What’s up folks? On this video, I’m gonna be going over the action plan for your 2023 taxes. I’ve been going over what really moves the needle and what really doesn’t work. I think the stuff that is out there in the mainstream, and this is how I’ve found to lore my adjusted gross income drastically over the.
Just a little bit. No, I’m not a cpa. I’m not a lawyer, but I also don’t have a day job like a lot of those guys, and this is a lot of the stuff that I’ve learned from working with other accredited investors through our business and just through my own travels as an accredited investor and an owner of 8,500 rental properties. Here we go.
The first thing I’d like to just identify, we’re not gonna be talking about the lay mold stuff like the 401ks, the Roth IRAs, even solo 401ks, IRAs, stuff like that. . These are all things that I put in the category of small ball type of tactics, small ball, and if you don’t know baseball, right?
This is all kind of stealing bases. Taking walks, little base hits what I wanna do because my time is short and your time is short, as a higher income earner is. Really focus on the big rocks as opposed to the things that don’t really move the needle. Yeah. At some point, these things, which you maybe should jot down or just check out on the YouTube channel, take a screenshot yourself for later, are things that I call optimizing.
the big rocks out of the way, but just in case you want to know what I’m talking about, and you’re somebody who likes to focus on the small stuff. I personally did at one time myself. Again, that’s putting me money into tax-deferred accounts such as IRAs, solo 401ks, or playing around even Roth IRA accounts.
All that stuff just shifts the taxes around. And if you’ve taken a look at some of my other stuff on my past Podcasts you guys can check that out at simplepassivecasual.com/QRP. I really explained the reasons why. There’s no reason that you should be in any of these kind of so supposedly tax shelter accounts, unless your net worth is, I would say four five plus million net worth.
or you wanna really hold non-real estate assets for some strange reason. The next kind of item here is, timing your game harvesting. If you’ve suffered a loss in crypto, which you probably did in the last couple of years, wouldn’t be a bad idea to sell the assets and buy it right back.
Crypto and taxes are its infancy. There’s not really this like 30 day wash rule that you have with stocks. I guess you can make lemon with lemonade or and get the deduction there. But that’s another. . The other one is, income shifting. , this is the whole paying your kids concept.
The whole idea is, your kids don’t make as much money and you’re in, they’re in a lower tax bracket as you. Therefore, if you throw them a bone, throw ’em like five, six grand. You can shelter some taxes that way at their lower tax rate as opposed to your higher tax break. And again, here’s where I’m talking about like small ball kind of things.
Whoop, they do. If you save 10% on your taxes on that six grand right? Yeah, you’re saving money and I don’t wanna phoo this, but again, these are small ball type of activities.
Even smaller than that, buying things that you may need for your business or your real estate rentals or helping you become a better investor. Maybe an iPhone, maybe a printer, or some iPads, maybe even a watch for all I know, right? The, it has to be reasonable, one part of your business. Running these things to your business is a great way to pay for things that. bought anyway and gotten a sort of discount on it because it was a deduction.
Now when you really add this stuff up, does it really move the needle? No, it doesn’t. And it is this same thing like. Buying a rental property next to you.
Know your relative’s house. Your family’s house. And I always tell people like, yeah, it makes sense, but like really how much money you’re really going to is the delta there? How much money would you go to see grandma’s house? You really spend there to be able to deduct and justify to, I would much rather be in a better location, better submarket, or even a better value idea like a syndication.
Who cares if it’s next to grandma’s? and where you can get the, write off some personal things right there. And this is a another example. Play the big game, the big picture. And this are these small ball activities. The last thing that I think a lot of business owners will do is like a S-Corp strategy where they’re playing these salary dividend split.
As W2 workers are 10 99, most of you guys are getting killed with pseudo faf fica South self-employment taxes which get added on top of your federal and state taxes. But when you have a scor, you’re able to carve off salary portion and then the dividend portion. Then dividend portion is the portion that doesn’t have to be subjected to those extra layer taxes.
Kind of a cool thing. , but again, these are small ball activities. Those extra taxes might mean an extra 10, 15%, but on how much, like a hundred grand. Yeah. I guess that might move the needle. Might move in if your, you’re moving $500,000 in a dividends, but at that point, you’re probably better spent, minding something else or what.
I’m gonna be going into. But I’m gonna be going into really the big things that I focus on my clients. The first one, especially for the high income earners, making over $340,000 is charitable donations.
Yeah, giving us stuff away at a Goodwill, but what I’m really talking about here is land conservation easements. Now, I’m not gonna be going into this particular one because it is a Pandora’s box of really explaining it. What I would recommend is go to my website and signing up at simplepassivecashflow.com/club or you’ll get a lot of free content to learn about these types of more advanced tax tools.
But what I also wanted to really go into was, A lot of this stuff is predicated on managing your adjusted gross income, not just deferring, right? Deferring was part of the last slide where it was small ball activities. What I’m talking about is just lowering your AGI.
Through a couple of ways, which I’m gonna get into here, but if you’re able to lower your adjusted gross income, now you’re able to pay lot less taxes. And the more you lower it, the better it gets. So if you’re making $400,000 and you’re in this 32% tax bracket and we lower it a 200, not only do you shelter that $200,000, don’t pay taxes on it, but it’s at a higher rate, right?
And that’s because our tax system is this progressive tax. What I recommend most of the clients do is really try and get to this red line here that I have shown, and this is a point where the break between the 24 to the 32% range, which is a big gap these days, I’m actually saying, maybe even try get into the $200,000.
A g I range at 22%. Of course, I’m talking for merit follow jointly. The, for the single folks. It’s a little bit different on the left side of this single filer status here. But, this is the concept of this is the big things as opposed to the small things that you should be looking at.
The question is, all right, cool. I get it. And this is the 1 0 1. In fact, this is more like the 2 0 1 tax class. How the heck do I do this right? Easier said than done. Here’s a little bit of review for some people who are brand new at this. . And you guys can check what I’m, I’ve got this diagramed in the right way.
On the left side here, I have ordinary income. Ordinary income, boo bad, ordinary income is like the W2 income or, and even 10 99, it gets hit with all these taxes, your ordinary tax and your FICA social security, about 15% on top of the zero to 37%. . We don’t like this stuff. Why? Because it’s high tax. What we want is on this other side of the fence, which is the passive income.
Passive income is cool, right? Passive, right? But other than the fact it’s from a tax standpoint, it’s actually defined as passive income, which can be offset with passive losses, passive activity, losses, suspended, passive activity, losses. We’re gonna use just the short word as pals, P A L S. Kind is cool, right?
Cuz they are, you’re a pal in this respect because you can use these passive activity losses, which you get from large syndication deals or rental properties. The fact that real estate degrades over time on paper, these are losses that you can take to offset your passive income. And when you are in larger syndication deals that do cost segregation and aggressively right off the.
which is a good thing. You’re often able to take, create a surplus of these losses and show a big red. One of the things that like really boggles my head and my clan’s head is in we try and show this to the banker or the mortgage lender and they look at like your tax profile, and you’re like, but you’re losing money.
Yeah, heck yeah, we’re losing money because all the depreciation and they just don’t get it. And just like how people don’t. Forget the 401ks. Forget the Roth IRAs. Forget the IRAs, right? That’s all deferring. What we’re trying to do is lower our a g I today doing these types of things, so getting back to using passive activity losses to lower our passive income.
Again, that’s zeroing that out. Now we cannot use passive activity losses to offset ordinary income right from our day job or your business because it’s separat. , there’s this red line of do not pass, sir. Now, the only way to get past. , there is a way to use their passive losses off offset your ordinary income.
And we’ve done this many times with clients, a high paid doctor making a million dollars, lowering their income to whatever they want, depending how much passive activity losses they have. They do this with a thing called real estate professional steps. We’ll call it reps for short. Now I’m not gonna get into too much of the detail.
Again, sign up for the club, simple passive cash.com/club. You get the eCourse and also check out the taxPage@simplepassivecash.com slash tax to learn more on how to qualify this and to review what we’re talking about. But in a nutshell, if you are able to qualify for real estate professional status now this kind of red line of demarcation goes away and it’s a bit of a free for.
A good free for all for you because now you’re able to use these losses that you get from the real estate to offset and lower your income. And this is where, a high paid person getting, million dollars of income a year, all ordinary income is able to use the losses from the real estate to lower that to whatever they want.
Now there’s a kind of a overlying portion of this that I think gets lost and this is where I come in, for those of people who, sign up for the club form and we get to know each other, I can help you walk through your personal situation accordingly. And then this is really gets into personal finance, whether rep status makes sense and where you are in terms of ordinary to passive income.
Most people I work with, they have a mostly ordinary income, right? They’re doing it the traditional way. They have traditional investments, stocks, bonds, mutual funds. They don’t really have too much alternative investments and pause there. I don’t know why they call it alternative investments when you know real estate is an alternative investment, but
I don’t know why you would call it alternative when it seems pretty traditional to me anyway, but anyway, that’s the terminology we’re using. It’s an alternative investment and real estate is. Something that per the iris code gives you a lot of losses. Again, pals. Our pals, we like ’em and at this point we’re able to get a lot of these losses to play these different games at our taxes.
But if you look okay, what do I do? Here’s what I’m saying, you gotta move away from the traditional investments because that stuff is portfolio income there and there’s no losses. You can’t do anything. And this is exactly what the government or society. , they want people to stay in that garbage so that they pay a lot of taxes.
And oh, by the way, the big brokerage fees are killing you in this process. , when I owned a rental property, I was making like two, three times better than what I was in the stock market. If you don’t believe me, check out an old video I did at simple passive cash flow.com/returns. I go through the numbers and show you exactly, the returns on an investment so you know how you’re making money through cash flow appreciation, the tenants are paying down your mortgage, and that these tax benefits all combined two to three times greater than what I was getting in that 401k nonsense.
But until you start to see this stuff for yourself, you don’t really get it. Hopefully you got from this video, you know this other alternative goal, which is forget about deferring with all the traditional stuff. Get into alternative investments so you can get these losses and over time your passive income will grow also, but also grow as a percentage in terms of.
In comparison to ordinary income because once that happens, now you don’t need that real estate professional status tag, right? If all your income was passive, which is personally where I’m at and a lot of my clients at who invest quite a bit, right? They have a lot of assets real estate assets that proves to a lot of passive income, and especially when they leave their day job, most of their income is passive income and they don’t need rep.
To offset that if they have the passive activity losses. So it becomes this kind of strange paradigm as you move through this financial journey the right way, in my opinion. Picking up alternative investments for the passive losses and then you start to get from, you start to get away from ordinary income and go to passive.
It almost is like you’re. Running paying a lot less taxes, a lot more like cleaner, a lot more efficient way of doing this. And that’s just it just makes so much sense once you understand this whole paradigm
And this is my bucket system that I talk a lot about people, the people ask should I do a Roth theory and Ira solo 401k? To me it doesn’t really make sense until you have today’s cashflow. Figure it out. And what is today’s cashflow bucket? What’s this whole bucket system?
I talk about a lot about my clients. The whole bucket system is. Imagine three buckets. The first bucket is get yours today, right? And I define this as 10 to 15, maybe in $50,000 of passive income a month. Typically that’s gonna be anywhere from three to 5 million net worth. Accumulate that much, and at least that much assets to produce that for you so that you’re living on good life.
That’s a great life. And at that point, you can’t really spend. At that point, that bucket fills up and it’s then the overflow spills into that next bucket, and here’s where you start to fund those self-directed IRA accounts, the solo 401ks, that type of stuff. But if you notice the way conventional financial dogma is structured, , it’s, they say to fill up this stuff first, and to me it’s completely backwards.
And the sad part that I see is that people never get to filling up their today cashflow bucket and they have to keep working. Maybe that’s how they created it so that we all keep working maybe, but, , you know that at that point, once that bucket gets filled, then you start to fill up nonprofits and make me make a mini foundation.
But most people don’t get there. And I think that would, at that point, you would probably have to come out to an event, learn the insider secrets at that point. But for now, just, in a quick YouTube video, just understand, create your cashflow bucket today outside of the tax.
Vehicles so you can get the losses. So you can use these losses to offset your taxes to date, and that’s how you’re gonna have more money to invest. Do other accredited investor banking. That’s another tactic that we have and that’s also in the e-course that you guys can get at simplepassivecash.com/club signup there for free.