a half over 27 and a half years. So at the end of the 27 and a half years, I've basically written off, I've deducted the full $300,000. So what is that? $4,000, $5,000, $6,000 in depreciation. So by the time I pay the property taxes, I get the depreciation and everything else. I've made $6,000. I actually put $6,000 into my pocket. I had the expenses of the mortgage and I had the property taxes. Let's say I actually put out of this $6,000 into my pocket. So I've made $1,000 free and clear, right? But over here, I've got like $12,000, $6,000 in my depreciation, $6,000 in the mortgages and everything else, the interest. So I've got $12,000 in deduction over here. So I get $1,000, but I don't pay any tax on it because I can offset it with all of this depreciation, these deductions. Got it. So in reality, over here, I've got $2,000 or $3,000 in tax loss that I didn't even use. That can carry forward every year until I sell the property if it needs me. But I've got a couple of thousand dollars over here on losses and I've put $1,000 into my pocket. Tax-free. That's a pretty cool tax shelter. Now, let me run one more thing. So if I've got $1,000, I've made $1,000 on an $80,000 investment. What's that return? 3% or 4%? Not a lot. And so I've got a small percentage return, but I didn't take into account the little piece of appreciation that I've paid every year and the appreciation, the little piece on the mortgage I've paid each year, and the appreciation of the property. Bottom line is I have like a 30% return, which is a big deal. Very big. Okay. Now your little business, you can deduct your cell phone, you can deduct all of the costs of your car when you go around. You can deduct a lot of things and you can't do any of this with your W-2 job. So in the future, you're going to have to get a little company, invest in real estate, do something to control your taxes, and you are going to use an LLC for the asset protection. And by the way, if your folks want, I've got an e-book called 10 Tax Tips. I go through this sort of stuff. They're welcome to have that. It's free. You can just go to my website legallease.com forward slash think. We'll put that in and we'll email that out to them. Now, people that listen to this and they're saying, wow, I want to get in contact with him. I want to talk to him. What are the ways that people can get in contact with you? The bad news is, or the good news is, I don't take clients. I just educate and help people. Definitely one thing is, can I have you back on? I've definitely got to have you back on. You can have me back on. I'd be happy to come back, Prince, no problem. I do have an entire staff of tax attorneys and stuff, accountants, enrolled agents. They do the tax stuff. They do take clients. If you've got a huge tax problem, they can help you. Particularly if you owe the IRS money and you're arguing with them, they can do the resolution stuff really good. I did want to ask this question. What was your pathway into the Supreme Court, the consulting, stuff like that? What's your tie-in to that? After I got sick, I started to practice law in the areas of wills and trusts and stuff. Then I started to write about it. I wrote the books and became, I'm going to say, kind of famous for teaching people what they can do. In the meantime, I got good enough at lawyering that I could go to the Supreme Court and argue cases. You have to apply to be admitted there and that sort of stuff. The same with the federal tax courts. I've done the legal side of it, but I've enjoyed and now I'm kind of three-quarters retired. I've enjoyed the educational part of it too. I speak in front of big audiences, live audiences. I think they're definitely going to have to have me over with Think Tech Hawaii and have to speak to one of their groups. Nice. That's Think Tech Hawaii and especially if you're here in Denver, Colorado, I'd love to get you in the studio too. Okay. Definitely. For people out there, what do you want to leave the audience with before we get out of here? Just pay attention to your taxes, the two ways that you can work with it or either a small business or your real estate investing. You need to do one of those two. Otherwise, you're just going to work a day job and that's going to be the end of it. And now, people out there, they want to, you know, I kind of touched on this earlier. You do social media, how people get in contact with you. I want more from Mr. Phillips. They can just go to legalese.com and there's phone numbers and stuff there. Okay. I'm old enough that I'm not too social, for instance. I got the LinkedIn accounts and all that crap, but I check them once every four years whether I need to or not. Okay. Well, definitely it was great having you on. We got to get running and I would definitely reach out because I definitely want to get some more from you and definitely have you back on the show as well. But, you know, fortunately, we got to deal with time and time crunches, but we'll make it happen. I understand. All right. Thank you for coming on, Mr. Phillips. Ladies and gentlemen, as you guys and girls already know, my name is Prince Dix. This is The Prince of Investment. Until the next video podcast, Cartoon or whatever else crazy you see me doing around the globe. Peace, be safe, I'm out and thank you. YouTube, you can also follow us on Facebook, Instagram and LinkedIn. Check out our website, thinktecawaii.com. Mahalo.