Tom's Blog

One of the great books of all time is "How a Man Thinketh by James Allen." The premise of this book is that we will do according as we think. And we will never do something that is not first a part of our thought process. Allen says, "All that a man achieves and all that he fails to achieve is the direct result of his own thoughts."

I have long believed this to be an essential element of how someone pays (or overpays) their taxes. Let's start with how most people think about taxes in the first place. Two words best describe how people think about taxes - fear and boredom. People are afraid of the IRS. And people are afraid of the complexity of the tax laws. And they see taxes as a boring subject in the first place.

Let's say you conquer your fear of learning about taxes and decide you will put up with the boring subject of tax law enough to read a book or go to a seminar or sit down with an accountant. What are you likely to be told in the book or seminar or by that accountant? It's very likely that you will be given a few tips to preparing your tax return, or some ideas about how to postpone your taxes to a future year, such as through an IRA or 401(k) or by prepaying some expenses at the end of the year.

When you read or hear information like this, how does it affect your thinking? Assuming it comes from a credible source, you probably believe it and begin thinking that this is what you should be doing. You should be defering (postponing) your taxes by maximizing your contribution to an IRA, 401(k) or profit sharing plan. You should be defering taxes by prepaying expenses. And it's just as likely that you will think that's all you can do. So, you start doing it.

Now, most of you are thinking right now that you have been doing this all along even without a book or seminar. Why? Because you have been told this by countless people in the media, including advertising from mutual fund companies, banks, insurance companies and others who want you to make these contributions because the contributions have to be invested and most likely will be invested in a company like theirs.

And, if you are like most people, this is the extent of your thinking about tax planning. It's all you know so it's all you do. The reality is that their are more than 5,700 pages of the Internal Revenue Code. Of these, less than 400 are devoted to tax deferral. Less than 100 are devoted to raising taxes. So what about the remaining 5,200 pages? Devoted to more meaningful ways to reduce your taxes.

Think about that! 5,200 pages of ways to reduce taxes that are never discussed in the media, by your employer, by your accountant, or in the books you may find on taxes. Does anybody know about these 5,200 pages besides high-priced tax lawyers (most of them don't either, by the way)? Yes!!! The wealthy know these rules. They are the ones who pay the high-priced lawyers and accountants to keep their taxes down.

Isn't it time you started learning about the 5,200? Join us in our School of Tax Strategy for our education and monthly coaching calls. Visit http://www.wealthstrategyuproducts.com to learn more.

Warmest regards,

Tom

I recently did a tax evaluation for Joe, one of our students in our School of Tax Strategy. He has a follow up question to our discussion:

Q: Hi Tom I had a follow up question re our tax review. I took a 3 day rich dad stock trading class in Nov 08 ~$500 I also signed yup for stock trading advanced course work $24k. I don't have an entities set up for trading or real estate yet - we just file a personal IRS 1040 for 2007 tax yr Could we claim this education as a business expense? thanks lots, Joe

A: This is a common question from seminar participants. In recent years, the IRS has been challenging the deductibility of a lot of seminar expenses. The reason is that education, unless it's to improve job performance, is not deductible? Why? Because it is not for producing income.

There is a way, however, to make seminar expenses deductible. How? Simply show that you are using the seminar to POTENTIALLY produce income. In other words, start a business. Take that great information you learned at all of those seminars and put it into practice. Actually start that business. Then, the education expenses can be treated as Start Up costs. For more on Start Up costs and how to deduct them, try our course on Start Up expenses at http://wealthstrategyuproducts.com. If you want to learn how to start that business, join our School of Wealth Strategy at http://provisionwealth.com/products. At ProVision, we want you to succeed in your tax reduction AND in your business and wealth strategies.

Remember that when you reduce your taxes and build the foundation for a strong business, your financial freedom is closer than you think.

Warmest regards,

Tom

Here is a question that a lot of our readers can relate to coming from one of our School of Wealth Strategy students:

Q: Hi Tom Regarding the Velocity principle - What would you suggest regarding pulling equity out of the real estate investment. An equity line or a refinanace? it appears that Eq line terms are shorter duration now, and you still need to pay back principle so it would seem to me a refinanace would be in order. Best Regards!

A: First of all, congratulations of having equity in your real estate. Not too many people can say that right now. Second, I would suggest sitting down with your Wealth Coach to examine the terms that you are getting from your Bank on both the fixed-term and variable term loans.

My preference generally is more flexibility. This leans towards a HELOC. There are times that a fixed loan is preferable. If you have immediate use for all of the funds, a fixed loan is great. It's better from a credit score standpoint and you can structure it so you have a fixed rate of interest. In these times of low interest, this is particulaly advantageous.

The challenge comes if you don't have an immediate need for the money or if you want to use the money sporadically. Once you take out a fixed loan, you are paying interest on it continually until it is paid off. And once you pay down the principle, you can't go back and take it out.

If you do choose a fixed loan, be sure to build a complete wealth strategy before taking out the loan. Design your strategy so your loan is used productively all of the time. That means that when you aren't using the money for more real estate or more of your primary strategy, that you have an outlet for it, such as a hard money loan. Check with my friend, Wayne Palmer, who handles hard money loans professionally to see if he won't invest it for you on a temporary basis when you aren't using it.

If you don't have a Wealth Coach yet, contact our office at 866.467.5809 and set up an appointment with one of our Weatlh Advisors to determine what level of Strategic Wealth Coaching is most appropriate for your situation.

When you have a strong, complete, Wealth Strategy, your financial freedom will be closer than you think.

Warmest regards,

Tom

One of the most frequently asked questions I get, either at a seminar or through email, is about what type of entity should be used for a start up business. I'm glad people are thinking about this, because the types of entities you use are at the core of a successful tax strategy. Yesterday, I received a question in this regard from Charlie, one of our School of Tax Strategy members.

Q: Hi Tom, It's Charlie again. I just thought of another question. My fiance Tiffany and I started selling on eBay. So far we have sold 27 random items around the house. The profit margin is a joke, no more than $100. Anyhow, we are going to be transitioning to drop shipping through eBay. Which means, selling warehouse items through an outside source, and they take care of shipping and handling. All we do is find the items we want to sell and advertise them. We want to go full scale on that, and generate thousands per month. My question is, when should we set up an entity, if we should at all? and whether or not setting up an entity would be the best tax strategy for us. Are we behind on doing that? What are the action steps around that? Tiffany and I are brand spankin new to business, so please guide us in what would be the most tax and cost effective way of running our eBay selling business.

A: It's never too early to set up an entity for your business, so get started right away. The choice of entity depends of several things. For example, what state or states you will be operating in? How big to you plan on growing your business? How fast do you expect your business to grow?

The best answer to entity choice is always to determine your entity within a comprehensive Tax Strategy. Your Tax Strategy should include not only your choice of entity, but how you plan to operate the entity, your goals for the business and even your exit strategy. A simple way to begin is to form an LLC, or limited liability company. In most states, this is a good entity to form. The best thing about an LLC, outside of it's asset protection characteristics, is its flexibility from a tax standpoint. An LLC can be taxed as a sole proprietorship, a partnership (if two or more members), a C corporation or an S corporation.

Until you actually do your tax strategy, just set up the LLC along with a bank account and bookkeeping (we recommend Quickbooks Pro for start up companies). When you meet with your CPA to do your tax strategy, you can make changes to how the LLC is taxed, if necessary.

Remember that a good tax strategy is the first step to increasing your cash flow by lowering your taxes. And it takes good cash flow to develop lasting wealth. With lower taxes, strong cash flow, and wealth, your financial freedom is closer than you think.

Tom

I woke up this morning and realized that it's April 16th and by anybody's standards, as the CEO of a CPA firm specializing in tax services, I should be exhausted. I'm NOT! Why not? Because I have an amazing team and systems in place. I can honestly say that I have not done or reviewed a single tax return this year, other than my own.

This great team along with the systems my partners and I created and maintain allow me to focus on the parts of the business that I do best and that I enjoy the most. In the past three months, I have been on stage speaking to audiences ranging from 40 - 1,800 participants. I have been on radio and television. And I have continued our monthly coaching calls in both our School of Tax Strategy and our School of Wealth Strategy.

I want to take this opportunity to thank my partners at the CPA firm - Rob Deines, our managing partner, Scott Snow, our partner in charge of international tax matters, and Rondi Habern, our partner in charge of estate and trust planning. And all of our other CPA's and staff who have made this Tax Season a success.

You, too, can build a team that allows you to do the parts of your business and/or investing you enjoy the most. Join us in our School of Wealth Strategy to learn how at http://www.wealthstrategyuproducts.com.

Remember that when you have the right team and systems in place, your financial freedom is closer than you think.

Tom