Lower Your Taxes by Thinking Rich
Jared Kushner paid no federal income tax for years.
A couple weeks ago, New York Times reported that Jared Kushner “paid little or no income tax from 2009 to 2016.”
President Trump’s son-in-law and his family company have spent billions of dollars buying real estate. His net worth is reported to be almost $324 million. But yet, they have paid almost no federal income taxes.
“In 2015, for example, Mr. Kushner took home $1.7 million in salary and investment gains. But those earnings were swamped by $8.3 million of losses, largely because of “significant depreciation” that Mr. Kushner and his company took on their real estate, according to the documents reviewed by The Times.
Last year, the White House championed revisions of the nation’s tax law that expanded many of the benefits enjoyed by real estate investor, allowing them to take even larger deductions.
This strategy isn’t new. Kim and I have been using depreciation for years to lower our tax liability.
Every investor does—or should.
The Most Patriotic Thing You Can Do is Not Pay Taxes
Seven years ago, Dallas Mavericks owner, Mark Cuban wrote on his blog:
“So be Patriotic. Go out there and get rich. Get so obnoxiously rich that when that tax bill comes, your first thought will be to choke on how big a check you have to write. Your 2nd thought will be “what a great problem to have”, and your 3rd should be recognition that in paying your taxes you are helping to support millions of Americans that are not as fortunate as you.”
According to Cuban, the most patriotic thing you can do is pay your taxes.
While I have a lot of respect for Mark Cuban and appreciate him as an entrepreneur, I simply differ with him on this.
In fact, if there’s one thing I’ve learned from my Rich Dad tax advisor, Tom Wheelwright, the most patriotic thing you can do is not pay taxes!
As you probably know, the tax codes in the US and in many different countries are long and complicated. The question is, why?
The reason is that government leaders learned a long time ago that the tax codes could be used to make people and businesses do what they want by utilizing the tax code.
In short, the many credits and breaks that are found in the tax code are there precisely because the government wants you to take advantage of them. For instance, the government wants cheap housing. Because of this, there are many tax credits for affordable housing that developers and investors can take advantage of that minimize their tax liability, put more money in their pocket, and in turn, create affordable housing. Everyone wins.
There are many scenarios like this in the tax code that incentivize investors and entrepreneurs to do activities the government is looking for while rewarding those who take those actions with lower-or zero-tax burden.
Because of this, limiting your tax liability actually means you’re doing what the government wants you to do through the tax code. And that’s the most patriotic thing you can do.
How I Pay Almost Nothing in Taxes
In 2005, Kim and I and our partners Ken McElroy were putting together our ﬁrst multi-million-dollar, 100 percent-ﬁnanced investment. Kim and I put up $1 million as our down payment.
We improved the property and added new apartments. The rents went up and, on the basis of the additional income generated, the bank reﬁnanced our loan on the property. (In small real estate investments, banks lend money according to the investor’s ﬁnancial strength. On larger real estate investments, banks lend money on the ﬁnancial strength of the property, more so than the investor.)
With the new loan on the property, Kim and I received our $1 million investment back, tax free, because it was debt. (If it were ordinary income, we would have paid approximately $500,000 in state and federal taxes.)
Today, we still own the property. It is 100% bank-ﬁnanced and we still receive our monthly cash ﬂow income, which is taxed at the lower passive-income tax rate. The bank is our partner that has provided 100 % of money invested, but we receive 100% of the appreciation, amortization, and depreciation. The bank gave us our $1-million-dollar investment back, which we re-invested, into another apartment project and then repeated the process.
This is why I love banks. They are the best partners, providing that you are a good partner to them. The tax department is also a great partner because we are doing what the government wants done, which is employing people, using debt, and providing housing.
The core principles in my ﬁrst investment in 1973 and in the investments Kim and I do today are the same. Only the number of zeros in the amount of the transactions has changed.
Think Rich to Lower Your Taxes
Most people work for their money rather than have their money work for them. This is the exact opposite of what the rich do.
Working hard to earn more money and then giving it away in higher taxes isn’t financially intelligent, even if you do put some of it into a retirement account. On the other hand, making your money work hard for you means your earnings are taxed less, if at all. This is what Jared Kushner is doing with his real estate depreciation.
The rules of money are skewed in favor of the rich, and against the working and middle classes. After all, someone has to pay taxes. my rich dad told me, “When it comes to taxes, the rich make the rules.” He also said, “If you want to be rich, you need to play by the rules of the rich.”
The lesson on Capitalism begins with the ﬁrst chapter of Rich Dad Poor Dad, the lesson, “The Rich Don’t Work for Money.”
Simply said, the people who work for money, those in the E and S quadrants, pay the highest percentages in taxes. Those in the B and I quadrants are capitalists. Capitalists do what the government wants done—like creating jobs and aﬀordable housing. Hence, they pay the least in taxes.
This is true in all Western economy countries.
So I encourage you to try making your money work for you to give yourself an upper hand.
Editor, Rich Dad Poor Dad Daily