 Think Tech Hawaii, civil engagement lives here. Once again, ladies and gentlemen, this is Prince D'Arce here, the Prince of Investing. I'm coming to you guys live from the beautiful state of Denver, Colorado, even though this is being shot live here in Haulua, Hawaii. Thank you guys for tuning in. If you can tune this on the playback, on the podcast, YouTube channel, or whatever the case may be, go ahead and hit that like and subscribe button and share button. Drop comments if you got comments below. And as always, I don't have a lot of time, and I definitely know you guys and girls don't have a lot of time, so we're going to jump straight into it. Now, the first thing I wanted you guys to know about this topic is a very techy topic, and that I am not a CPA. I am not a CPA, and you should seek the advice from a CPA, which is a, you know, certified public accountant, a public accountant pretty much, right? And the reason why I'm making that statement is that, you know, today's topic is going to be about tax evasion versus tax avoidance. Most of us are going to talk about tax avoidance, right? Now, the reason why I bring this up is because I learned a lot about it, and I wanted to open you guys' mind about it, and so hopefully you can kind of look at your situation and find ways you can maybe possibly change your situation, right? Now, the first thing is tax avoidance is, you know, my very first thought of word as I'm studying, I said, wow, tax avoidance, avoid taxes, that sounds like, you know, a bad thing to do, you know. The American way to be is to pay taxes, right? Pay taxes to the government. But to be, and all actually, it is actually a very smart thing to do to avoid taxes, and the government, the IRS has written, I want to say like a thousand pages or something like that, a bunch of pages in the IRS main that talks about ways to avoid taxes. And the reason why today I want to talk about that is I want to let you know some ways that you may be exposing yourself to more taxes or some ways that you can avoid taxes, not evade taxes, right? To avoid taxes with you coming down to investing and investing for your family, your kids, and things like that, that you can explore later. Now, I wanted some of my CPA buddies to come on, but, you know, I kind of came up with this topic. Kind of the last minute, and I didn't reach out to any of my CPA buddies, so I may be reaching out to someone to redo this episode to talk more in depth. But in this episode, I want to talk about ways to reduce your taxable income. Some ways, we're going to talk about pop plans, premium outline plans, Roth IRAs, tax shelters, flexible spending accounts, defined contribution, pure taxable investments. It's going to be some cool stuff that you guys probably haven't heard of or seen before, so stay put. Now, the first thing is, the more money you make, the more taxes you make, right? Theoretically, the more income you have, the more taxes you pay. Theoretically, right? But it breaks down to what type of income. We're talking about ways to reduce taxable income to put you in a lower tax bracket so you can have less tax. For prime example, for most of the people that tune into this, you probably qualify for a Roth IRA or whatever the case may be. And what most people do, you work at, let's say McDonald's. You work at McDonald's, you make your money at the end of the day, you pay taxes on it, you take home your $1,000 a month, or whatever it is. You take home your $1,000 a month, you get smart, and you say, hey, I want to start investing. So you log on to eTrade, TD Ameritrade, Scottrade, or maybe you may call a local broker, and they set you up with a brokerage account. You get a brokerage account, and now you buy Amazon stock in January. Amazon stock now is at an all-time high of $18,000. You decide to sell some shares, and because you made a couple thousand bucks, and as soon as you sell shares, now you have to pay capital to gain tax of 15%. Now, you've pretty much got taxed twice. You got taxed before you got the money. Then you made money on money, and you paid tax again. Now, a smarter way to do that is, let's say if you earned your money from your job, you paid your tax, you earned your money from your job, then you go open up a Roth IRA account. Inside that Roth IRA account, you can contribute up to $5,500 if you're up under, like, 55 years old or something. You take your $1,000, you put it inside of a Roth IRA, now you go and invest in Amazon. Amazon does great. You sell off the Amazon stock. Now, you owe no capital to tax. As long as you don't pull out on it before you're the age of, I think, 59 and a half, right? And when you do pull out on it, there's no tax with this, there's no tax on it. So, for a prime example, you can see two ways that the first person when I got taxed twice, versus someone else, put their money into a Roth, made a small smidgen chain, just to open up a different type of an account, and voila, they was able to pay different taxes or whatever the case can be. So, the thing about it is I want to talk about different ways to reduce your account. We have things like tax shelters that you hear people talk about, right? We just spoke about Roth IRAs. So, a Roth IRA, what it does is instead of you paying money to the government, in tax to the government, you pay taxes to yourself, right? Now, define contributions. Most people may have a job. Most people out there listening may have a job, which you may have a qualified 401K plan with your employer. That is considered a form of a tax shelter. Now, that's a tax shelter because you can put money in there and you can defer your tax to a later date. You can put money in there and let your money grow, right? You put your money inside of a Roth IRA, another Roth IRA, you put your money inside of a traditional IRA that your employer offers and you're not paying tax on that money. For a prime example, this is how it happens. You take money, let's say you make $40,000 a year, excuse me about that, they got a little excited. You take $40,000 a year, right? And instead of, you know, usually you got to pay your taxes first. Let's say you pay $4,000 in tax, you're left with $36,000, then you go off for you, maybe invest some of it. But what a traditional Roth IRA does is you take, let's say you make $4,000, $40,000, then you pay your $4,000, you put that into your IRA account, now you only tax that $36,000. Now, granted, at the end, when it's time to take your money out, you're going to be taxed. But the thing is, you're letting your money grow with taxing, especially if you've got a job that adds in contributions. So for the first thing is, you're putting pre-tax dollars in there. You're not even paying tax on the money. You're throwing it into a 401k. Then if you have an employer that matches you, now you're getting the power, you're pretty much getting free money. And instead of paying the government taxes, you're letting your compound interest, you're letting that snowball get bigger and bigger and bigger, right? Because think about it. Let's take, if you invested $2,000 a month and a compounded at 8%, and now you have $1,000,000 in about 18, 19 years, and a compounded at 8% and you invested $2,000 a month, right? $24,000 a year. Now, once you have that NECA saved up, now you have that million dollars, that million dollars is still compounded at 8%. Now you can set up a user calculator, which my buddy did right before we came onto the show, and we were correct. We'll draw about $90,000 a year for 23 years on that money, right, before it runs out, because that money is still compounded and million dollars is still compounded. Even though you will draw from it, it's still compounded, right? So when you think about it, that wasn't anything special. Well Prince, where can I get 8%? S&P 500, we spoke about this. S&P 500 last 124 years compounded at somewhere between 7% and 10% a year, right? You have those dividends reinvested. If you have it inside of a Roth IRA, it continues to grow for you and grow for you and grow for you and whatever the case may be. For the reason why it's a limit on how much you can put inside of a Roth because if I wanted million dollars, I would just throw it inside of my Roth IRA and avoid taxes. But another thing is premium only plans, pop plans. Pop plans, this is money that's going to be set aside for your dental, your visual, your health and things like that. Instead of you taking that money and then going out and paying for your medical and your own visual, they take that money out of, they take that money before it's even reported to the IRS. So you can take that money and put it to the side of a pop account and that's a way to reduce your taxable income. Flexible income, right? Flexible income, or they call them flex cars, a flex account. They kind of have the same features of the pop account, but this is another way that people use the flexible spending accounts using flex cars and things like that, that people use to reduce their income. Another one, this is a very small one that I definitely want to share with you guys, something that I learned recently, was that let's say you made a bunch of money one year. You made 100,000, 200,000 miles or whatever it takes, you made a bunch of money one year. Let's say you were someone who invested in the journal Electric. We all know over the past four years, journal Electric hasn't been doing too hot, right? So you can sell that investment in your account that's sitting in the red. So if you're in a high tax bracket, you can sell that investment and you can sell that investment and take those capital losses to offset your income. And I think it's a limiter. I think it's up to like 3,000 miles or something like that. I don't know the details. Like I said, I'm not going to give out a whole bunch of details. I want to throw some things out there for you guys to sit down with a CPA to go further with. So one of the things is like I said, not as investment in having an investment not doing too hot, you may have that journal Electric that's sitting there that's you're waiting to rebound that's not doing too hot. But if you are doing very good on your investments and you made a lot of money this year and you don't want to pay the IRS, not that you don't want to pay the IRS, you don't want to be liable to the IRS for a large income, one of some of the ways you can do, you can sell off some of your bad investments and then write that off as capital loss, right? Instead of just rebounded and paying at a higher tax bracket where we're kissing me. So that's what it's called the pure, I think it's called a pure, not pure, but things. Factual income on investments, that's something you can look into. Another other tax shelter that people look into, Muni Bonds, you pay attention to the show, you've seen a two-time Super Bowl champion Eagles linebacker named Danny Elderby, he came on and he spoke about how he loves to invest in some Muni Bonds because they're pretty safe, and that the entries you collect off of Muni Bonds are tax-free, right? So that's one of the ways that can be used as a tax shelter. You put your money into a Muni Bond, and a Muni Bond is essentially like local and state government, how they build highways, they borrow money from the public, and they pay you back at maybe three, four, some pay up 5%. So usually you see a lot of wealthy people that are high income brackets use Muni Bonds. You put your money in the Muni Bond, they pay you back tax-free, that helps lower your tax liability, right? Taxable income. Also you have things like capital gains on homes, up to like $500,000 for a married couple of the 250 on couples to where if you purchase the home and you live in a home for two or three years and their home appreciated and in value, and let's say you made $250,000, $300,000 off of your house, you can use that as a, you know, you, that's a, people look at that as a tax shelter because you don't have to pay money on that particular income. Another way is by placing money into things like 529 college plans, placing things into, you have the 529 college plans you have, you have the Cordell savings account, savings fund, and you can put money to the side for your children and have your children, put money to the side for your children for their later date, which also lowers your income, your taxable income. Another thing that you always see wealthy people do, they always, always, always have charitable donations. They always have money that they give away to somebody or something or some type of cause or some type of organization, right? So you can make donations to your favorite foundation and write it off. Like if you go to a church door and you pay 10% of your earnings, you can, your church or your religious organization should be giving you a form to help you be able to write off your taxes, right? So making contributions to organizations, to nonprofit organizations, 501Cs. Also, you will see, I've seen where some people, they started foundations in their children's name. They donate the money to the foundation and the foundation that returns writes a check to the children, right? I have definitely seen that happen and I thought that was pretty clever, but to me it looks like, let's say my son Wesley, instead of just giving him money or whatever the case can be, I create a foundation for him, put him as a president or whatever the foundation, donate money to the foundation, that's a tax write off to me, then have the foundation put my son on a payroll. I've seen very wealthy people do that to where I'm like, but to me it looks like a very, hey, wow, this guy giving all his money to charity. He hasn't given his son anything. He gives all his money to charity. That's what it looks like on paper, but actually when you peel the layers back to millions, you'll be like, wow, that's some pretty smart tax avoidance that this person is using. Other things I've seen people do where they started companies, they started LLCs and they hired their children. They started LLCs where they may went out and purchased real estate or any type of company they may have wanted to start it, wanted to start and they hired their children as employees of their own company. And then depending on their payroll, depending on the income, they can write off the income of the payroll inside of the tax. For a prime example, you start a company called, like me, I call it Dyches Real Estate or whatever the case can be. I hired my son, Wesley, as an employee. I started this company. I go out and buy houses, houses appreciating value or whatever the case can be. My company is doing pretty well. Let's say I have my son on a payroll for $50,000 a year. As I'm paying him, you know, I can write off my payroll tax. I can write off what I'm giving my child as payroll tax and things like that. Now, I'm not going to get into the details. I don't know all the details in particular. I don't want anybody in the comment box or, hey, well, in the state of Illinois, it goes like this. In the state of California, I'm just giving you guys ideas and things that ways that people use tax avoidance techniques to lower their taxable income. And actually, the IRS don't frown upon tax avoidance. They frown upon tax evasion. What is tax evasion? Tax evasion is simple. It's illegal. And it's just not paying you taxes. Not filing taxes, not paying you taxes, not reporting income. Let's say if you are a stripper or you are a waiter or you are someone who makes a lot of cash on hand, you make a bunch of money. The government is not going to know unless you report it. You don't report it, right? So if you don't report it, that's you just completely avoiding taxes. That's totally different from tax. You're just completely evading taxes, right? You're just not even reporting it. You're not even talking about your income. You've been $100,000 this year doing concerts or whatever the case may be. And you turn around and don't tell the government about any of it. Or you tell the government that, hey, look, I made $20,000. And the government puts you in the $20,000 bracket. Excuse me, I got hiccups. But most people get caught because when someone write you a check for that large amount, they're usually going to use a W9 that they're going to report to the government, hey, I paid a particular person this much money for their services. Then the government is going to say, wow, this person said they paid $50,000 to Prince Dice. But Prince Dice only reported that he made $10,000. Either this person is over-reported or this person is under-reported. So if you do somebody that, that's evading taxes. We're not talking about evading taxes. That's not a legal act. That's something that comes with jail time. Fine. Ain't nobody got time for all that. Go on to jail and stuff like that. We're talking about tax avoidance. It's ways that you can avoid tax or lower your taxable income. Right? So there are ways that people put their kids, instead of giving out allowance, they put their kids on a payroll. They start a company and hire the kids. They start foundations and hire the children. They use Roth IRAs. They open up a Roth maybe for their child. You know, a wealthy case can be. Now the thing about it, the smartest way, the easiest way to get, I'm not insurance, but the smartest way you can do is insurance. Insurance is the easiest way to create generational wealth. With all the investment that I do, all the investment learning and business ventures that I do and all those stuff like that. One of the simplest ways for me to go out there, get insurance policy. If I croak over and die during this show, knowing that my wife and son is going to have a nice, pretty piece of change. Right? That's a great thing to know. That's the simplest way. But now, granted, I'm not, you know, deterring anybody or saying that, hey, don't go out here and start a business or do business ventures. Because that's ways that can add on to your those are things that can add on to your your legacy and to your wealth that you passed down to your kids. So that's one thing that I want you guys to think about as well. I don't want to ramble off to the topic or whatnot. But those are some ways that people use, you know, they look at their, oh, I forgot about another big one, deterring, deterring your income. Some people deter or defer, I'm talking about deterring, I mean defer, deferring your income. But Prime Minister, let's say if you're a barber or you're a hairstylist and you know you've got a lot of money this year, some people defer the income, they'll say, well, I made a lot of money this year, but I don't plan on making this much money next year because I'm going back to school or I'm going to be working part-time. So instead of taking their payments during, in December, they'll take them in January. Instead of taking, hey, a reported income in December, they'll report it in January, which they are deferring their income to where they could be in a lower tax bracket. For Prime example, most people won't make as much money in retirement as they will throughout their life, right? So with me, for Prime example, you know, let's take me for Prime example, you know, I may not make as much money as I'm making now in my retired life. So some people will say, hey, I want to defer my income tax to where I think I'm going to be in a lower tax bracket, where I'm not going to make as much money. I did also this year. I sold a bunch of books. I've got $100,000 in, you know, book sales. But the case may be I want to turn around and I had one more client that wants to buy 2,000, 2,000 books for me. Instead of me charging him in December, I may charge him in January or February because I want to defer my income to another year. But it's all type of ways people do that. But just know that people defer their income. Some people have tax shelters where they defer their income to a later date. That's what a traditional or regular IRA is, right? If you contribute your money to it, you're going to be paying at a later date. You're not going to be paying at this date. You're going to be paying at a later date. And when you're, you know, 50 or 60 years old, right? You're not paying in taxes now, but you're using the government's money and you're using matching to build a financing and you're going to pay your taxes at a later date. That's deferring your taxes, right? So the same way you defer your tax, you can defer your income. So those are big things. Tax avoidance is a good thing that's very smart business people do. Tax evasion is a very bad thing that people do that's illegal and that you can get time for. So in this show, we're talking about tax avoidance. Like as always, I told you guys, this is a disclaimer, I'm not a CPA, nor do I desire to be a CPA. I'm just here to open up your brain and expand your brain to thinking about something different to say, hmm, am I using the best tax strategies for my investment? Hey, instead of paying this money to taxes, I can contribute to my Roth IRA. Hmm, I do have a pop plan at my job. I do have an FSA plan. Let me look into that. Instead of paying this tax, you know, put myself in a higher tax bracket, maybe I can up my contribution. Maybe I can start a business for my children. Maybe I can start contributing to a 529 plan. I can start contributing to different qualified plans that will lower my income and I'm investing for my children. Instead of giving it to the government, you're giving it to yourself. Because the government had different ways, you know, where they tax capital gains at a lower tax rate to induce people to invest more, right? So those are the things I want you guys to think about. I want to get into it too far and too deep, but those are some ways you can avoid tax. Use tax avoidance strategies versus tax evasion, right? You don't want to do that. So the thing about it is CSDPA. Not your cousins, not your friends, blah, blah, blah, blah, who, hey, you know, I do taxes and I can probably tax for you. I'm not saying anything. It's one of those people, but use a covenant CPA person, but whatever the case can be. Someone who's listening to this, they do taxes and they say, well, if you're referring to me, you should go back or go to school and try to get that CPA certification and whatnot. And I'm saying that you're even better. It's just like any other license. It doesn't mean that you're better. It doesn't mean that you're the best, but it means that you at least have a basic understanding between right and wrong, and that you're hailed to some certain type of standards. So that's going to wrap up today's show. Thank you guys for tuning in. Don't forget to hit that like, subscribe, comment, and share button. If you like what we do, you want to support our projects, check out Wesley Learns To Invest. Wesley Learns About Credit. Check out our Wesley Learns Line. But as always, I don't have a lot of time. I definitely know you guys in the Bureau don't have a lot of time. So until the next video, podcast, whatever else you see me do crazy around the globe, peace, be safe, I'm out, and thank you.