The Personal Finance Podcast - 8 Ways to LEGALLY Avoid Paying Taxes Like the Rich (Save 6 figures+ in Taxes!)

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Starting point is 00:00:57 Call 16-531-2600 or visit Connexontera.ca. On this episode of the Personal Finance Podcast, we're going to talk about how to legally avoid paying taxes. What's up, everybody, and welcome to the Personal Finance Podcast. I'm your host, Andrew, founder of Master Money, and today on the Personal Finance Podcast, we're going to talk about eight ways to legally avoid paying taxes. If you have any questions about this episode, hit me up on Instagram at Master Money Co. And follow us on Spotify, Apple Podcasts, or whatever podcast player you love listening to

Starting point is 00:01:52 and if you want to help out the show, leave a five star rating and review on Apple Podcasts. And make sure to check us out on Master Money on YouTube as well. We're loading up two videos every single week on YouTube to get you guys some additional fresh content as well. Now today, we're talking about an extremely important topic because there are three things that are certain. It's life, death, and taxes. And you may see articles all the time about people who are rich avoiding taxes.

Starting point is 00:02:26 And you can either do one of two things. You can throw your hands up and get upset saying, do rich have advantages that I don't? Or you can say, how do I do the same thing? Because a lot of the tax code is available to all of us.

Starting point is 00:02:40 We just have to figure out how do we avoid paying taxes? Because learning this skill and understanding how you can avoid paying taxes is a six-figure skill to learn. And if you are a high earner, it is a seven-figure skill to learn where you could be saving hundreds of thousands of dollars, if not millions of dollars, just by learning how to legally avoid paying taxes. Now, some of these are actually very obvious things that you may not have thought about

Starting point is 00:03:06 before. And then some of these options are things that we can dive deeper into, and and there are different strategies that you may not have heard of yet. But understanding how to avoid paying taxes, how to legally avoid paying taxes, is extremely important. It's one of the most important things

Starting point is 00:03:22 that you can understand. This is why the rich focus so much time on avoiding paying taxes. Because they know the long-term impact is the less taxes they pay, the more money that they can get into their investments, and the more dollars can start working for them. The more dollars can stay in their pockets,

Starting point is 00:03:40 and they can put those dollars to work through investments, through businesses, and through different trajectories that'll catapult their wealth for generations to come. So if you're new to learning how to legally avoid paying taxes, here's one of the big things that I recommend. Especially if you're starting to earn more money over time, I would look into getting a good accountant.

Starting point is 00:04:01 Now listen, I used to be the turbo tax guy. I used to be the guy who would always do my taxes for free. But once I got an accountant, I realized there is so much more to the tax code and there's so much more that I could save money on just by hiring an accountant. My accountant specifically is worth every single penny. Because him and his firm save me so much money

Starting point is 00:04:22 that it's incredible. So finding a good accountant in your area to let you know what are the new tax codes, what tax codes can you take advantage of based on your situation? Because understanding this is what is going to change your life for the long term. So before we jump in,

Starting point is 00:04:37 I would look and say, hey, where can I find a good account? Look on Google, ask some friends who are wealthy who they use, and see if you can find one that's reasonably priced, but is very good at their job. Because if you can find that, you have struck gold, my friend. Now, without further ado, let's get into the eight ways to legally avoid paying taxes. The first way to legally avoid paying taxes is to invest in retirement accounts. Now, this is one that we talk about all the time on the personal finance podcast. investing in retirement accounts is one of the best tax shelters for people, specifically if you're

Starting point is 00:05:15 in the middle class, it is one of the best tax shelters that you can utilize. So you can look at things like the 401K, the IRA, the 403B, and the 457. All of those have very similar tax structures and here's how they work. You hear me talk about the 401K and IRAs all the time, but here's how they work. When you contribute money, it's pre-tax money or money that has not been taxed yet. And then the money grows, and then you can pull the money out. And when you pull the money out of a 401k, your money gets taxed. So one of the things we always talk about, specifically if you've heard us talk about the

Starting point is 00:05:48 Stairway to Wealth episode, is that you always want to get your 401k match first before anything else, especially if your employer offers that 401k match. Why? Because it's free money. And you get these tax advantages baked into making sure that you get those 401K match. And then another type of retirement account that you can look into is the Roth IRA. The Roth IRA is an amazing tax shelter. Why?

Starting point is 00:06:11 Because you're actually putting money after tax into the Roth IRA. You can put $6,000 a year into a Roth IRA. The money grows tax-free and you can take the money out tax-free. So that's why we talk about the Roth IRA all the time on this podcast because the Roth IRA has tremendous tax advantages. Even if you're maxing out a Roth IRA every single year for 35 years, your account's going to grow to well over a million dollars. and $800,000 of that is going to be tax-free money.

Starting point is 00:06:42 Imagine sheltering $800,000 where you don't have to pay taxes on that money. Why? Because that $800,000 is the growth of your money. The growth of your money is the majority when you start investing money for the long term. And that is why this is so incredibly important to understand because sheltering taxes is a six-to-seven-figure idea. And so knowing how to do that, you're becoming a millionaire just by understanding how to shelter taxes,

Starting point is 00:07:08 and that's with as little as $500 a month investing into a Roth IRA. This is why it's so important to understand this skill because it's a multi-million dollar skill. Now, if you're self-employed, you can also look at things like SEP IRAs or solo 401Ks, and those work the same way as the 401K or the IRA or the 403B or the 457,

Starting point is 00:07:28 where you put pre-tax money in, it grows, and then you're taxed when you pull the money out. But the beautiful thing is, usually when you're pulling the money out, you can pull it out at age 59.5. And usually that's around your retirement age. So your tax bracket drops there. So you're not paying as much taxes as you would as a younger person. The second way to shelter yourself from taxes is utilize a health savings account.

Starting point is 00:07:51 Now, if you haven't heard our episode where we talk about what an HSA is or a health savings account, it's called the super retirement account. And this is how an HSA works. It's actually for qualified medical expenses. You can put money into an HSA and it is money that has not been taxed yet. And then the money can grow tax-free and then you can pull the money out tax-free as long as you have a qualified medical expense. So it is the best of both worlds. It's the best of the Roth IRA and it's the best of a 401K.

Starting point is 00:08:22 But you have to have that qualified medical expense. Now here's the cool thing about the HSA is there's no timeline as to how far back your medical expense has to go. So you can have medical expenses for. from the time that you were age 18 if you were contributing to an HSA, and you can utilize those qualified medical expenses and be able to get reimbursement when you're in your 60s. There's no timeline at all.

Starting point is 00:08:45 So here's what I do. To qualify for an HSA, you have to have a high deductible health plan. So this doesn't work for every single person. So you have to look at your specific health plan and you can call your health insurance provider and they can tell you, hey, yeah, you qualify for an HSA with this high deductible health plan.

Starting point is 00:09:00 And then what I do is I save all my receipt, into Dropbox and Google Drive or whatever else you use for online file sharing so that all my receipts are in one place. Then when I'm ready to retire or when it's time to retire or I want to retire early or I want to stop working or I just want to reimburse myself for those receipts, I can utilize those down the line with a qualified medical expense. Now what if you don't have a medical expense and this account grows to a massive amount and you don't utilize your medical expenses? Well if that's the case, then what's going to happen is you're just going to get penalized the 10%.

Starting point is 00:09:33 So either way, you're taking tax advantages. It's going to grow and you're still going to come out ahead even if you're getting that penalized 10%. The third way to legally avoid paying taxes is to invest in real estate. Now, real estate has a tremendous amount of tax advantages and that is why so many wealthy people actually invest in real estate because the tax advantages go on forever and ever and ever. So we're going to touch on some of them here today,

Starting point is 00:09:59 but there is a laundry list of tax advantages when you're looking at real estate. And the first one, and one of the biggest ones, is that you can have a deductions expense. So one of the biggest perks to investing in real estate is that you can deduct the expenses like a business. So you can look at things like property taxes, property insurance, mortgage interest, property management fees,

Starting point is 00:10:20 cost to maintain and repair the building. All of these can be deducted and are not taxable if you actually claim this money. So you get to deduct any expenses directly tied to the operation, the management, the maintenance of any parcel. So if you have multiple rental properties, you can deduct the expenses for all of those properties.

Starting point is 00:10:40 So you can think of things like property tax bills or property insurance bills or mortgage interest or all of these things. Those are large sums of money. So reducing your tax liability by those large sums is going to make a massive difference for your personal finances. But you can also write off many more things that a lot of people don't think about when you run your real estate investment business.

Starting point is 00:11:00 So things like advertising, or if you have office space that you rent out, or business equipment, things like computer or stationary or business cards, legal and accounting fees, or travel fees, all of these associated, you can actually write off as well if you're running a real estate business or if you have rental real estate. The second amazing thing that you can write off with real estate is depreciation. So what that means is you can write off the property's loss and value over time. Now, this is one that I love to utilize for my accountant because he does this perfectly. And writing off your depreciation isn't something that's just a super simple thing to do.

Starting point is 00:11:37 So this is where if you're a real estate investor, I would definitely make sure that you have an accountant in place who you can trust and who specializes in real estate. The next thing that you can write off with real estate is capital gains tax. So capital gains tax is much lower than income tax. So if you're taking a lot of your income and you're putting it into real estate, your capital gains tax is going to be advantageous for you specifically to lower your tax. taxable rate. And then one other great advantage I want to touch on today is the 1031 exchange. Now the 1031 exchange is absolutely amazing. So this is where you can defer taxes to a like kind property if the property is being used as an investment. So this is a major tax rate, especially if you make a large profit and you've held a property for a long period of time, you can utilize a 1031

Starting point is 00:12:20 exchange to move those profits into a like kind property and you're deferring those taxes. And it's an amazing tax advantage that a lot of really wealthy people utilize. So if you've never heard of the 1031 exchange, I would dive deep into that subject because it's something that is extremely cool, specifically if you're a real estate investor. The fourth way to shelter your money from taxes is to start a business. Now, the reason why businesses are amazing for your taxes is because the same thing as a real estate investment. It's the deductions.

Starting point is 00:12:49 Now, even if you run a blog or you have a side hustle under an LLC or you do something under an LLC, you have a business in place and you can deduct expenses. Now the key to doing this is to make sure you're keeping track. So you can utilize things like QuickBooks Online, you can utilize things like fresh books, you can utilize even Wynab as a system where you can run your business through it. So making sure you're keeping good records is the way to make sure that you get all of your deductions and collect all of this money. So you could do things like your cell phone bill can go under your LLC and you can write off your cell phone bill every single month. So if it's you and one of the person on your cell phone bill,

Starting point is 00:13:23 and you're paying $200 a month for your cell phone bill, you can write that money off. That's $2,400 that you can write off. You can deduct mileage. So if you have to drive for your business and there's mileage that you utilize, this is a significant deduction. When I used to drive a lot for other businesses that I had,

Starting point is 00:13:41 this would be tens of thousands of dollars in deductions. You can deduct office space. So if you rent an office space or something like that, you can deduct that. Or if you have a home office, you can deduct part of your house, which is your home office, just by having a business.

Starting point is 00:13:55 Insurance, if you have business insurance or something like that, you can deduct that. Equipment, such as your computers, anything you have to utilize within your business. Startup costs, software, all of these things can be deducted. So as you can see, this can truly add up and really reduce your tax liability. I remember when I needed to hire someone fast, but finding the right person quickly felt impossible. And if you've ever been there, you know how stressful this can be. That's where indeed comes in. When it comes to hiring, Indeed is all you need. Instead of struggling to get your job post noticed, Indeed's sponsor jobs help you stand out and hire faster.

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Starting point is 00:16:25 WestJet, where your story takes off. Amazon presents Jeff versus Taco Truck Salsa, whether it's Verde, Roja, or the orange one. For Jeff, trying any salsa is like playing Russian roulette with a flamethrower. Luckily, Jeff saved with Amazon and stocked up on antacids, ginger tea, and milk. Haboniero, more like Habinier, yes. Save the Everyday with Amazon. The fifth way to legally avoid paying taxes is to utilize available tax credits that are available to you.

Starting point is 00:17:04 Now, there is so many of these that you guys need to put up a list, and I will put a list in the show notes to make sure that you guys have a full list of some of the tax deductions that you can take. But there are things like if you have children, you can get child credits on things like daycare, So you don't have to pay taxes on the amount of money that you pay for daycare. So making sure that you are at a good daycare

Starting point is 00:17:25 who actually keeps track of how much you're paying every month is one thing because they can just give you a statement come tax time and you can give that to your accountants or putting into turbo tax rate, however else you do that. But that's one great way to think through this. Another one that a lot of people have is student loan interest. You do not have to pay taxes on student loan interest. So make sure you're taking advantage of a deduction like that

Starting point is 00:17:47 and utilize that available tax credit. So I will leave a link in the show notes to a large list of these because there's so many of them and they're very situational. So you can see if there's one out there that fits for you. But there's probably multiple out there that you're not utilizing right now. The sixth way to legally avoid paying taxes is to hold investments longer than a year in a taxable brokerage. So when you invest, you have to pay a different tax on your money called capital gains. And I'll leave a link in the show notes because you can use a calculator to find out what your capital gains tax is. and there's a great one that nerd wallet does,

Starting point is 00:18:20 that I'll link it down in the show notes as well. But here's an example of capital gains tax rate for a single person. So if your income is below $40,000 a year, then you pay zero percent in capital gains tax. If it's between $40,000 and $441,000, then you pay 15% in capital gains tax. And if it's over $441,000, then you pay 20% in capital gains tax.

Starting point is 00:18:43 Now, this is what's called long-term capital gains tax. If you sell your investments before you've held them for over a year, you're going to pay short-term capital gains tax, which is a much higher tax rate. So this is one of my gripes with people who love the day trade constantly, because if you day trade, your tax rate is going to skyrocket compared to someone who's a buy-and-hold investor. And what a lot of beginning day traders don't realize is that their tax rate is cutting into all their profits because day traders try to go in and they try to get 30, 40, 50 percent on their money when all of that is going to be swooped away with short-term capital gains tax.

Starting point is 00:19:22 So understanding your tax rate as an investor is extremely important. And holding your investments for longer than a year is something that you really need to be doing if you're going to be a long-term investor. You want to believe in the companies you're investing in or buy into index funds or mutual funds that you believe in that you know you're going to be holding for a long period of time. The seventh way to legally avoid paying taxes is to own your house for longer than a year. So if you're buying your primary residence, one of the coolest things that you can do, like we talk about all the time in this podcast, is hold that primary residence for a long period of time. Why? This is extremely important. Because if you're willing to hold a house for a long period of time, the original price that you pay matters less over time. So you can buy a house in a hot market, for example. And if you're willing to hold that house for 10, 15 years, then you should see a recovery over time.

Starting point is 00:20:13 The same goes for the profits if you're going to sell a house, because you have to hold a house for at least two years if you don't want to pay any taxes on the sale price of your house. So under the current tax law, individuals are excluded from capital gains tax up to $250,000 of profit on a sale of a primary residence. Or it's $500,000 for married couples. So this is why you should always be buying a house

Starting point is 00:20:38 with the intention of owning it for 10 years. So we lived in our first house, our starter home for over seven years and made a very significant sum and paid zero dollars in taxes because we lived there for longer than two years. So this is something I would definitely look into. When you're looking at buying houses,

Starting point is 00:20:56 make sure you're willing to stay in that house for a longer period of time. At least two years, but hopefully longer, look at the 10-year-old that we usually utilize here at Master Money and make sure that you hold that property for a long period of time. Now, one caveat to this is to understand this.

Starting point is 00:21:11 You can't live in a property for a year, as your primary residence and then use it as a rental for a year and still not have to pay taxes. It has to be your primary residence for you to not have to pay taxes. You could actually live in the house for a year, rent it out for five years, live in the house for another year and not have to pay taxes because that's two years as your primary residence. But making sure that you have at least two years as your primary residence is extremely

Starting point is 00:21:34 important before you sell the property. And then number eight, the eighth way to legally avoid paying taxes is charitable giving. So if you have a heart to give, you can deduct that. And one of the most important things to me about making money and increasing my wealth and building generational wealth is that I can give money away. And one of the cool things about giving money is that you can deduct that. So did you know that you can actually deduct things that you donate the charity? All you have to do is just keep the receipts.

Starting point is 00:22:04 Well, how do you know how much something is worth? Do you have to go through all the stuff that you're donating to Salvation Army or Goodwill and figure out, well, how much is this worth? Write it down, put it on a piece of paper and figure out, can I deduct this? How do you know how much is worth? Well, Goodwill, Salvation Army, all of these companies

Starting point is 00:22:19 will actually give you guides on how much stuff is worth. I'll link them up in the show notes as well, but they'll give you guides on how much you can deduct for each type of item. And the other thing you could do is you can deduct money that you give. So if you give money to a charity

Starting point is 00:22:32 or a cause that you believe in or you give money to your church, you can deduct that on your taxes. You don't have to pay tax on that money. money. And this is one of the coolest perks about being able to give money because you can reduce your tax liability. Have you ever noticed that a lot of rich people have charitable foundations? Why do you think that is? Because it's a major tax shelter for them. Now, is that the reason why you should be giving money? Absolutely not. If there's a cause you believe in or if there's a church

Starting point is 00:22:58 that you go to and you truly believe in that cause, then that should be coming from the heart. But it is an extra advantage for you to be looking at giving money because it reduces your tax liability. And there's one other thing I want to know because a lot of people don't know about these is that you can actually open a charitable giving account and you can get massive deductions when you open a charitable giving account. So this is an account that actually allows you to invest money that you plan on or want to give in the future. And it also helps you keep track of where you're giving money all in one place. But you can invest this money, allow your charitable contributions to grow and give that money and even larger amounts to causes that you believe in. So look into charitable

Starting point is 00:23:38 accounts, you can open them all kinds of places. Vanguard has them, Fidelity has them, Schwab has them, all the big brokerages have them. But these are really cool accounts, and this is kind of a deep dive, and this is an advanced strategy. But utilizing those accounts is something that you can actually help that money grow and even give more money to the causes that you believe in over time. So if you haven't heard of a charitable giving account, we'll do a whole episode on giving, and we'll talk about those in great detail. But if you haven't heard of them, look into them because it's a great tax shelter for your money, specifically if you want to give to charity on a consistent basis.

Starting point is 00:24:12 Now, listen, I hope you guys learned of a bunch of different ways on how you can legally avoid paying taxes. If you have any questions about this episode, hit me up on Instagram at Master Money Code. That's Master Money CO. And follow us on Spotify, Apple Podcast, or whatever podcast player you love listening to this podcast to. And if you want to help out the show,

Starting point is 00:24:31 leave a five-star rating and review on Apple Podcast. And don't forget to check us out on YouTube at Master Money on YouTube. Thank you guys so much for listening to this episode. We truly appreciate each and every one of you, and we'll see you on the next episode.

The Personal Finance Podcast - 8 Ways to LEGALLY Avoid Paying Taxes Like the Rich (Save 6 figures+ in Taxes!)

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