Give Yourself a Raise, Part 3

This article is the last in a series of pieces on how to dramatically reduce your income taxes legally and ethically. If you missed the first two you can review them before moving on to this article; Giving Yourself a Pay Raise – Beating the Biggest Wealth Drain and Give Yourself A Raise. These other two articles discuss the hundreds of deductions you qualify for when you own a business as opposed to being an employee. First we show you how everyone can have a small business even if they’re a current employee working for someone else. Specifically we talked about 4 strategies out of those many hundred of deductions that you can start to use immediately to increase your net take home pay. Now let’s talk about the 5th and a special discussion on a superior business structure for successful businesses to lower their taxes by 50% or more.

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TAX DEDUCTION 5 $25,000 Vehicle Deduction

 

Per Section 179, you may be able to expense some or all of your business use of your vehicle. Basically, if your vehicle weighs more than 6,000 pounds, you can expense up to $25,000 the first year the vehicle is used in your business. You also must use the vehicle at least 50% for business in order to qualify. The $25,000 deduction assumes 100% business use. If you use your vehicle 75% for business, you would get 75% of the $25,000 or $18,750.

Car Used Less Than 50% for Business

If the business use of your car drops to 50% or less, there are certain rules that apply. These include:

  1. You cannot take a Section 179 deduction for your heavy vehicle.
  2. You must use the straight-line method of depreciating your vehicle. While the five-year period still applies, this will result in a lower depreciation deduction in the earlier years.These 5 strategies are just the tip of the iceberg that I mention here and in the other two articles.

These 5 strategies are just the tip of the iceberg that I mention here and in the other two articles.

If you are already a successful business owner and feel like you are implementing every legitimate tax deduction, but are still paying $150,000 or more in annual income taxes there is a different specific strategy for you.   There is a little known company structure that may help you save 50% or more on your income taxes every year. We call this our income efficiency strategy and work in conjunction with a very high level attorney to structure these programs. It is very unlikely your current tax professional will be aware of this business structure but this attorney has been utilizing them for clients since 1998. However, the attorney who sets these up will be happy to have conference calls with your tax professionals to explain the program in depth. This attorney is not trying to replace your current professional but rather work with them to implement this plan for your business.

You will utilize structures that have been around for decades and most tax professionals mistakenly believe are only good for public corporations. These are structures that Lowes®, Southwest Airlines®, and Home Depot® use just to name a few. Now the successful small business owner can utilize the same structures as the big boys thereby dramatically lowering your tax liability.

I don’t want to bore you with details here but if you are in that small group who are paying those kinds of taxes we have a real solution that has been looked at by the IRS several times since 1998 and every time there were no changes required for the client. In other words this is not some kind of a scam or loophole but rather a very specific company structure that will fit into your existing business model to dramatically reduce your income taxes. Send us an email at info@perpetualwealthsystems.com with the subject line “income efficiency strategy” and we will have one of our professional teammates reach back out to you to see if we can help.

Can You Really Afford Your Car Lease?

Last week I wrote about how to save boatloads of money buying the car of your dreams — but only after it is two or three years old. This week I want to talk about how leasing a car really works and offer some tips to save you more money on your next car.

OK, so what exactly is a lease? A lease is an agreement you enter into to rent your car for a predetermined length of time (usually 24 to 36 months) for a predetermined monthly payment, and for a set number of miles. These payments are always less than the payment would be had you bought the same car on the same day. The lower payment makes the car look more affordable on the surface, but inside that lease agreement are all kinds of terms that can cost you far more than just the payments.

To start with, why is the payment less expensive with a lease than with a loan for the same car? When you lease, you’re only paying for the estimated depreciation during the length of the lease rather than the entire loan balance you would pay back during that same time frame.

For example, you borrow $25,000 and sign a 36-month loan agreement at 5 percent, giving you a payment of $749, which is a pretty hefty car payment by today’s standards.

For many people, that’s simply too rich for their blood. But if you could swing that payment for those 36 months, you now have a free-and-clear car with a lot of life left in it and, if you were disciplined, you would continue to make that big payment — but instead of giving it to the bank, you could put it into a tax-free account. (More on that next week in Part 3.)

In contrast, when you sign a lease on that same car for 36 months, your payment might only be $300, which is much easier on your pocketbook. But after three years, you still have a balance to pay off if you want to own the car. This balance is called the residual value, and it must be paid off either with cash or a new loan. Most people won’t have the cash to pay off the car, so if they want to own it they have to take on another loan for several more years to actually get the car paid off.

Most people do neither of these things and instead turn in their car and get the next newest model, taking on yet another lease payment — and on and on until they’re old and gray.

In essence, a lease allows you to extend your payments on a car for six to eight years, and you end up shelling out far more in payments and interest (yes, there’s a hidden interest rate with a lease) for the same car. Sure, you have a lower monthly payment, but you have many more payments in total, sucking even more money out of your bank account.

So instead of just winging it, what if you actually employ a strategy for your next car?

If you can’t afford the three-year payment, then how about committing to no more than a five-year note? Can’t afford that either? Then the truth is you really can’t afford that car. Shop for something less expensive, perhaps a model year or two older, and buy that instead.

Then once you pay off your car, you should make a commitment not to buy another one for two years. That way you can continue to make your monthly payment — but to yourself — into a tax-free account.

According to IHS Automotive, the average length of time people hang on to a car is nearly six years, so you’ll go one extra year for good reason.

It will look like this in real numbers: You borrow $25,000 at 5 percent for five years on your next car, resulting in approximately a $470 monthly payment, which you pay for five years. Then you own the car free and clear. But then what will you do with the payment you were making? If you’re like most people, you’ll blow it on junk.

But you — you are not like most people. You have a plan.

Instead of adding to your junk collection, you could instead continue making that payment from your checking account every month — but now the money goes to a bank (or a pool of money) that you control. If you do this for the next 24 months, you’ll accumulate $11,280, plus the growth on that money (guaranteed and tax-free if you do it right), which would put you at a total of about $13,000 you’ve saved for yourself and your family.

That $13,000 in a tax-free account that gets just 5 percent compound interest will be worth more than $35,000 for you in 20 years. Could you do that on every car you and your spouse ever own? If you do, you’ll have hundreds of thousands dollars more for your family in the years to come.

According to the Employee Benefit Research Institute, the average American only has $56,000 in savings by the time he’s 65 years old. But by mastering this car strategy, you could have four or five times that amount over your lifetime, depending on when you start.

Now some of you are wondering why you still need to make a payment to yourself every month instead of just letting the unused money sit in your checking account. That’s simple: Human nature won’t allow you to truly “save” your car payments unless you get the money out of your day-to-day cash flow and easy access. Money is only truly saved if it’s focused — and not frittered away on other things we really don’t want or need.

Focused cash flow is the key to wealth, and the disposition and growth of that cash flow is critical if you want to get ahead and have more options later in life.

Have you ever “saved” money on a big-ticket item in your life? Where are those savings now? Precisely! Get in the habit of taking your “savings” and truly making them savings by getting them out of your cash flow account and into a separate tax-free account.

In today’s world, automobile ownership is a luxurious necessity. Sure, it’s nice to own a nice car, but over time the costs of doing so are enormous. You need a strategy to stop the wealth drains of depreciation and interest.