Eleven Principles of Creating Wealth Through Tax Efficiency​

Every Tuesday Chuck releases a new Trader Tip video on YouTube. This week we will discuss tax efficiency tips that are easier than trading, easier than investing, and when working together can maximize the growth and protection of our capital. Watch the Trader Tip Episode for more information! 

You can read the episode transcript below or watch the video that follows.
If you have any questions, please reach out to us. We look forward to being a continued part of your trading education!


Today we're going to talk about the 11 Principles of Creating Wealth Through Tax Efficiency. One of the questions I have for you, before we even get into these 11 principles is what is your biggest expense in your life? What is your biggest expense? Now, after you've thought about this, many of you will say your mortgage, some of you will say credit card payments, and some of you will say paying for college. The question I have for you is, did you consider taxes as your expense? I'm stunned by how many people do not even think of taxes as an expense. They think it as something you pay the government. No!

Taxes are an expense, and not only their expense, but for the majority of you, it is your biggest expense. By far. It dwarfs your mortgage, and dwarfs anything else. This is really important to get this mindset to understand the taxes are our biggest expense. As such, we need to seek to minimize the impact of taxes, and in fact, if you go through you can actually go look, there have been legal rulings by judges who have affirmed this idea that it is your right, especially in the United States, it is your right as an American taxpayer, to do everything within legal means to reduce your taxes. You have no obligation to pay more than what you are legally required to do. Now, let's talk about this, because there's a lot here.

I work with traders, I have so many students that come to me to learn how to trade better, learn how to invest better, but tax efficiency is one of the best investments. This is number two, your tax plan would be one of the best investments you ever make. Why is that? Because when you save on taxes, it is guaranteed money, it's guaranteed return. Anything else you do in trading or investing, there's the risk of loss. Yeah, we like to think it'll work, and it should work, but there's always a possibility of loss. There's risk, but if you just optimize your taxes, and you just do the things that you're capable of doing, you might save $30,000, $50,000, $100,000, $500,000, and 1 million dollars a year in taxes, and that is instant, risk-free money, risk free, because it just comes to you. We want to adopt this mindset of realizing a tax is our greatest expense and realizing that money that we save in taxes is guaranteed income, it is one of the best investments you'll ever make.

With this, we're going to move into the 11 Principles of Creating Wealth Through Tax Efficiency.

Number 1. First off is you need to have a tax efficiency plan that you are responsible for. This is one of these things that you can't just totally outsource it. You don't need to be a tax expert, but you need to know enough to know what's going on, and you need to take the time to communicate with your tax expert, what you're trying to do, what your life objectives are, what the objectives of your business are what you see happening with your estate planning, all this sort of thing, this is really important. Because if not, you're not going to get the result that you want. The second thing related to this though is we need to hire a tax expert. Taxes are complicated. They're not for you to do on your own. If you're a W-2 employee and you have no deductions fine, but if you're going to start to do the things we're talking about, it gets a lot harder, and you need to have an expert with you. You need to think of what you want, and then guide the expert to get what you want and let them understand the details.

Number 2. Your tax plan, as we said is going to be one of the best investments you ever make, because it's going to be tax-free, risk-free money.

Number 3. We're going to deduct expenses against our highest tax income and minimize expenses against our lower tax income. We wanted to look at where income is coming from, and if we have income coming from multiple sources, it's often going to be taxed at different rates is going to be different types of income. As such, we want to push expenses to high tax income to reduce our tax liability and keep expenses away from low tax rates or low tax income so that that money can grow and compound.

Number 4. Most of your life expenses are deductible especially at the right time. You can deduct your mortgage or your rent, you can deduct your car payments, you can deduct your travel, you can deduct your education in your classes. There are so many things that you can deduct, you can deduct your medical, there's so many things you can deduct, and primarily your biggest expenses are going to be able to be deductible if you set them up correctly. What we really want to do is we want to make sure that our living expenses are tax deductible, so that we live first and pay taxes second. The average person has to pay taxes first and live once on the rest, we want to flip that. We want to live first on what we have and pay taxes on what's left. We're able to do this by deducting them.

Number 5. Now, once we've done that, the remainder that we're going to pay taxes on, we want to focus on reducing taxes on the rest of our income, get our rate down, so we pay as little as possible.

Number 6. Your optimal tax rate is actually going to be derived from a blend of different strategies, because you're gonna see there's all kinds of strategies that are fantastic, but they might have a finite limit to it. You might be able to do $6000 in this one and $37,000 in this one, and $71,500 in this one, and they start to max out. As they start to max out, you have to roll to the new strategy, but each has its own rate, some of them have zero, some have very low rates, and other plans have higher rates, but if we blend them all together, we get a blended rate, which is our optimum tax rate.

Number 7. We want to seek to own nothing, but control everything. This is more of an asset protection idea, but it also relates to income. We can set things up, we want to just remember what we want is the feeling that we get from something, not the actual something. Wherever we can, we can rent, we can lease, we can put it into the name of other entities, we can cover it with insurance, but we want to avoid owning everything, and instead we want to control it.

Number 8. When we set up various tax structures, we want to make sure that we maintain control. There's a lot of structures out there that Wall Street will sell you, and they'll tell you all these advantages, but you lose the control of the money. Now if that's what you want, that's fine, but for me, that was always my big thing, I want access to the money, I believe in being liquid. I need to maintain control.

Number 9. You want to understand taxes, all of you should have a niche of what you do really well, and you want to understand taxes in your niche, that's going to pay off.

Number 10. All tax planning must have a business purpose, rather than reducing taxes. What we're saying here is you can't just set something up just to cut taxes, it has to have a real legitimate reason, and if it has a real legitimate reason, and it saves you taxes, it's awesome. If you take a creative approach, you can set up a business purpose, the legitimate business purpose for so many things you want to do in life. You can get the effect of reducing taxes. But first and foremost, it has to have a business purpose.

Number 11. The better the tax benefits, they often have more complicated rules. One thing I heard that was really interesting is we think about this giant tax code from IRS, it seems really intimidating, but one of the things I heard that really struck me was the idea that everything that's in the code is actually for you to save money on taxes. If they wanted to really maximize what you pay, we wouldn't go into the code, you just pay your taxes on a postcard, no deductions. Be way simpler. It would put the accounts and tax attorneys out of business, but you would have no deductions and no way of minimizing your taxes. The tax code is often complicated, but we want to remember it's actually there for your benefit. Particularly this is where if you get a great tax expert that understands what's going on, they are going to understand facets of the code and deductions for you that you don't even know about. Do not be cheap with your tax expert, go get the best one you can find. There's a lot of really bad ones out there. Make sure you get a good one.

These are the 11 principles that we want to understand that we can create wealth through our tax efficiency. It's actually in many respects a lot easier than trading or investing. We want all these things working together to maximize the growth of our capital and protect it. Stay tuned every Tuesday for additional webinars like this so I'm going to come in and I'm going to teach you concepts that will help you take the performance of your portfolio to an elite level. Have a great week. I'll see you next week. God bless and bye.