Tom's Blog

I was in Orlando, Florida a couple of weeks ago speaking to 1,400 people at the Rich Dad Annual Forum. During my presentation, I mentioned a prospective client whose entity structure was likely to cost him over $200,000 in taxes if all he did was refinance his real estate. One of the participants, Crystal, later asked for clarification about how an entity structure could make this big of a difference. Here is the explanation:

The prospect, we'll call him Mario, had arranged his affairs so that he had an S corporation that owned three LLC's. In one LLC, he conducted his architectural business. In the other two, he held investment real estate - single family homes.

I asked Mario if he ever planned on refinancing the homes. He said yes and that he was about to do so and had about $1 million of equity in the homes. He also indicated that he would have to re-title the real estate into his own name in order to do the refinancing.

Here is the issue. When he re-titles the real estate to his name, the IRS will treat this as though he sold the real estate to himself out of the S corporation at fair market value. So, he will have to recognize AND PAY TAX on the $1 million of gain, even though he is just refinancing the property and putting it back into the LLCs. The result is at least $200,000 of tax that he would not have paid had he used a better entity structure.

When we create tax strategies for our clients at ProVision, we examine ALL of the tax consequences of the entity structure. Be sure your tax strategist is doing the same for you and does not make a mistake like Mario's did with him. For an evaluation of your tax situation, contact us at cs@provisionwealth.com or call us at 866.467.5809.

Warmest regards,

Tom

The IRS states that commuting to and from work is not deductible. So how do we make it deductible and stay within the IRS rules? That's the question Michael from Kentucky asks:

Q: I am a 1099 sub-contractor doing database consulting for a local spirits company. I have an LLC for my Computer Consulting business based in Shepherdsville, KY. I drive 30 miles one-way to the client in Louisville, KY four days a week. Are these miles deductible and if so, under which IRS tax code? P.S. Thanks for the great information at Rich Dad Annual Forum! It was great meeting you!

A: The way to increase deductions is to Learn the Rules. The question here is what's commuting? According to the IRS, commuting is traveling from your home to your first place of business for the day and then returning home from your last place of business for the day. In Michael's case, this means that if he travels directly to Louisville from home and then back, his entire trip is commuting and is nondeductible.

Instead of going directly to the client, what if Michael goes to his office in Shepherdsville, does some work, then goes on to the client in Louisville, returns to his office in Shepherdsville, and then returns home from there. This makes his trip to Louisville deductible. Only his trip to his Shepherdsville office is commuting.

What if his office in Shepherdsville is in his home? Then, his walk from his bedroom to his office is commuting and his trip from his office to Louisville is deductible. When he returns to his home office to do some work at the end of the day, his trip there from Louisville is also deductible. Of course, the real effect of this planning strategy is to make his entire trip to and from Louisville deductible. See what happens when you Learn the Rules?!!

For more on setting up your home office, see our home study product, Getting the Most of Your Home Office Deduction at http://www.wealthstrategyuproducts.com or even better, join our School of Tax Strategy at http://www.provisionwealth.com/products.

Remember that the more expenses you make deductible, the lower your tax and the faster you reach your financial freedom.

Warmest regards,

Tom

Weekend before last I was at the Marshall Sylver event, Financial Prosperity. It was a terrific seminar. The next one is in Orlando later this year and I encourage everyone to attend. I attended both as a participant and as a speaker.

One of the exercises Marshall had us do was to put together a business plan for an entirely new business. He put us into groups of 7 and we were to come up with a business that none of us had done before or were planning on doing. Our group decided to plan a business selling the latest solar panels.

Of course, my task was to come up with the tax benefits of solar panels. Fortunately, a client of mine, Jack McGill, recently had explained some of the tax benefits and they are extraordinary.

First, there is a federal tax credit equal to 30% of the cost of the solar panels for any homeowner who buys and installs the panels on their home. Many states also give tax credits (Arizona's is $1,000) and many utilities are offering rebates.

One other benefit is that if you put a bigger unit than is necessary to power your house, you can sell your excess energy back to the utility company. Our group estimated that with the new technology, a homeowner could easily recoup their investment in less than 5 years. After that, their energy is essentially free and they can still sell excess to the utility.

Sounds like a great opportunity for anyone interested in going green with their home energy consumption. The only challenge I found in my research is that you don't get the federal credit if the unit is used to heat your swimming pool. I'll have to figure out a way around that when I install the panels in my new home in Park City, since I will definitely be heating a pool.

For more information about tax saving strategies, join us in our School of Tax Strategy at http://www.provisionwealth.com/products. Go green and get those tax credits.

And remember that your financial freedom is closer than you think!

Tom

I was reading my scriptures this morning and came across a passage that really struck home. The verse says, "I know that he (God) granteth unto men acccording to their desire...; yea, I know that he allotteth unto men...according to their wills...." What struck me was the relationship between desire and will.

How many of us have heard the idea that if we desire something, it will happen? We read this in several great books, including, "As a Man Thinketh," and "Think and Grow Rich." And, of course, the recent phenom, "The Secret." There is no question that our desires play a major role in what we receive (especially our subconscious desires).

What I find is that the desire has to be so strong that, like this scripture explains, it becomes our will. Let me give you an example in my own life. I have long had a bad habit of biting my fingernails. Not a major challenge, perhaps, but not exactly socially approved. Not only do the fingernails look bad, there are the hangnails and other unsightly and uncomfortable results from this habit.

I tried for years to break the habit. And I have been unsuccessful until now. I set a new resolution this year to not just not bite my fingernails, but to keep my hands entirely away from my face. Unbelievably difficult. So far, though, so good. (Actually, of my 5 New Year's resolutions, this is the only one I've been close to perfect on.) I haven't bitten a fingernail in three months. I actually have fingernails that are all the same length. Amazing. I've even been thinking about getting a manicure. (Question to the guys who read this blog) - Do I lose my Guy Card if I get a manicure?)

So what's the difference this time around? It comes back to that scripture. Not only do I desire not to bite my fingernails, it has become my will. This principal doesn't just work for fingernails; it also works for all of the bad financial habits you may have. Do you spend impulsively? Do you put off your bookkeeping? Worse, do you put off your tax return filings until you are late?

All of these bad habits can be overcome if you desire it AND it becomes your will. You must will it. It has to be so important to you that you think about it not just occasionally, but ALL THE TIME. Remember, Napoleon Hill did not say, "Think once in awhile and grow rich." He said, "Think and Grow Rich." This means all of the time. It has to become your will.

As the old say goes, "where there's a will, there's a way." The converse is also true, "without a will, there's no way it will happen." (This last quote is mine.)

Focus, focus, focus on your wealth and make it your will and it WILL happen. Then and only then will your financial future be closer than you think.

Warmest regards,

Tom

I had the opportunity to speak to the MAP trading group yesterday in Sacramento. These people are serious about trading in the stock market. 40 of their roughly 100 members gathered to participate in 3 hours of discussion regarding how to reduce their taxes. Of the 40, 4 decided to go to the next step of joining our School of Tax Strategy to continue their efforts to reduce their taxes.

These numbers are instructional. Of the 100 members, only 40 of them were willing to spend 3-4 hours learning how to reduce their taxes on their trading income. Of the 40, 4 were willing to spend a couple of hours a month and a few hundred dollars to continue learning how to reduce their taxes. So about 4% of the membership was willing to take serious steps to reduce their taxes, the single biggest expense they have and a potentially huge burden on their trading profits.

Interestingly, these numbers are about average for people who attend seminars. About 5% actually take action. Why is that? I suggest it's because reaching our dreams is hard work. As my friend Greg Habstritt says, "building wealth is simple, but it's not easy."

How dedicated are we to reaching our dreams? What will we give (see "sacrifice") in order to win? Robert Kiyosaki explained at the Rich Dad Tuesday meeting recently (go to www.richdad.com to sign up for Rich Dad Insiders to participate via the Web in these meetings) that at any given time, we have a choice between winning and being comfortable.

This really struck me as I was flying home last night. I will admit that I frequently take the comfortable route. What about you? Are you winning? Will you make the extraordinary effort it takes to be the best? Think about Olympic athletes and their mindset. It's all about winning!

Every minute of every day we are making this choice. Just remember that. And here's to winning whatever it is you seek!

When you dedicate yourself to winning, your financial freedom is closer than you think.

Tom

I received the following quote yesterday from a good friend of mine:

"You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it." ~~~ The late Dr. Adrian Rogers , 1931 to 2005 ~~~

I would very much like to hear your thoughts on this. Personally, I fear for our country. This country was built on the notion of freedom. Heavy taxation is not freedom. And neither is a free handout. Work is a privilege and when we take away the incentive to work by giving people what they need without work, we take away this privilege.

I am not saying that we should not take care of the poor and the needy. I simply believe this should be voluntary, not compelled. At the same time the government is talking about free health care and making sure everyone has "enough", it is talking about eliminating the tax deduction for charitable contributions. These are two entirely inconsistent policies. Who takes better care of the poor - the government or charities? Charitable giving always serves two people - the giver and the receiver. Government at best only serve the receiver and serves them poorly.

Let me know what you think on this matter. And write your Representative and Senators.

Warmest regards,

Tom

The first thing I remember learning from Robert Kiyosaki when I first met him years ago was the concept of context vs. content. Robert uses a glass to illustrate this concept. The glass represents the context while what goes into the glass is the content. Until you make the glass (your context) bigger, you cannot add more content then you currently have.

I was thinking about this the other day in terms of tax knowledge. What's more important - context or content? In my travels, I am finding that most people are lacking in both content and context when it comes to taxes. They know very little (and really don't want to know more) about the rules (which, admittedly, are complex) and know even less about how the tax law works.

As I do tax evaluations for our new clients, I routinely find that 90-95% of them are overpaying their taxes by 10-40% simply because they don't know how the tax law works. This is the context I'm talking about, not the content. As soon as we broaden their context, they instantly start paying less tax.

The first and most startling change in context for most people is that Congress has filled the tax laws with tax savings that act as incentives for handling their business and investments. In fact, of the approximately 5,700 pages of Internal Revenue Code, 5,600, or 98%, is dedicated to reducing taxes. Less than 100 pages are dedicated to raising taxes.

The second change in context is finding out that of the 5,600 pages of tax reductions, only 400 pages are dedicated to deferring, or postponing taxes through mechanisms such as IRAs, 401(k)'s and pension and profit sharing plans. The remaining 5,200 pages are dedicated to permanent tax reductions.

That's enough context for today. Are you beginning to get a sense of what I mean by changing your context when it comes to taxes? When you begin to understand how the tax laws function, they stop being so scary and you can start saving taxes immediately.

Tomorrow we will talk about another change in context regarding taxes that will change your life and permanently reduce your taxes. Stay tuned.

Warmest regards,

Tom

Pretty deep question, huh? And likely the most important question we can ever ask ourself. If we don't know our life's purpose, how do we know what we should do on a daily basis?

I talk a lot about vision (as in ProVision). We can take this a lot deeper than vision of your future and vision of your financial freedom. What about your vision for your life? Do you see your strengths and weaknesses and how you can contribute to the rest of the world? Do you have a clear understanding of your purpose on the Earth?

As you know by now, I'm a big believer in strategic thinking. Strategic thinking is critical in business and in building wealth. Are you strategically thinking about your life? Does your life reflect your strategy for life? Remember the definition of strategy - A systematic plan of action to accomplish a specific goal or purpose.

Think about your life strategy. Begin by looking at your life goal and purpose. Then, create a systematic plan of action for accomplishing that goal and purpose. When you do that, every minute of every day will have meaning. You will be truly focused on your life and when you are on your deathbed, you won't be wondering what life was all about.

I will talk more about how to do this in future blogs. Because, why would we care about a tax, business or financial strategy if we don't have a life strategy?

Just a few casual thoughts to think about today.

Warmest regards,

Tom

For Christmas, my wife, Rosie, gave me tickets to the Elton John/Billy Joel concert. Last night was the big event. Rosie and I expected a good show - it's always good to see great performers. We weren't expecting the amazing show these two put on last night.

Elton and Billy came out and did 3 or 4 songs together and then we got 75 minutes of just Elton John doing his best work. After that, we had 75 mintes of Billy Joel's best music. Then, we got another 45 minutes of Elton and Billy together. In all, 3 1/2 hours of amazing performances from two of the greatest performers ever.

My point? These two way over delivered. Anyone in the crowd would have been thrilled with 2 hours of Elton John and Billy Joel. But 3 1/2 hours? And they weren't mailing it in, either. They were fully engaged. Very impressive.

It made me think about my own business and those of my clients. Do we over deliver? Do we consistently give more than expected? When we do, what is the result? You can be sure that the fans last night will be first in line for the next Elton and/or Billy concert. And I'm sure their music sales will skyrocket from these events. The point? The more we give, the more we get.

I hear all the time from clients, vendors and others about how amazing the ProVision staff is. The responsiveness from my employees and partners is fantastic. I appreciate each and every one of them. Especially this time of year, when they are putting in long hours and feeling the stress of what we refer to as "Prime Time." (I'm guessing the rest of you refer to it as Tax Season." Please join me in thanking everyone at ProVision for giving more than expected.

If you would like to have this kind of result from your CPA, call us at 866.467.5809 or send us an email at cs@provisionwealth.com. I guarantee you will get amazing results that will immediately contribute to your financial freedom.

Warmest regards,

Tom

Anya from our School of Tax Strategy asks the following question:

Q: Hi Tom, I have a question regarding my start-up costs. I purchased some training materials on CDs for QuickBooks as well as the QuickBooks software itself in Septemebr of 2008. I was still working for my employer at that time. I quit my job in November and earned my first check as a self-employed person in December of 2008. I did not start actively looking for new clients until March 2009. Can I deduct the sofware and the training CDs as Section 179 deduction on my 2008 taxes?

A: The answer to this question is, of course, dependent on some additional facts. So let me give you the basic rules and then you can decide how they work for you. You are correct that the software and education are start up costs. Up to $5,000 of start up costs can be deducted in the year you start business if you have total start up costs of less than $50,000 and you make the proper election on your tax return for the year you begin business. (Elections are one of the reasons that using a qualified tax preparer is essential when you have your own business or investments.)

Since you received income for your new business in 2008, it's pretty safe to assume that your business started in 2008. So it looks like you probably can deduct the software and educational materials as start up costs. You will also need to treat these expenditures as Section 179 expenditures and make the election to expense them.

For more on start up costs, including how to make the election, go to http://www.wealthstrategyuproducts.com and order our course on Start Up Expenditures.

Warmest regards,

Tom