There are lots of types of entities that can be used for your business and investing activities. One activity we are seeing a lot of lately is wholesaling real estate, where you put a property under contract and then assign the contract to another buyer before close. This gives the wholesaler some cash flow without having to actually purchase the real estate. Jay asks the following question in this regard:

Q: Hello Tom: I'd like to start a real estate company for wholesaling transactions. I plan to flip the deal or contract of said property to other buyers/investors for quick profit. Most deals will net me anywhere from 5K-200K+ in profit. In each deal, I do not plan to hold title no more than 30 days. With this being ordinary income, which type of entity should I form to best mitigate my tax liability for these types of transactions. Thank you in advance. Jay

A: For most regular business activities, like wholesaling, I typically like using either a limited partnership or an S corporation. Either of these can use an LLC as the legal entity with simply an election to be taxed as a partnership or S corporation. The reason I like these entities is because they both serve to reduce the amount of self-employment tax you pay on the net income from the business.

Be sure to work with a qualified tax strategist when setting up your entity (or entities). You can avoid a lot of headaches and taxaches (my newest word) from the very beginning. Call my office for more information on tax and asset protection strategies at 866.467.5809. Ask for Siggy.

Warmest regards,

Tom

We just learned that Robert Kiyosaki's new book, Unfair Advantage, will debut at #12 on the New York Times Bestseller list on May 8th. Amazon.com is calling this Robert's best book. I agree. I am a little prejudiced, as I was a major contributor to the book.

Unfair Advantage takes all of those great concepts from Robert's original book, Rich Dad Poor Dad and explains why they work. From a full chapter about how the tax law works (yes, I'm in there many times) to chapters about what financial institutions are doing to the American Public and how debt can be used to accelerate wealth creation, Unfair Advantage gives everyone who reads it the opportunity to create their own "unfair advantage."

Several years ago, Robert asked me what was my unfair advantage? I had to stop and think as we at ProVision, my CPA firm, have many unfair advantages. To begin with, we understand that the tax law is a series of stimulus packages for business owners and investors. That means that the tax law is for you if you are a business owner or investor. Not against you. We use our extensive knowledge to create an unfair advantage for our clients. Routinely, we show them how to permanently reduce their taxes by 10-40%. And it only takes 2-3 months on work to get their. Now that's an unfair advantage.

When you have that much more of your hard earned money in your pocket, you have an unfair advantage compared to those who continue paying exhorbitant taxes to the government. And everything we do is well within the tax law.

The right education always leads to an unfair advantage. What education are you going to get so you have an unfair advantage? Start by reading Robert's book. My friends Ken McElroy, Garrett Sutton (who teaches the Rich Dad Tax and Asset Protection class with me) and Andy Tanner (one of the world's greatest teachers on stock and option trading) also contributed heavily to this book. I can't think of any other people I would rather be associated with than this group. And don't forget Robert's delightful wife, Kim, who is both an inspiration to him and a brilliant thinker and writer in her own right.

Thanks, Robert, for letting me contribute to this, your best book ever!

Tom

Eric asks a question that I get fairly regularly about putting a personal residence into an LLC. My answer begins with the tax effect of doing so. There are no income tax results to putting your personal residence into an LLC. However, several states, such as Hawaii, have significant transfer taxes for putting a property into an LLC. Check with your Tax Advisor about your state before you do this.

Next is the question about whether this affects the opportunity to borrow against the home. The answer is - it could. However, you can distribute out the home at any time without income tax consequences in order to refinance. Again, be aware of the transfer tax consequences.

From an asset protection standpoint, it could make sense to do this, depending on the state. Some states, such as Texas and Florida, have great homestead laws that protect your home. An LLC would seem to be an unnecessary complication in these states.

The final answer is - It Depends. Like most tax and asset protection strategies, it depends on your particular facts and circumstances. Be sure to talk to a qualified tax and asset protection strategist before you do anything like this. BTW, you really need to speak to two advisors, a tax advisor and a legal advisor. My current recommendation for the legal help is my co-instructor, Garrett Sutton at www.sutlaw.com.

Warmest regards,

Tom

Recently, I have written much on the subject of investing in real estate through an IRA. So you know by now that I don't like this idea because you lose so much in tax benefits and leverage (debt). Here is another question from one of our students on this subject.

Q: Hi Tom; My wife and I are Rich Dad students enrolled in their coaching program. We are interested in investing in apartment buildings but have no capital to use as a down payment. We are interested in tapping into our retirement savings. I have a 401K plan with about $475,000. My wife and I have several smaller IRAs amounting to about $125,000. I know that you are not a fan of investing in real estate within a self-directed IRA because many of the advantages such as depreciation are unavailable. Are you aware of any way that I can create a self-directed IRA and then take a loan out against it so I can purchase the building(s) outside of the IRA? One of the coaches suggested that we purchase the building within the IRA, then at some time later on, purchase the apartment from our IRA through a refinance. Does this make any sense? Thank you for your many contributions toward my education! David

A: Most 401(k) plans allow you to borrow up to 50% of the balance in your 401(k). This is the best way to get money out of a retirement account into real estate. Definitely do not think that you can purchase the apartment later on from your IRA. You cannot do personal transactions with your IRA. This is called a prohibited transaction and will blow your IRA and the IRS will likely assess severe penalties at the same time.

You may be better off simply distributing out your IRA funds and paying the taxes and penalty. Sit down with your tax advisor and wealth strategist (hopefully these are the same person) and run the numbers. Frequently it makes sense to take the hit on taxes and penalties. You may find that through leverage and tax benefits, you will make back the taxes and penalties within a few years.

Warmest regards,

Tom

The cover of the Bloomberg Businessweek edition for the week of April 11, 2011 had this title, "How to Pay No Taxes" - 11 shelters, dodges, and rolls, all perfectly legal, used by America's wealthiest people.

A client of ours forwarded the article to me for my review and comment. Only one of the strategies doesn't work (Congress shut it down several years ago - you can ask your tax advisor which one it is - good test for them). The rest of the strategies are common to the advanced tax advisory community. Interesting to me that they made headlines like this.

At ProVision, as well as at many of the other International CPA firms, we have been aware of and using these strategies with our clients for years and years. These are not loopholes. They are intentional tax benefits for business owners and investors. The reason they work for the wealthy is that the reason someone is wealthy is because they are a business owner and investor and have good tax advice.

The great thing about these strategies is that you don't have to be wealthy to use them. You simply have to be a business owner or investor. The challenge is finding a tax advisor who works with less-wealthy individuals and business owners who understand these tax benefits. This is exactly why I created ProVision 16 years ago. So the average entrepreneur and investor could get this level of advice.

For more on how ProVision can help you implement these strategies, call our office toll free at 866.467.5809 and ask for Siggy.

Warmest regards,

Tom

In the Sunday newspaper, Kevin G. Hall wrote an article called, "Americans Shouldering Rather Light Tax Burden." He begins the article by saying, "
Here's a dirty little secret that most Americans don't want to hear: We're undertaxed."

By historically, he is talking about post-WWII. Because we are certainly much higher than before then. I'm not going to dispute his statistics as I have no way to verify them. What I do know is that there is one item that is never discussed in the article. This is the effect of inflation on taxes. Is a person who makes $100,000 today paying less in tax than someone who made $100,000 twenty years ago? Could be. However, how much purchasing power does that person have today? Less than half.

So the appropriate measure would be taxes based on purchasing power. In the past year, many companies have downsized their products while keeping prices the same. My estimate of this type of inflation, which I call "sizeflation" is about 20% for the past 12 months. So what is the appropriate income comparison for $100,000 today in 1990 dollars? Not more than $40,000. Are taxes on $100,000 more than taxes on $40,000? Even when you adjust the taxes for purchasing power, the answer is a resounding yes!

Why? Because we have a progressive tax rate system that does not adequately adjust for inflation. So as you earn more income, you pay tax in a higher bracket.

What the article absolutely gets right is that taxes are going up. I'm not going to argue about should they or what should happen with federal spending. What I will tell you is that with a good tax strategy, your taxes can go down by as much as 30-40%. One of the respondents to the article suggested just that. He got with his CPA and his taxes went down.

So get with a good CPA and develop a sound, legal tax strategy so your taxes go down, not up.

Warmest regards,

Tom

Dear Tom, My name is Su, your new student, from Melbourne, Australia. I have been Robert's insider member since Nov.2007, just out of Rat race. Your Home Study Materials are brilliant. I've ordered 7 of them at this moment(loving them), will order more in near future. As Robert said,"Tom makes complicated simple..." Q: How can I practice what you teach me, safely move onto Fast Track with Pro Vision 's assistance? Through your Company, is it possible: 1.Set up right entity? 2.Become your client, to start investing in USA? 3.Find R.E.O deals through your team? 4.Go through one of the "Growth Assets" - Real Estate process under Pro Vision's supervision? looking forward to hearing from you Thank YOU! Much Respect Su.

A: Su - Glad to hear you are enjoying the home study materials. Now that you are ready to move to the Fast Track, you need a strategist. Someone who can help you use the information you are learning from our courses and apply it on a daily basis to create massive passive income. My suggestion is that you work with one of ProVision's wealth strategists. Our strategists are highly trained professionals with many years experience helping client build their wealth to move out onto the Fast Track.

You can reach us by calling Siggy in our office at 480.467.4400 and setting an appointment to speak with James.

Warmest regards,

Tom

Jacob is wondering, now that he is investing seriously, about how to set up the right entities. Here is his question:

Q: My question is I own a rental property and Trade options. I do not have them an any type of financial entities. Is there anyone in my area which is Fresno,ca that you know of that I can sit down and talk to about setting it up?

A: Using the right entities is an essential part of building your wealth. Not only can they help reduce your taxes and protect your assets from potential lawsuits, they can be a great business tool. Remember that all serious businesses are set up in entities. Using the right entities means you are looking at your investing activity from a business perspective. And entities require that you set up a complete set of books and records. When you set up and properly use good books and records, you develop good information from which to get good reports so you can improve your investing returns.

I recently met with the Chief Revenue Officer from Zillow.com. He mentioned that one of the biggest challenges they find with investors is that investors don't have good records and complete financial information. They feel like they could do a lot more for their customers if their customers kept better records.

This is another reason why having a good CPA on your team is critical. A good CPA will help you develop good books and records and can teach you how to use these records to create reports that will improve your investment returns.

To help you set up your entities, I strongly suggest you begin by working with a tax and asset protection strategist to make sure you set up the best entities in the best way. This is our forte. So please be sure to call Siggy in our office at 866.467.5809 to find out how we can best assist you with your new entities.

Warmest regards,

Tom