Library of Congress Cataloging-in-Publication Data: Kennedy, Diane., 1956-[Loop-holes of the rich] Loopholes of the rich : how the rich legally make more money and pay less tax / Diane
Trang 3LOOPHOLES OFTHE RICH
Trang 5D IANE K ENNEDY , CPA
John Wiley & Sons, Inc.
Trang 6Copyright © 2005 by Diane Kennedy All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or
transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the
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Library of Congress Cataloging-in-Publication Data:
Kennedy, Diane.,
1956-[Loop-holes of the rich]
Loopholes of the rich : how the rich legally make more money and pay less tax / Diane Kennedy—Rev ed.
p cm.
Published simultaneously in Canada.
Includes index.
ISBN 0-471-71178-0 (pbk : alk paper)
1 Corporations—Taxation—United States 2 Tax planning—United States.
Trang 7CHAPTER1 Starting Point—Understanding Your
CHAPTER3 Evaluation—Constructing a Tax
CHAPTER6 Jump Start! Principles for Tax-Advantaged
CHAPTER8 Using Business Structures to Create Legal
CHAPTER12 Real Estate Loopholes to Take Money out
CHAPTER16 New C Corporation Tax Loopholes Strategies 214
v
Trang 8PART IV Take Your Loopholes and Still Sleep at Night 221
Appendix A Tax Loopholes Strategy Success Stories 237
Appendix C IRS Principal Business and Professional
Trang 9There are two parts to making a whole lot of money The first is
earning it and the other is keeping it The hard part is keeping it
In this book, Loopholes of the Rich, you are going to legally learn
how to make more, keep a whole lot more, and pay less tax One ofthe things I teach is “The best thing you can do for the poor is not be one
of them.”
What you want to do is build a financial fortress around yourself,your family, and your businesses Do what the rich do by having a planand a path You need an effortless strategy that is easy to understand.This book takes you through it step-by-step-by-step Diane gives you notonly a wealth creation system, but a wealth preservation and protectionsystem that is invincible, unstoppable, and resolute, and works for younow and works for the future What you want to do is create a residual,philanthropic future income that makes your church, temple, mosque, orcharity of your choice infinitely better off than they were before you
came So now you have lasting value, because you knew the Loopholes of
the Rich.
You deserve to know this information, and now Diane has written it
in such an easy-to-understand way that you can make it, keep it, andhave it grow As John Wesley said, “You want to earn all you can, save all
you can, invest all you can,” and let me add protect all you can, so then
you can give all you can
—Mark Victor Hansen
Co-creator, #1 New York Times selling series Chicken Soup for the Soul®
best-Co-author, The One Minute Millionaire
vii
Trang 11THE RULES HAVE CHANGED
Are You Living Your Dream
or Your Nightmare?
Are you one of the millions today who keep working harder and
harder and receive less and less in return for their effort? Justwhere does that money seem to go? And, even more frightening,where does all your time go? Many today are waking up to the re-alization that they have somehow gotten old, and their lives so far haveonly been about striving—with nothing to show for all the years of work
Where Did It All Go Wrong?
The biggest expenses for the average American are interest and taxes
Both of these expenses put your money in someone else’s pocket The
in-terest that you pay on your home mortgage, car loan, credit cards, andthe like is income to someone else The taxes you pay go to support thegovernment without much input from you In other words, the typicalmiddle-class wage earner works to pay other people And, worse yet, theaverage American seemingly has no say in how the money is spent Nowonder you feel out of control sometimes!
The middle-class dream has become a nightmare You can’t workharder at your job and expect to get ahead And, even worse, you mightnot know this until it’s too late You might find out that you have no fu-ture just as you’re ready to retire and enjoy your golden years That’s
ix
Trang 12when you find out the pension you hoped for is gone That’s when youfind out your house costs you more in property tax and insurance thanyou can afford And, too late, you find out you now have outdated skillsfor the job market This is one nightmare that doesn’t end when youwake up You don’t even know you’re in the nightmare until you wake upand find out you have no money and no future.
The good news is that there still is a dream possible for you Andthat future is possible no matter where you are today It doesn’t matterwhere you live It doesn’t matter how much money you have now
It doesn’t matter how much debt you have But the way to realize the dream, and end the nightmare, is not the way your parents taught you
The plan of your parents—work hard, save your money, and lect your retirement—was effective for them, but it doesn’t work now
col-Loopholes of the Rich was written to provide the information you need
to operate in today’s world In this book you will learn the new rulesthat the wealthy play by And you will learn how you can play by thesame rules
What Does It Mean
to Be Average?
Five years ago, it was estimated that the average 50-year-old Americanhad a net worth of zero Consider what that means It means thatsomeone has worked for 25 or more years and has been able to accu-mulate nothing Of course, that’s an average; so for everyone who hasassets that exceed their debt, there is someone who owes more thanthey own At 50 years of age, they have another 15 years or so to work
A lot has to change if they want to recover from where they are now.They have to reverse the effects of 25 years of work in just 15 moreyears of work
Last year, a new study was done It’s now estimated that an average
50-year-old American has a net worth of minus $7,000! It’s going the
wrong way!
x INTRODUCTION
Trang 13The conventional wisdom for the average person just doesn’t workanymore If you aren’t average, or don’t want to get those average results(owing more than you own), then it means that you’re ready to learn thesecrets of tax-advantaged wealth building that the rich know.
How to Improve the Odds
Avoid being average by creating balance between financial educationand proper financial action No one person can have all of the answers
A team makes you stronger Your team should encourage and move you
in the right direction This book will tell you how to find, evaluate, andwork with the right team With their help and advice, you can succeed!
How to Put More Money
in Your Pocket Today
Taxes are the single biggest expense for the average American today.One small change in the amount of tax that you pay can create a hugechange in how you and your family live your lives This book will tellyou what small changes make the biggest impact
Even better, you’ll learn strategies that can help you save taxes day! But it takes more than just learning about them You need to also
to-put the ideas into action Loopholes of the Rich will show you how to do
that as you build a team that supports your goals But, first, we start withthe basics of loopholes
Trang 14take advantage of the legal tax loopholes that the tax law provides Sowhere are the loopholes? You’ll find most of the loopholes in the two ar-eas that most support the economy—businesses and real estate investing.Businesses, and particularly small businesses, provide stimulus to theeconomy A growing business employs people, hires consultants, invests
in equipment, and just generally kick-starts a struggling economy Infact, look at recent tax legislation Does it seem like the tax cuts are un-fair? They are! That’s because the government wants to create a change
in the economy and knows that the best way to do that is by creating portunities for businesses to grow
op-Real estate loopholes are another important part of public policy Real estate investors provide housing for people who don’t cur-rently own their own homes The government has tried to providethat same kind of housing (called public housing), and the result is decaying tenements where no one wants to live In fact, while prop-erty values have generally appreciated (when taking the long-rangeview), public housing values have generally gone down The govern-ment therefore provides the loopholes in order to encourage real es-tate investors
The first edition of Loopholes of the Rich was published in 2001.
Since then, I’ve heard from thousands of people about how they havemade more money and reduced their taxes by taking advantage of thetax loopholes that the government wants you to use The loopholes arethere! The government puts them there for us to use, but it’s up to us tofind them
A Word of Caution
You will hear ideas and examples throughout the book that will exciteyou You will likely find that the people in the examples have situa-tions very much like yours You will want to do something—be moved
to take action That’s great! The caution is that you must follow allthe steps closely One of the fundamental, key steps is the need tohave a good team Find advisors whom you can trust to give you thebest advice
xii INTRODUCTION
Trang 15What You Will Learn in
Loopholes of the Rich
Loopholes of the Rich came about as a result of my years of experience
working with people who searched for ways to reduce their taxes andincrease their wealth After talking to literally thousands of people
The Do-It-Yourselfer
Every so often, as I speak at seminars, participants’ questions make
it clear that they intend to do it themselves in attempting to findthe right business structure for their businesses I am reminded of amedical school classmate of a friend of mine
It had become evident who the top student in the class was bythe second year of medical school In fact, this particular young manwas so far advanced that he had trouble communicating with any ofhis fellow students and many of the professors As his knowledge,and his conceit, grew, he began to believe that he was more compe-
tent than anyone else in the medical profession This was in spite of
the fact that he was only in his second year of medical school
With that belief, he self-diagnosed a potential appendix lem for himself and determined that he should have an appendec-tomy Of course, he felt that no one was as good as he was, so healso decided to remove the appendix himself
prob-He gave himself local anesthesia and rigged up mirrors on hisnarrow dormitory bed so that he could view the operating site—hisown abdomen His skill might have been top-notch, but he couldn’tstanch the flow of blood quickly enough and soon passed out fromthe blood loss Luckily, he was discovered before he died from thefailed surgery attempt
He was trained, he was competent, and
he almost died trying to do it himself!
The Bottom Line: Use trained professionals; don’t try this by yourself
Trang 16from all over the United States and Canada, from all walks of life, withdifferent assets, educations, and circumstances, I found that there wereoften similar questions and stumbling blocks that they encountered.That is why this book was written—to create a common ground of un-derstanding as a foundation on which you can build with your own per-sonal advisors.
The first statement that I generally hear from someone just ing is “I don’t know where to start!” They ask, “What do I do first?”Usually they have a stated goal of what they want, such as to pay lesstaxes and to protect their assets But they might not know what it isthey really want After a few minutes of conversation, we usually dis-cover that what they are really after is a sense of control and under-standing about their own finances They don’t feel good about whatthey have done to date They want to know that someday they will beable to have true financial freedom And they want to know that theyhave that freedom protected In other words, they want to be able tokeep their financial freedom
start-Perhaps you have longed for the same goal As you read throughthis book, you will likely find some of your current ideas challenged.And, even more important, you might find that your friends and cur-rent advisors will challenge the ideas presented here That doesn’tmean that your friends are wrong and it doesn’t mean that the ideas inthe book are wrong What it does mean is that we all understandthings within our own framework and point of view If somethingcomes along that is not in that point of view, either we can reject it
as incorrect or we can try to adjust our point of view to accept it Ifyou choose to accept different ideas, then you can experience growthand more depth of understanding That is really what this book isabout—to give you different ideas about things you might alreadythink you know
Above all, I have striven to present the ideas in a format that makesthem easy to understand We will be discussing tax loophole strategiesand tax law You can’t learn those subjects from reading just one book.You actually can’t ever say you have completely learned them, becausetax law is constantly changing as new cases are decided, refinements areadded by additional Treasury regulations, and, of course, the inevitablechanges to the tax code are enacted by Congress
xiv INTRODUCTION
Trang 17How the Book Is Set Up
The book is divided into four sections Each section is important andbuilds upon the other I suggest that you read the book through once,completely Then go back to more closely read the chapters that are mostapplicable to your own circumstances The four sections are:
I The Five STEPS to Financial Freedom
Learn the five STEPS to financial freedom so you can achieve the mate in tax savings and start building wealth today
Loopholes of the RichSuccess Story
Scott had worked as a manager making a very respectable salary ofabout $50,000 per year But, seven years after graduation from col-lege, he was deeper in debt than when he had graduated Scotttalked about how he dreaded driving to work every day He didn’tknow how much longer his car would last And if it broke down,
he had no money with which to repair it and no more credit able on his credit cards So, each day he worried as he drove toand from work
avail-The car lasted but his job did not Scott was now faced with
no income Luckily, he soon got work as an independent businessconsultant Interestingly enough, he made almost $50,000 in hisfirst year But he didn’t make it as an employee—he made it as abusiness owner And Scott had made use of the tax loopholes to set
up the right business structure and take the legal deductions, so heended up with more money in his pocket In fact, at the end of hisfirst year he had $10,000 more cash even though he had made thesame amount of money!
Scott had used the tax loopholes that the government wantshim to use Scott is now my business partner at TaxLoopholes and
D Kennedy & Associates (DKA) We both use the money wemake from the businesses (after taking all of the tax-free benefits
we can) to invest in real estate Our wealth grows in the best advantaged ways