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Show highlights include:

  • Why saving on taxes ruins your bank account (2:23)
  • How paying tax penalties skyrockets your portfolio (6:52)
  • Why turning your LLC into an S Corp reduces your overall expenses (and increases your tax credits) (11:21)
  • The “Tax Law Harvesting” method that lessens taxes on your capital gains (12:05)

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Do you hate the thought of working past 55 or 60? Do you hate not being able to live the life you deserve today? Do you hate not knowing what your financial future looks like? It's time to stop doing what you hate, here's your host, Mr. Harold Green.

(00:20): Low high everybody. This is Harold Green of brights free financial group. And it is time to stop doing what you hate at low everybody, man. I'm excited about today's show. Yes and no, but I, I think what I'm gonna share with you is gonna be exciting. It's a Friday for me and I'm off tomorrow. So it's kind of a, like, I'm excited about that. You know, it's really great to be able to just kind of, you know, tone your schedule down when you can and, and, and not be working like six, seven days a week. You know, you do that when you have to, but you know, when you don't have to anymore and or you decide to like just slow it down and enjoy life, it's a really good feeling. So I'm excited about that. And that doesn't mean I don't work hard on the days that I do work, but I'm excited on being able to have downtime and stuff like that, man.

(01:10): So it is all good. So, you know, I want to talk to you about something that's extremely important. Everybody's dealing with it for the most part and it's tax season. And by the time you hear this show, it will probably be past April the 15th, but I'm gonna give you some stuff to think about throughout the rest of the year. If you filed an extension, maybe you can use some of the stuff to help you. Some of it, you probably can't. It may be too late because there are deadlines and different things like that. So, so I need to put out this disclosure that I am not a tax professional and anything you hear me say on this show, I encourage you to go and run this by your CPA or your tax professional. Do not act on any of this advice without getting professional help from a professional, someone who's licensed, certified, whatever credentials they need to have to check off on what I'm telling you before you implement it in your situation.

(02:12): So the name of today's show is the tax game. And so are you ready? Are you ready? Are you ready not to pay taxes, but 1, 2, 3, let's get it. All right, all it's tax season and every year around tax season, people always ask me, Harold, are you busy? Are you busy as tax season? And I say, well, I'm not supposed to be busy during tax season because I've already done my job investing my client's money. And, and we try to stay away from adverse tax situations. However, that does not stop they're tax professional from throwing a hissy fit over things that are totally irrelevant. Things that haven't happened yet. And people conjure up all kinds of fears, all kinds of worries. And then I get the phone calls. And so I have to tell my clients look okay, I'm not a tax professional. However, here are all the rules.

(03:09): Talk to your CPA about this because nine times outta 10, they're just being overly cautious because they've seen what can happen when the IRS cracks on them, because they're required to tell you certain things in order to collect a certain amount of tax revenue every single year. And if they tell you anything contrary, they could be staring down the barrel of an IRS investigation into their practice, which sometimes they got a little shady thing going on here and there, but most CPAs for the most part, they operate above board, but they also instigate a little bit too much fear in people. And you know, and I was telling someone this deal today. I said, look, you make a mistake on your taxes. That can be corrected. It's not like they're gonna throw you in jail for 30 years when they're letting criminals out, who've killed people before their sentences are up.

(04:03): I said, you gotta think about this. Yes. We want to do the things that we need to do. But a lot of times people are overreacting and they're over afraid of the IRS and all of that good stuff. So here's something that happened to me a while back. I mean, it was years ago, but it was a big, big, I opener for me. And it was when I was working like six, seven days a week. And I was really working hard to build my practice and build my practice and build my practice and build my practice. I saw my kids at night. I, I would see 'em at night and then it's like, oh, okay, gotta go to bed. Daddy loves you. You know? And I just, it was hard. It was really hard. You know, it was watching my kids grow up from afar because I was trying to build this thing because quite frankly, I grew up poor.

(04:47): I grew up with not a lot and I did not want that life for my kids. So I had to do whatever it was that I had to do in order to make sure that that didn't happen. And so I, I did it and I worked really hard. And then we meeting with our tax professional and he was like, oh Harold, you had a really great year. You're gonna pay X number of dollars in taxes. And I was like, what the hell did you just say? And he was like, yeah, you're gonna pay a lot of taxes like this much. And I'm like, what? I had never seen a tax bill and that big and my entire life. I mean, I've seen some larges tax bills, but personally for me that big, I literally almost cried a grown man crying over something, losing a loved one.

(05:36): Yeah. That'll make you cry. You know, just there's things that would make you cry, but working hard like that, I then ping that much in taxes. I'm like, what just happened here? I had my head down and I was working, but I wasn't planning. Like I, I had my head down. I was working hard, but I wasn't planning. And that came back and it bit me in the butt. And that year I wrote the tax, the tax, we wrote the check. I went home and cried about it. Literally. I mean, you know, I wouldn't say literally, but I, I was emotional. I'll just put a to you like that. And I think I just, I took the rest of the day off and I went home. I just laid in the bed and I was like, man. Wow. And I told close friends and they say, well, you know, that's the Lord blessing you.

(06:25): And just be thankful for the Lord blessing. You say, what? How, how is that a blessing when I just handed over that much money? Am I supposed to be thanking God for that? I'm like, man, get outta here. I, I wanna hear to like, just, just get outta here. Like I love you, but like get outta here. So I thought about this thing and I told my wife, I said, honey, yes, we're gonna work hard. I said, but you know what? We gotta get extremely smart about what just happened and this ain't gonna happen again. Right. So here's what we did. We sat down with the tax person and you know, they were talking about paying estimated taxes and all these different things. And he was talking about Harold, you have to pay your income tax as you earn the money. That's, that's the rule.

(07:06): And I said, well, what if I don't play by that rule? What are the penalties for not playing by these rules? Right. And I'm gonna say something to you, very, very important. I'm not saying this is a moral thing. This is how corporations get away with certain things that they probably shouldn't be doing because the penalties for doing them right. They're nominal compared to the amount of benefit that they can receive. So, you know, they'll pay a, you know, eighties, 6 million fine, but they made 2 billion, right? An 86 million fine for 2 billion man. They, they do that all day. There's fines. And then there's like irreparable harm. And so there's no irreparable harm or anything like that. They, they usually end up getting away with certain things unless there's like a lawsuit. And then there's like a class action and different things like that. So I said, okay, let's check this out.

(08:04): What is my penalty? If I didn't pay all these estimated taxes, but let's say I took that money and I invested it instead. And he calculated it out and it was like 400 something dollars on, I think it was like 70 to $80,000 in taxes. Like if you don't pay that tax before, say December 31st or whatever it was, or April 15th or whatever the date, he said, it's, it's basically 400 bucks. I said, so you mean, tell me I could take 70 GS and invest them. And then my penalty for not paying that taxes like 400 bucks, he said, yeah. I was like, okay, now I'm not encouraging anyone to go out and do that. Right. But here's the thing I wanna talk about when it comes to taxes and here's something you gotta understand. Yes. There is a lot of fraud, waste and abuse in our system.

(08:55): However, you cannot focus on that because you're focusing on the negative and not on the positive. You gotta use that mental energy to figure out how to make money, figure out how to plan effectively for the taxes and then just get on with your day. So let's talk about the tax game. All right. Now the average tax for people that are in the top 10% around what's it, 20, 19, 20 20, something like that. It was 19.8, 9%, right? Top, top 10%. The top 1% of income earners paid roughly 25.5, 7%. Now this is probably not taken into account. All of the different things that they probably could have did to bring their tax bill down. And I guarantee you, if you're in this top 1%, you're probably figuring out what to do to bring your tax bill down. All right. Now, the bottom 50% of people paid roughly 3.5, 4%.

(09:51): This means there is a lot of tax refunds going out in tax rebates, going out and credit, going out for people that made under a certain amount of money. Like say, if you make under 40, $50,000 a year and you got like two or three kids, like you're gonna get a bunch of money at the end of the year because of the tax credit, you can get something called an earn income credit, right. But if you're listening to me and you're listening to the show and you're been tuning into the show, you're probably not. And the bottom 50% of the people in this country now get this. If you made 10 million or more, your average tax bill was 7 million, $386,572. That was your average tax bill. All right. Most people will never see 7 million, $380,572 in their life. Just that just most people it's just where the world is and, and how things are now.

(10:46): Here's another kicker. If you own a business, it depends on how it's set up. So it's something called self-employment tax. That's what you pay and set of like FICA and all of that stuff. Right? So if you have an LLC and you're taking draws out of your business, then basically you gotta pay the self-employment tax. It's basically 15.3%. And that goes to the IRS. That's a tax on top of, well, actually it reduces your taxable income down. And then you go to the second page and then they calculate your total tax bill. And then you have your state tax, your federal tax. And then boom. Now one of the things we did was we ended up turning our LLC into an S Corp. So we're LLC, but we file as a sub chapter S and what does that, what does that do for me?

(11:33): Well, number one, what it does is it allows me to take payroll and I, as a per person will pay part of the self-employment tax a smaller amount, but the employer pays the rest, but my, which is my business. And so my business gets a tax credit for paying the social security tax. It reduces, well, not a tax credit, but it reduces my expenses. Right? And that's one of the beautiful things that reduces my expenses, which reduces my overall income. All right. So that's something that you may want to think about if you own a business. However, here are about four things that I think you have to pay attention to in order to reduce your tax bill. At the end of the year, the first thing you gotta do is if you have an individual account or a, a brokerage account, you gotta figure out how to avoid short term capital gains, if possible.

(12:22): And here's one of the tricky things, all right. I pay attention big time in my client's accounts, when it comes to trading in non-taxable accounts, that's your, your joint account with your spouse. That's your individual account, it's your non IRA account. And here's why this is important. If we're holding great stocks and we've been holding them for a long period of time and they, and they start to go down, sometimes we'll take profit. But for the most part, I try to leave those holdings alone because I know right over the long term, they're gonna be fine. However, around those stocks, I have like say a solar system. Okay. And there's stocks that I rotate in and out of. And sometimes I'm offsetting, short-term capital gains with short-term losses, it's called tax loss, harvesting. But if you freak out on me and you call me at the wrong time and you panic and you force my hand on certain things, you could end up paying short term capital gains, which are taxed at ordinary income rates.

(13:27): So if you're holding an individual account, please do not freak out. When you see the market does what it does, because you're holding that money in an individual account for a particular reason or particular purpose inside your financial plan. And if it's not time to sell yet, you can't panic. You gotta like just chill, right? Things will get better. Things will turn around and they will be fine. Now for your IRA account. That's a whole different ballgame. And so we're not talking about those because those are non-taxable until you take the money out. Number two, set up Corp or an LLC, and then file as a sub chapter address. I think I just talked about that because that could be a tax benefit to you as well. All right. Number three, look at calculating the penalties for not paying the estimated taxes or figure out a way to reduce estimated taxes.

(14:09): A lot of times people do this because they're like, Harold, I don't wanna have a tax bill at the end of the year. I don't wanna owe anything to the IRS. At the end of the year, I'm like owing money to the IRS is not a bad thing. As long as you got it all planned out, the problem is, is if you owe money to the IRS and you don't have anything saved, now you got problems. All right? So you have to make sure that you have that planned into your plan so that when the tax bill comes, we got the money sitting on the side. So you ain't got nothing to worry about. You just write the check and chill. You. Ain't gotta go home and cry. Like I, to it, lay in bed all day, cuz you have a plan. The other thing I see people do is they have way too much money withheld from their paychecks and then guess what they do because they don't have enough money coming in every month or every two weeks in their paycheck.

(14:53): They rip out the credit cards and they go borrow on, you know, the credit cards. And now they're paying like this high interest rate on the credit cards because they're building up credit card debt. Now most of you listening to this show, pay your credit cards off every single month. But I'm talking to you about the people who don't pay off their credit cards every single month. And the reason why I'm telling you about these people, because sometimes these people have a bad tendency of saying things at work and in the workplace when they should be absolutely silent. I hate when my clients call me and tell me what some person said at work, who ain't got their finances squared away. I, I, it just bugs the hell out of me because, and I tell 'em I say, you know what? You trust me, right?

(15:36): You know, we got this right. People at work saying all this crazy stuff, nine times outta 10, they're not working with anybody because if they were working with somebody, they would be actually doing their job versus trying to tell you how to manage their portfolio and giving investment advice at work when they should be totally silent. All right. So you just gotta shut them down real quick and say, you know what? I got a planner. We got this all figured out. No, I don't need to take everything in my 401k and put it on safe mode. No, I don't need to do that. All right. So just chill. Okay. You gotta learn how to talk to folks and tell folks straight and a nice way, cuz otherwise it's gonna get you off track, which is not good. And then we gonna have problems when you call me and then I ask you how come you did this?

(16:15): And you said, Hey, so, and so said this, and then we going, now you off plan. We gotta get you back on track. The last thing I wanna say about taxes is this don't complain about taxes. I know it's hard. I know it's hard to like look at what's going on and then be like, gosh, dog, man. I just paid much in taxes. And then these people over here didn't pay nothing. And these people over here getting all these taxes, I said, you know what? You gotta shut that down and focus on what it is that you need to do to increase, increase, increase, and to win. When, when trying to avoid taxes or, or, or, or evade taxes and to cheat, that's like a losing mentality. That's like a poverty mindset. And again, we gonna talk about mind matters or mind problems versus money problems, or mind problems that lead to money problems.

(17:08): All right, we don't wanna be complaining about taxes. We want to sit down with our tax professional, find out what all of our options are. If there's any penalties to our options, we, we need to, no, we need to put every single thing on the table. Look at the worst case scenario and then figure out what we're willing to deal with or not deal with and then go from there. And then if you're not working with an advisor, I would tell you to get on my schedule, let's talk and figure out. It's gonna look like for you in order to keep you from going home, laying in the bed and crying all day about having to pay a huge tax bill. But the, the worst thing you can do is complain. All right? And the next worst thing you can do is not create a plan.

(17:50): So my motto is dream plan accomplish. And I just wanted to share this with you because for some people it's a, a very depressing time, especially when they've worked hard for what they have. Now, here's something I wanna share with you. I've heard this said by Scott Adams, right? And Scott Adams is like the guy who O DBER and a brilliant guy. I don't agree with everything he has to say, but he says something important. He talked about getting yourself in a situation where you can work three or four hours a day and create tremendous value in tremendous revenue. You don't have to work 10, 12, 15 hours a day. That's not necessary. You have to figure out how to conserve your energy and generate the most amount of profit with the least amount of hours so that you can go off and relax and do other things and not just kind of be like, tie it down into your job all day.

(18:41): Now, if you're working for someone, that's a different story I'm talking about. If you own your own business, then that's a whole nother different conversation. All right. So I wanted to talk to you about the tax game, how to sit down and figure it out. It's not all about, you know, evading taxes. It's about tax avoidance, right? How to properly avoid overpaying taxes. I don't believe in something called a fair share. Cause I don't think there is a fair share who determines what's fair. That's like when we was kids, my mom would be like, oh, let your younger sibling have the bigger scoop because they're younger. I'm like, wait a minute. I'm bigger. Give me the bigger scoop. But it was like, Y you know, and so it was this. Sometimes she did that, you know, not all the time. Right. But it was just, it was just trippy sometimes. Like, you know, you know, moms are, you know, like, I don't know the other kids crying and it's like, okay, just to get 'em to shut up, give him a little bit more, you know, that kind of thing. But anyway, I digress, but thanks for letting me share this with you folks today, man. It's Friday for me. If you're listening to this on a Friday, man, enjoy your weekend until next time everybody it 1, 2, 3, let's get it.

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