So today we're going to talk about how the rich are able to avoid taxes legally.
And by the way, this has been around for a hundred years.
This is completely legal.
And this is something that anyone can do.
So the reason I did this video is to teach you ways
that you can keep as much hard earned money that you make legally.
And why is it that the richest people in the world, the richest corporations
in the world, pay little or no tax?
Stay tuned.
So tax of course, is based on your income.
And there's three types of income.
There's earned income, portfolio income and passive income.
And I love this example of a McDonald's because you can kind of see how it works.
Earned income means a W-2
working a job at McDonald's.
Portfolio income would be, let's say you own McDonald's shares
and it provided a dividend or some kind of earnings from that
And passive income would be owning a McDonald's
franchise where you actually bought that.
And there were people working in it.
And a produce an income for you that would be considered passive.
So the IRS treats each of these categories
very, very differently.
And the earned income is by far taxed at the highest rates.
If you want to learn how to reduce your tax legally on your earned
portfolio, or passive income, stay tuned till the end,
because I'm going to tell you the strategy of exactly how it's done.
Let's first take a look at active or earned income.
So this kind of income requires you to show up somewhere to get a paycheck
or some kind of compensation back that's active or earned.
This is where you trade your time for money.
Essentially, money is a claim on your time
and only if you're working to get it back.
And this is the highest tax category Most people start off
in this category just like me as a young man.
I started off right here working for wages,
just like many of you And I had to learn how to invest
in the portfolio category and how to invest in the passive category.
And only then did I realize of the massive tax credits
and deductions that you get to offset some of this income here.
So you just need to be conscious of the category that you're in.
It's OK to make a lot of money here, but you need to be investing here and here
in order to get the tax breaks, the tax credits and tax deductions
that all the rich and wealthy people are getting.
So how does tax work?
So what's interesting is here are your tax brackets.
Your tax bracket actually depends on your taxable income
and of course, your filing status, single, married, et cetera, et cetera.
But the point here is what you're trying to do here
is we're trying to reduce your taxable income.
That's where the credits and deductions come from.
So you can still make a lot of money, but you want to try to reduce your taxable
income and move up and down these brackets legally.
But now let's take a look at some of the richest people
in the world, Warren Buffett, Bezos, Bloomberg and Musk.
As you can see, their wealth is in the billions.
They made billions of dollars.
And the total taxes, of course, are in the millions.
And while this is a lot of money, as you can see, the true
tax rate is super low by all of them.
What's the secret to these rich people
and why do they have so much wealth and pay such little tax?
The secret is, is that all of this is sitting in earned equity.
So their stocks are worth a lot.
The companies are worth a lot, but they're not taxed until they're sold.
The IRS doesn't get any money until something is sold.
Set another way in the wealth category.
These are all the assets that they hold and what they're worth.
But until they sell a piece of that, it doesn't get reported as income.
Now there's all kinds of great information on how to get into a lower tax bracket.
I would encourage you, these are off the government website.
There's a bunch of ways that you could do this to legally yourself.
One thing I found very interesting
is that many of the secrets of the rich are not included in this information.
I'm going to be talking about that next.
So here's the secret by borrowed dye
how rich Americans live off their paper wealth.
So in the chart we just looked at, we focused on what people owned,
what they bought.
So those are people that either
bought that through earned income or some other way,
but they're in the passive in the portfolio category And this is what
they own.
Just like myself, I own $1.5 billion of real estate,
but I'm not taxed on that real estate until I sell it.
Same thing with Bezos or Buffett.
Until they sell their stocks, then they're taxed.
So here's a secret to it.
All banks say the wealthy are borrowing
more than ever using low interest loans backed by their investments.
So what do I mean by that?
So let's say you bought a home for $300,000
and that home went up to $500,000.
And you do a cash out refinance.
That's what this is.
This is a loan against something that you already own that has equity in it.
And guess what?
Loans are not taxed because you have to pay them back.
So this is essentially a cash out refinance Now,
you can do this with stocks.
You can do this with real estate.
You can grow your value and you can take income out in the form of a loan which is,
of course, required to be paid back and therefore it's not taxed.
So this is how the rich get their money out of big assets.
And this is what I've been trying to teach you guys.
On the cash out refinance that we do when I talk about being infinite,
buy something create more value, put more debt on it
and pull that out tax free and do it again.
Now I'm in the passive income category as opposed to just the earned
income category.
So we covered the by.
You want to move from earned income
to portfolio and passive and we just covered the borrower.
So what's this piece? What's this dye thing?
What this is.
This is called a step up and assets to its heirs or a step up in basis.
So this is actually a reality of our one.
So things happened when people passed, period.
You either have your estate in order or you don't.
You either have a will or you don't.
You either have a trust or you don't.
But the point is, you do get the step up
in assets to the heirs or the step up in basis.
As an example, most of you know that my mom is awesome.
She's still alive.
She's in her nineties.
She's in a assisted care home.
But she bought a home years ago that I grew up in for around 20 grand.
And that home is worth seven or $800,000.
So I want my mom to live a long time, but the fact is she's not going to be.
And Mom, if you're watching, I'm sorry for doing this video but the reality is at
some point she's going to pass and let's say we sell that house
for $800,000 and she bought it for 20 and it's now worth 800
normally if she were alive and did that, there would be a capital gain.
She would pay the difference between her basis or what she bought it for
and what she sold for in the form of a capital gain.
But when people die, you have this step up in basis
and all of that capital gain gets erased
and therefore the $800,000 home,
it gets transferred at a new basis of $800,000.
So the basis goes from 20 to 800.
And this is how the rich buy, borrow
and then die and transfer
their wealth to their heirs legally.
And you can do this too, but you have to start with moving out
of the earned and active income category and move to the both the passive
and the portfolio side in order to take advantage of the tax credits
and deductions that you can legally get by doing this because people are doing it
each and every day and you can do it too, and it's perfectly legal.
So again, thanks for watching.