- Hey guys, Toby Mathis here, and you're in for a treat today. 'Cause we're going to go over the five top investments that reduce your taxes. And it's not just reduction of taxes, it could also be creating tax free income, tax preferred types of income,
even having tax free growth. And so we're going to dive
on in and go over 'em. What I'm going to do is
go over really three areas that we're going to talk about
here that involve tax savings. The number one is going
to be that you get a, oops go to black, is that the investment reduces your current taxes. So if you get a checkbox here, it's going to reduce your current
taxes that you owe right now. So there's going to be a
column I'm just going to make, I'll just do it like this. 1, 2, 3. You'll be able to see that. And the number one column is going to be that it reduces your current tax. You'll see I'm going to
make a little chart up here. And we're going to be
able to go through 'em and see which areas of tax
benefit they're going to give you. So number one, reduces your current taxes. How about number two, which is you pay no tax on the income generated. In other words, the money
that is kicking off is either going to be tax preferred or tax free. So I'm going to go over
each type of my top five and we're going to see which
ones actually create income that's tax free income. That is highly sought after, by the way. And then the last column is
going to be, you guessed it, tax free growth. All right, so do they grow tax free? Can we compound inside these vehicles or by investing in these vehicles, and end up with a whole
bunch of money at the end of the day without having
to pay tax as we go? 'Cause your compounding is
much, much more efficient when you're not having a tax bleed off. It's not taking it away. So let's jump in. I'm going to go over number one, and I'm just going to
make little columns here. So you'll see one, two, look, I can't draw a straight line. Three, four, and I guess whatever, let's make a big old chart. This will be fun. Boy, this one stinks. Let me make a straight
line. There it goes. All right, so number
one, what's number one? My favorite is real estate. And there's a number of reasons why. Can real estate actually reduce
your taxes when you buy it? I'm just going to put a
little green check mark here because the answer is yes. How does it do it? Number one, you could be
investing in short-term rentals. If it's seven days or less average use the losses on that aren't
considered passive. They're not rental losses
that create passive losses. They could be ordinary loss. There's a step you have to take called material participation, but if you're running your
Airbnb, VRBO, whatever, you're going to qualify, more than likely, there's seven ways to qualify. That property, the depreciation
off of that property. If you don't know what depreciation is, I have a bunch of videos
on real estate tax, but it's basically the structure
itself gets written off as a deduction over its useful life. And you can accelerate that and write off a whole bunch
of it in year one if you want. But that short term rental paper loss can offset your other income. Number two is you could
be an active participant in your rental properties. So if you're active, you get a $25,000 loss allocation, you
can get up to $25,000. Now there's a phase out. If you are over a hundred
thousand dollars of gross income up to 150, you'll only get part of that. But you still can end up with just buying a regular rental property. You might be surprised
that you're actually able to offset some of your income, especially you guys if you're
in the $80 - $90,000 range. Or maybe you're, here's a good one, you're married filing jointly and you're making over 120,000. You take your standard deduction,
you're going to qualify. And all of a sudden you're going to, let's say it's a $10,000
loss that you're able to take on your tax return. It's not, you actually lost
money, you bought a property, the depreciation created a paper loss, and it's putting money back
in your pockets as though you made $10,000 less than
what you actually made. So we actually like that. So those are two. And then there's real estate professional. If you ever meet somebody who says, "I make hundreds of
thousands of dollars a year and I pay zero tax." Chances are they're a
real estate investor. Chances are they're a
real estate professional. They qualify under 469 (c) (7) as a real estate professional. It's a topic for another day,
but we unlock those losses and we can offset, you know,
literally an insane amount of our income just by
buying more real estate. In fact, the old joke in the
accounting world is if you're paying taxes, it's 'cause you
don't own enough real estate. Number two, can you avoid pay, here I'll make that look better, pay no tax on the income generated. Well, yeah, absolutely, 'cause you get that thing
called depreciation. The depreciation is
going to make it so that your income, here I'll give
it a big old check mark. That depreciation is going to offset the income that it's making. So if you are making rents, for example, and you're taking a deduction
for the value of the building, you're literally writing that off sometimes over 27.5
years, sometimes over 39. If you're smart and you
listen to this channel, you probably know you can
do 5, 7, and 15 years, and accelerate it all into
year one if you really want to. With accelerated depreciation and 168 (k) taking bonus depreciation, we can get a massive amount of deduction and it didn't cost us money, it's paper. So it's offsetting the income
that's being generated. So if you make $20,000 a year in rent and you have $20,000 a
year of depreciation, you pay zero tax even
though you have the 20,000, even though it's in your
bank account, you pay no tax. Now how about tax free growth? I'm going to give this
one a check mark too. That's why we love real estate. That's why it's number one,
it's it's checking off each box. Because we can do what's
called a 1031 exchange, and we get a step up
in basis when we pass. Let's go through those. I can buy property. Let's say I bought three houses in rental properties all for $200,000. So it's a total of what, 600 grand. Let's say over the years, those
properties go up in value. So let's say 10 years later, I'm looking at those properties going, "Man, I bought 'em each for 200 grand. Now they're worth 400." All right, and I sell those. I sell 'em for $1.2 million, but I use a 1031 exchange, and I buy another property, maybe it's an apartment building, duplex, eightplex, whatever it is. And I buy another property at 1.2, and it goes up in value to 3 million. And I sell that and I buy two properties that are commercial properties. Let's say that it goes up and it's worth 3 million bucks, right? And then those ones go
up in value to 6 million, and then those ones go up to 10 million. And after 30, 40 years, I'm sitting on this little
real estate portfolio that's worth 15 million bucks. When I pass away, the basis
steps up to 15 million. My heirs pay zero tax on the
sale of those properties. That's why you do step ups. 1031 exchange allows you
to continue to exchange those properties forward
and buy new properties. As long as it's the same price or more, you're going to be able to do that. And yes, it could be multiple properties. You could sell multiple
properties and buy one. You can sell one and
buy multiple properties, as long as it's real
estate, you can do that. And that's why it gets a
big old check mark there. How about number two? Number two is oil and gas. Now here's the funny
thing with oil and gas. When you buy oil and gas, there's something called
intangible drilling cost. And I'm going to give this a check. Oops, I'm going to give it a green check, because those intangible
drilling costs IDC are treated as ordinary loss. In English what does that mean? It means if I invest, I just did this, I put a couple hundred
thousand dollars last year into a series of wells. I received, my first year K-1 was over $150,000 in loss. What does that mean? It means I invested, but I
get this huge amount of loss. Sometimes it's 85%. So I put a hundred thousand dollars in. Let's just use this
example and you get it. Let's say it's 80, $80,000 loss. I use that $80,000 to offset other income. It's not passive, it's not capital gain. It is, and it can offset my W-2 income, and I get a deduction for whatever that intangible drilling costs. It's usually between
70 and 85% of the value of whatever your investment is, depending on what you're doing. It's 100% deductible. And it's absolutely potent
when you're investing because it, let's just
say I invested $100,000 into something, maybe
it's 50,000, we'll use 50, and let's say it's 80%, so it's 40,000. And I'm in the highest bracket, I'm in California. You're getting a big chunk. You're getting 37% plus your state on the deduction on some of those things. It could be very, very potent. You always got to check the state and make sure it comports
with the federal. But you get this big old
loss as an ordinary loss, which means you get money in your pocket. 'Cause you're not having to pay tax on that from other sources. Like you can wipe out your W-2 income. How about paying tax on the income? Now you do pay tax on the
income that it generates, but I'm still going to
get it of a check mark, because you have what's called depletion. So you're only having to pay tax on 85% of the revenue that it produces. When you're selling the oil, you are actually getting that money. That's how the oil wells work is you get this big fat deduction, and then they're generating oil, and they're selling oil
and they're paying you out. It usually takes you five to seven years to get 100% of your money back. And then after that it's gravy. It's literally could be 10,
15 years of extra payments. My experience is you're
usually looking at between a 7 and a 10% return when
it's all said and done. But the big value is when you invest, it's going to give you
a huge tax deduction. Tax free growth, I'm not going
to give it a check on that, so I'm just going to give that a blank. Wah. Because it's just
kicking you out income, it never stops, right? We're not getting out of that oil well unless you sell the land
or something like that. But realistically, when
you're just an investor, we're not getting into that. We're not getting into that deep. I'm not going to tell
you that it's going to give you a huge deduction. Number three, let's get
into number three, right? Traditional retirement. And what I'm talking
about here is your IRAs, your DB plan, which
I'll go over, your 401k, your different types of retirement plans. It could be a Roth, it
could be a Roth IRA, it could be a Roth 401k, but we have different
types of retirement plans. If you're not familiar with the DB plan, I did a video on how to write off or how to put over a $100,000 a year into your retirement plan. That's a DB plan. I have plans that my clients are doing that where they're putting
$300,000 a year tax deductible, 400, 500, have one guy just
going over $700,000 a year into a retirement plan. Yes, tax deductible. It's reverse calculations based off of how much you've been making,
how much you expect to make, and how old you are in
a actuary who's licensed with the IRS, gets to do the assumptions, gets to make a here's
what the numbers are, here's how much you could put away, but you could put away an obscene amount of money in a DB plan. And here's the beautiful part. When you're doing a traditional plan, other than Roth, you get a deduction. So with a typical IRA, for example, you might get $7,000 a year, plus you get a makeup if you're over 50. If you're trying to do a DB, it could be, you know, it could be 50,000. That's where they really
start to be worth it to probably about 1 million. I've never seen one get quite that high, but it's in that range where
you're getting, you know, that they're, I've heard
of some that were that big. But if you're older, and you've been making
a big chunk of money, and all of a sudden you realize I'm behind the eight ball as far as my estate plan or my retirement planning is concerned and I need to fund my retirement plan. You could be getting a couple years, few years to get 3 million bucks in there. You might be able to get up there. If you're doing a 401k, we're looking at $69,000 a year per plan. Like you could have multiple 401k plans, and you could go up to $69,000 in each. So if you have two employers, and you're high income, maybe
you have your a home business and you're doing stuff on
the side with somebody else, yes, you could actually have two 401Ks. If you're in that boat though, I'm probably looking at DB
plans pretty strong. (laughs) It means you're making a ton of money, but 69,000 plus there's makeup provisions. And the only thing is
that this is except Roth, you don't get a deduction when
you put money into a Roth. So those ones have other benefits. You don't get the deduction
when you put a Roth in, but then you never pay tax on the growth or the income that it generates. So let's do number two. Number two, I'm going to give it a check, but I'm going to do like a check minus, because the traditional,
you don't get the benefit. Traditional plans equals
pay tax as it comes out. But with a Roth, you pay no tax when it comes out. And you could have a million,
2 million, 3 million. There's actually, Peter Thiel has like $4 billion in his Roth. Never going to pay tax
on any of its growth, never going to pay tax on any
of the money that comes out. And I just want to plant a seed. If you are starting out like
you're a low income taxpayer, like, "Hey, I'm below
the standard deduction." You're, you know, 16, 17, 18, you know, to probably about 24, you
might be in this range, and you're not paying tax, get a Roth. 'Cause if you put money in there, you never paid tax going in. And then you'll never pay
tax on any of its growth, and you'll never pay any
tax when it comes out. So you could literally make millions of dollars in this thing, never paying one red cent in tax. So, and if you have kids, and you're paying for like,
let's say you're paying for their schooling or whatever else, but you can get them
involved in your business. Maybe it's a real estate business, maybe it's a side gig or whatever. Get them involved in your business to where you're paying
them and funding a Roth. If they're under 18, you don't
even have to do withholdings and employment taxes. There's ways around just about everything. So if, again, if you, there's
all sorts of fun stuff. I think I've done videos on
how to employ your kids too, but it ends up working. And then all of them get this guy all get tax free growth. All growth in retirement plans is tax free. So you can get in there,
you can do crypto, you can do stock, you can
be doing covered calls and doing all sorts of fun stuff. You can even be buying real estate in it in a self-directed IRA
or self-directed 401k. You could be doing all sorts
of different investments, and at the end of the day,
they all grow tax free inside the plan. The only time you pay tax on a traditional plan is when it comes out. You have to start taking
required minimum distributions. If you're in a Roth,
you never have to pay. That's why they are so potent. Number four, hope you
guys are liking these. If you like these thus far,
just give us a little like, and maybe share it and subscribe. You know, just do something
so that the algorithm says, "Hey, these guys like it." This would be charities, which is a 501 (c) (3),
or a donor advised fund. All of these get the same attribute. And by the way, yeah, you
could set up your own charity, (laughs) you could, like there's all sorts of fun stuff you could do with charities. It could be sports, it could be education, it could be feeding people,
it could be a church, it could be amateur sports teams. I have a sanctioning
body here in Las Vegas for Muay Thai boxing and stuff like that. It could be low income housing, it could be transitional housing, it could be assisted living. All those things qualify. And what we like about it is you get a deduction when it comes in. And it could be a massive
deduction if you're doing cash contributions into retirement
plan, a public charity. This could be up to 60% of your AGI. So everybody that's got a high W-2, so this is to all you guys that all my doctors out there, right? You guys that are crushing it as a surgeon or something, you're like, "My accountant said I can't do anything." Yes, you can. Set up a charity, you fund it, you push money in there,
it's offsetting your tax, you get a tax deduction. But what am I going to do with it? Invest it, put it in a donor-advised fund. I got one, you could do it. They're nothing, right? It's just like all you got
to do is just sit there and manage the money and
let it grow, grow, grow. And eventually it's going
to go to a 501 (c) (3). Hint, it could be your 501 (c) (3). If you do it with a group like us. If you go through like
a Fidelity or others, it's going to be a list
that you could be donating. Maybe it's your favorite
organizations anyway, but you could be putting
the money in there, taking a deduction now, growing it inside the donor-advised fund or the charity if you have a 501 (c) (3). Again, it could be investing in things. For those of you guys who
are thinking I'm crazy, IKEA is a flipping charity. Harvard is a charity. Major League Baseball is a charity. The Green Bay Packers are a charity. All these things are 501 (c) (3)s. There's lots of different
ways to set 'em up. But the beautiful part is that those investments compound tax free. You never pay tax on 'em
if they're in the charity. So, you know, there's great examples. The Hershey Charitable Fund where they have the Hershey School, that thing's worth like $13 billion now. Set it up in 1905, I think it was, and Milton Hershey and
his wife didn't have kids. And this is where they put their money and just keeps compounding, just keeps getting bigger
and bigger and bigger. So these things are
really effective tools. So I love the charity side, but you get a massive deduction
if it's a private foundation where you set it up for like your family and you're giving away
money to other charities, you can go up to 30% of
your adjusted gross income. And again, there's so many
different flavors of these. I think we did a video, I did
a video with Karim Hanafy in our offices who was an IRS
attorney for the exempt divisions and did that stuff for
years and works with us. We did I think our top
10 ideas for charities or top 10 types of charities. So check that out, if
that's tickling your fancy. Pay no tax on the incomes
generated (clears throat) or when it's coming out,
pay no on the income that it actually pays you out. You do pay tax here. You pay tax on salary only. So if you take it out as a salary, otherwise no tax on growth. This is a big one. If the charity keeps the money. So if you set up a foundation, and its sole purpose is to grow its income and then distribute it to other charities, those distributions are never taxable. You never pay tax. So all that growth, if it's going out, like it's maybe you have
your favorite, you know, pet shelter, whatever, and you have your and you know what, I'm
going to give 5% a year to that pet shelter. That's the textbook private foundation where all you're doing is managing the money, growing it, growing, growing it. And it's giving it to places. If that's you, or maybe it's your church, if that's you, these
things are great tools 'cause you could get a
nice deduction going in. And then it grows and grows and grows and then you can do your giving instead of coming out of your pocket, let it come out of your
private foundation. It's not paying taxes. You get a lot more bang
for your buck that way. And then number three,
tax free growth, 100%. There's, if it gets too
big, I forget, there's like Harvard I think now has
a, Congress had a massive, you know, a massive charity tax. I think it's like a 1%
or something like that if you have too much in your endowments. But for us mortals, there's no tax. So it ends up working out
really, really, really great. Number five, this is what I call the triple threat, you ready? Health savings account because
this will check each box, boom, boom, boom. And it's really, really simple. A health savings account
allows you to put, it's between about
4,000 and $8,000 a year, tax deductible into a plan. As long as you use the money for health expenses, 0% tax, none, zero. You get a deduction going in,
you pay nothing coming out, there's nothing quite
like it on this list. I get a deduction. It's limited, it depends on
whether it's family or single. I have to have a high deductible
plan, which most of us do. And boom, I can get a deduction. So I could put, let's say I put $5,000 a year into this thing and it grows and grows and grows. You know, it can reimburse you for all of your medical expenses you incur, even if it's from previous years so long as the plan existed. So once you establish this plan an HSA, which you could do it anywhere. Just go to Fidelity, that's what I did. Or you go to Schwab or any of 'em, they all have HSAs. I set up an HSA, I put $5,000 bucks in, I get a $5,000 deduction. So I save on taxes. And it grows and grows
and grows and grows. In the meantime, I have
copays, deductibles, things that aren't covered
for health and stuff, and I start to keep track of it. And that gets to be big. Eventually, the HSA, let's say again, I put $5,000 and that
5,000 turns into 10,000, let's say in seven years. I could pay the entire
$10,000 out to myself and cover all the expenses I
had during those seven years. Guess how much tax I pay? Zero. Zero. I got a deduction, and I didn't have to pay
tax when it comes out. That's why they call it the triple threat, and the growth 100% tax free. So let's say that I
opened one of these up, I'll just use me as an example. So I did one at Fidelity. What do I do with, I do covered calls. I just, you know, just do
basic stuff inside of it. I buy stocks that are income producers. So I love my dividend
kings and things like that and they're always paying out dividends. I got a deduction when I put the money in and those accounts are just
getting bigger and bigger. All I have to do eventually
is use that money to cover my health expenses
and I never pay tax. If you can't and you say, "Oh shoot." Then it is possible after a certain age to roll it into a Roth. Believe it or not, it can
actually, I think it's 64 or 65. If it gets too big and it's
sitting there and you're like, "Oh shoot, I don't have
enough medical expenses." Which was said by nobody
ever, right? (laughs) Like, nobody says that. But if you were in that situation, there is the possibility to
convert it over into a Roth. So these are again, super effective tools. So there's a triple threat on that screen. So those are my top five guys. Real estate, oil and gas,
traditional retirement plans, charities, donor-advised funds,
your 501 (c) (3)s, and HSAs. And those are the top five. Hope you got something out of it. Share this with folks if you think that they would benefit from it. And let me know your favorite
strategy of the top five down below in the comments, and I'll see you later. Hey guys, if you'd like to
learn about land trusts, LLCs, corporations, tax planning,
even estate planning, we teach a live event
every week called "TAP," tax and asset protection. All you have to do is type
in "TAP" below in comments, and we'll send you free information, how you can get access and attend absolutely free.
