- Robert Kiyosaki: Tax strategies of the rich…
- … That can work for anyone
- “Move money, don’t park it” (hint)
- A trove of economic numbers
- JP Morgan’s managerial class act
- How Jamie Dimon looks so “rakish”
- Groovy gravy… just in time for Thanksgiving!
“In the big picture of personal finance, there are four financial forces that cause most people to work hard and yet struggle financially,” says Rich Dad Poor Dad author Robert Kiyosaki.
Tick them off with us (you can probably take a stab at three of the four):
- Inflation (that was the outlier)
As to the last, consider all the times you render unto Caesar, and we’re not just talking on April 15. Sure, you pay federal income tax; then there are state and local taxes (SALT), sales taxes, gasoline taxes, vice taxes (if applicable)… Feeling glum?
A little IRS humor…
Going to prison aside, Robert says, if you’d like to reduce your tax burden you have a couple alternatives: “There are two groups who pay the least in taxes,” he says, “the poor and the ultra-rich.”
(If you’ve got that sinking feeling in your stomach, hang in there.)
“There are many ways that the rich make a lot of money and pay little to no money in taxes, and anyone can use them,” he continues.
Here’s a real-world example:
- Robert and his wife Kim put $100,000 down on 10 condo units in a 380-unit project under construction in Scottsdale, Arizona. “The developer paid us $20,000 a year to use the 10 units as sales models,” Robert says. “So we received a 20% cash-on-cash return, on which we paid very little in taxes because the income was offset by the depreciation of the building and the furniture used in the models.” He says: “It looked like we were losing money when we were, in fact, making money”
- When Scottsdale’s real estate market got hot, the condos sold quickly. “Our 10 models were the last to go,” says Robert. “We made approximately $100,000 in capital gains per unit.” Robert put that $1 million profit into a 1031 tax-deferred exchange, which allowed him to avoid paying capital gains because he reinvested the proceeds in another property — of equal or greater value — within the IRS’ timeframe. “We legally paid no taxes on our million dollars of capital gains,” Robert says
- Using the $1 million proceeds, Robert purchased a 350-unit apartment building in Tucson. The building was mismanaged, chockablock with bad tenants and sorely in need of repair. But Robert had a plan: “We took out a construction loan and shut the building down, which moved the bad tenants out,” he says. “Once the rehab was complete, we moved good tenants in and raised the rents”
- With the building updated and filled with dependable renters, Robert had it reappraised; he was able to borrow $1.2 million against the property’s equity — a loan the new tenants paid for… making it essentially tax-free for Robert. “Even with the loan,” he says, “the property still pays us approximately $100,000 a year in positive cash flow
- “[We] then invested the $1.2 million in another 350-unit apartment house in Flagstaff,” says Robert, “a hot property market.” And they did it all virtually tax-free.
Robert says: “Kim and I have several such scenarios active at any one time. We have lots of monthly cash flow, which we reinvest, but we rarely have any liquid cash sitting around to be taxed.
“This is an example of an investment strategy known as the velocity of money,” Robert says. In other words: “Move money, don’t park it.”
In the example above, Robert notes: “We started with $100,000 we earned tax-deferred from another investment. The $100,000 eventually allowed us to borrow over $20 million from banks, tax-free.
“How long would it take you to save $20 million by parking your money somewhere,” says Robert, “as most financial advisers recommend?
“As I’ve written before,” Robert continues, “moving your money makes more sense than parking it in cash, bonds, equities or mutual funds. (Emphasis added.)
“Clearly, the rich get richer… because they earn a lot of money without paying much, if anything, in taxes,” Robert says. “They know how to use banks’ tax-free money to become richer.”
And if you can’t beat ‘em, join ‘em. “For instance, instead of paying capital gains tax on the sale of our condo units,” Robert says, “real estate laws allowed us to defer paying these taxes and invest them into another property instead.
“The cash that does come from this property goes into our pockets at a lower tax rate because there’s no Social Security or self-employment tax to pay,” he says. If real estate depreciates? The tax rates reduce further.
“On the flip side, the poor and middle class toil away for their money, pay more in taxes the more they earn and then park their earnings in savings and/or retirement accounts,” Robert says.
“In the meantime, they receive little or no cash flow on which to live while waiting for retirement — when they’ll live on their meager savings.”
Robert says: “But if you want to… pay little to nothing in taxes, you’ll need to choose the path of the ultra-rich.
“Because at the end of the day,” he says, “it’s not about how much money you make, but how much money you keep.”
That’s why Robert’s written the Rich Dad Tax Guide — updated for 2020. Here’s a small sample of what’s inside:
- The “paycheck loophole” that could boost your bottom line by $13,300 or more (Page 17)
- How to use Section 933 and LEGALLY pay ZERO in federal income tax! (No you don’t have to give up your U.S. citizenship.) It’s all on Page 20…
- The one-time move to “upgrade” your retirement account and “ERASE” up to $55,000 in taxable income (Page 27).
In all, you could get up to $23,966 back this tax season.
Go here to learn how you can claim your copy today. Don’t even think about preparing your taxes until you read it.
Taking a look at the markets today — ahead of Thanksgiving — the Dow’s up 25 points to 28,145. The S&P 500 and Nasdaq are also in the green: up 10 and 50 points, respectively.
Oil’s down 70 cents per barrel to $57.71, and gold’s also in the red — down $4.60 to $1,462.83 per ounce.
Bitcoin’s rallying after a tough week: up 7% to $7,621.01.
The big economic number today is the Commerce Department’s revised third-quarter GDP, coming in at 2.1%. Better than expected but still below the 2.2% norm for the last decade — to say nothing of the 3.2% average for the post-World War II era.
The greatest burden on the number continues to be business investment that’s shrunk for the second quarter in a row. But consumer spending — which accounts for more than two-thirds of U.S. GDP — remains unrevised at 2.9% for the third quarter.
- Meanwhile, personal income growth was flat as a pancake in October… but consumer spending increased 0.3% — in line with expectations — and up from September’s 0.2%. Put it all together and it’s clear Americans are using whatever savings they have (or more likely credit cards) to maintain their standard of living. And holiday shopping is just getting started…
- The Commerce Department’s preliminary monthly report on orders for durable goods, including everything designed to last three years or longer, shows overall durable goods orders beat analysts’ expectations, up 0.6% in October compared with a steep drop of 1.4% in September
Delving deeper into nondefense, nonaircraft core capital goods data, we see an increase of 0.1%. (Orders for military aircraft rocketed — heh — 18.1% in October.) The numbers also reflect the GM strike that was settled late last month when orders for cars and auto parts fell 1.9%
- Just in time for Thanksgiving: The wonks at the Labor Department put initial jobless claims — a crude measure of layoffs — at 213,000 in the seven days ending Nov. 23. That’s 15,000 fewer people applying for unemployment from the week before when claims reached a five-month high.
On the subject of job security…
We take the nickel tour of JP Morgan’s C-suite where CEO Jamie Dimon owns 7.8 million JPM shares… now worth over $1 billion.
“Some of these shares were purchased by Dimon on the open market,” says Ben Hunt at the website Epsilon Theory. “Most of them were not.”
[In August, our managing editor Dave Gonigam mentioned Hunt — who ran a billion-dollar hedge fund — when discussing why “words and narratives” are more meaningful than metrics. For central bankers at the Fed, that is.]
Back to Dimon and his shares… So if most weren’t purchased on the open market, what gives?
Hunt explains it this way: “In a poker game, the rake is the cut that the casino dealer takes out of every pot. It’s usually a couple of dollars per hand… barely noticeable, certainly not noticeable to a casual poker player like me.
“But what if the dealer started taking 18–25% out of every pot as his rake? Would you notice then?” Hunt asks. “That’s what JP Morgan management does with its ‘return of shareholder capital’ through stock buybacks.”
Jamie Dimon looking “rakish”
Ahh… stock buybacks. We’d like to think of them as somehow benefiting someone other than corporate execs, wouldn’t we? But that’s just adorable. Instead…
- (2016) “JP Morgan bought back 140.4 million shares of stock for $9.1 billion. Also in 2016, JP Morgan issued 38 million new shares to management (27% of buyback). Those newly issued shares were worth $2.5 billion then, and are worth $4.94 billion today
- (2017) “JP Morgan bought back 166.6 million shares of stock for $15.4 billion. Also in 2017, JP Morgan issued 31 million new shares to management (18% of buyback). Those newly issued shares were worth $2.9 billion then, and are worth $4.03 billion today
- (2018) “JP Morgan bought back 181.5 million shares of stock for $20 billion. Also in 2018, JP Morgan issued 32 million new shares to management (18% of buyback). Those newly issued shares were worth $3.5 billion then, and are worth $4.2 billion today.” (emphasis added)
Dare we ask? Did newly issued shares trickle through the mega bank? There is such a thing as an employee stock ownership plan (ESOP), by the way.
Hardly. For each year listed above, fewer than 1 million shares found their way into JP Morgan’s ESOP… or less than 3% of newly issued shares. “Senior management received more than 97% of the newly issued shares,” Hunt says.
“There are several JP Morgan senior executives listed on Form 4 who are centimillionaires from their stock holdings,” he says. “More than a dozen are decamillionaires, most several times over.”
Hunt concludes: “One day we will recognize the defining zeitgeist of the Obama/Trump years for what it is: an unparalleled transfer of wealth to the managerial class.”
If your blood’s boiling now, here’s something to take it down a notch…
Dread sitting across from Uncle Bob at Thanksgiving dinner? (Bob’s a nice guy and all… but does he always have to talk about politics?)
We get it. Might we suggest adding this to your Thanksgiving spread…
Courtesy: Kiva Confections
California company Kiva Confections has come up with a THC-loaded turkey gravy that’ll put everyone in a mellow mood. (For those of you who never inhaled, THC is the active ingredient in marijuana. Note: Just keep it away from the kids’ table.)
Sadly, the groovy gravy’s only available in the Golden State… fully legal marijuana can’t come soon enough!
And with that, The 5’s off Thursday and Friday, but — for a recap of the short week — check out Saturday’s issue.
We wish you and yours a Happy Thanksgiving!
The 5 Min. Forecast
P.S. Learn what Robert Kiyosaki calls “the paycheck loophole.”
And what Kiplinger says can add “thousands of dollars each year.”
To prove it, Robert reached out to David Andrews, a regular salaried employee.
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