Buy, Borrow, Die Tax Strategy: How To Never Pay Taxes Again
Vložit
- čas přidán 8. 06. 2024
- The Buy, Borrow, Die Tax Strategy Is How The Wealthiest Americans Avoid Paying Taxes.
Some of the wealthiest individuals are able to pay almost 0% of their income towards taxes, while everyone else pays up to 37% of their income towards taxes.
So how is this possible? It all starts with understanding how your wealth is taxed.
When you buy assets that grow in value, it is not income.
When you borrow money against your assets, it is not income.
When you die, the transfer of your assets is not income.
On other hand, when you SELL assets, it is considered income.
OR when you earn wages, it is considered income.
The Buy, Borrow, Die Tax Strategy allows you to build wealth, get cash when you need it, avoid paying taxes, and pass generational wealth down to your heirs tax-free.
And as a licensed CPA that helps people save on taxes everyday at mycpacoach.com, I am going to walk you through this entire process for you in 3 easy steps.
What is Buy, Borrow, Die Strategy: (0:00)
Step 1: (1:32)
How The Rich Avoid Tax: (2:13)
Step 2: (3:30)
Borrowing Methods: (7:30)
Step 3: (8:43)
Subscribe: / @mycpacoach
Apply to Become a Tax Client: mycpacoach.com/contact/
Enroll in Tax Savers Course: mycpacoach.com/tax-saver/
Paying property taxes on your home , autos etc is like paying taxes on Unrealized capital gains especially since the inflation that has been stimulated during/after Covid. The PVA says my house jumped ~$200k in the last three years… I now pay taxes on that “Unrealized gain”.
Inflation of roughly 3 percent is NOT hyperinflation to ANY extent.
Thank you very much! This is extremely valuable information presented in easy to digest bite-sized nuggets!
This is called leveraging and it is great when times are good and every asset is appreciating. Also if you are rich enough and diversified enough to handle downturns. But this creates a house of cards that will destroy your financial security when value of assets plummet and you are faced with a mountain of leveraged debt, upside down, and zero liquidity. People doing this really need to understand the risks. The “die” part is when they jump off a building because they’ve lost everything and more in a market crash or extended recession. It has happened before. It will happen again. Good times don’t last forever.
That's exactly what I thought... Great Depression?? People borrowing mo ey to buy stocks because 'they'll just keep going up." That us, until they don't, and you still owe the loan and have no money.
This practice, if done by enough people, will also cause a bubble, thus increasing the chances of a downturn/recession/depression.
Yes. You can take advantage of owning assets and not selling stock funds with huge unrealized capital gains -- WITHOUT taking on risky leverage.
At some point leverage is going to get UGLY, like it did during the great recession.
Great video Sherman.
the one thing they never discuss is how you pay back the borrowed money. guess that part is still a secret.
Use ur income producing assets to pay it back
That’s where the die part comes in
This is a personal preference. Some people:
- Never pay it off
- Use income from assets to pay it off over time
- Pay it as quickly or slowly as they’d like to
Also, it is very important to fully understand the 4 benefits of borrowing listed from 3:58 and summarized at 6:45 - let me know your thoughts on this.
You don’t. If you avoid over leveraging yourself you’ll never have to sell shares or interrupt your compounding interest.
Because depending on how wealthy you are you’re going to incur a big tax bill right now and the interest on the loan will take far longer to eat that same amount of money because loans backed by assets are cheap debt compared to a 40% tax bracket.
While that debt is slowly eating away at your total value your money is locked away snowballing in value… and as the biggest part of compound interest REALLY goes bananas after 30 years… using debt to avoid having to sell can result in millions of dollars of difference every single year depending on your portfolio value.
The interest is part of the investment, and that expense reduces your taxes now allowing you to keep more money and borrow less.
If you really think about this, we see a lot of financial philosophy’s at play. The saying “time is money” is sort of the core of this principle. Inflation eats away at the dollar value you owe over time so you’ll pay a larger number on the debts in the future but bought more assets at lower prices with yesterdays dollar strength and stuck Uncle Sam with the bill and you’ve profited the difference.
In real estate investing you seldom see people pay things off early because you used someone else’s money to buy assets… and you’d leverage those to buy more houses and the renter pays the mortgage… if you think about it this is just doing that on a basket of assets and not just real estate.
Remember, your dollar is just worthless paper 👍 hopefully this rant makes things clearer.
@mycpacoach here's my thoughts - Never pay it off?? Please make a video on that strategy because it seems pretty lucrative.
You are so good at explaining!
Thank you!
phenomenal information! thank you for sharing your knowledge
max out on that 120k in long-term capital gains first with co ownership in a shared residence. Most people don't even have this yet, a shared residence no debt plus 120k income with no capital gains taxes.
Then once ready to buy a bigger house (in excess of the 120k pull down), then this strategy becomes the move, to continue accessing more tax free money 💰💰💰❤❤❤
Super great presentation.
Wait... say more 🤔
Best video this year!
Sherman, you are brilliant. Thank you for explaining this so simply. Now I get it. Now it's time to Apply it to my own life. I've subscribed to your channel and will contact one of your coaches.
Thank you! I’m glad you found this helpful. Welcome to the channel and I look forward to interacting with you more.
I like the way you lay this all out, sir.
We recently received some inheritance that is being used to purchase property. But you opened my eyes to other appreciable assets... THANKS!
Perfect strategy if I have 10 million assets. Problem is I will never watch videos on CZcams if I am rich 😄
I have a question.I have a LLC that has made no money.
How do I file taxes on it?
Great video. I didn't know that the CEOs taking $1 salary was a tax avoidance strategy.
Yes and no - sure, they’re reducing their tax bill, but they’re also reducing their income. It’s better to earn $100 in income and pay $30 in taxes on it (leaving you with $70) than to get no income at all (leaving you with $0).
And even if they earned an income, they could _still_ take a loan against their assets to get even more “income”, tax free, so the $1 salary doesn’t really affect that part.
They do it symbolically, to virtue signal that they’re not just in it for the money.
Knowledge is power
Any gain I made from loan proceeds - do I need to pay tax on them? My understanding is no right?
Lines of credit have monthly payments paid with taxed income.
The best way for the “regular working person” that isn’t broke or rich to execute this strategy is a whole life insurance policy designed for maximum cash value and minimum premiums.
Leverage is good if you already have the amount borrowed. So if the market goes down you can pay back without paying interest.
I like the part where the interest is tax deductible but isn’t that only true if the funds are used for investment purposes?
This will help me one I have my 100 million dollar stock portfolio
this is the second video i've seen on this topic and i still don't understand where the money comes from to service the loan payment. what am i missing?
Nothing. It’s BS.
That’s the mystery. Apparently you’re supposed to buy assets with the loans and those assets provide money that you use to pay back the loans. Sounds like a house of cards waiting to fall.
I have a margin account that holds stocks. You can keep a negative cash balance basically indefinitely while just paying interest only monthly payments. For a normal dude like me I pay that with W2 wages and I try to not keep it negative. But in the terms of these billionares...they have plenty of revenue streams to pick up such a relatively small payment. They can even borrow more than they need to spend if they wanted so they have excess cash to make payments. Or they can just never pay it - the interest accrues so their cash balance gets more negative but if you have the underlying assets where you are nowhere near your borowing limits it really doesn't matter.
@@primetimeedgetwitch3274it is. For example you could buy $50k in metal, like silver, but only pay $20k and keep $30k in cash. So you put in 20 and got 30 out, you’re up $10k. If the asset’s interest and storage fees are, say, 4% but its value climbs at 6%, you’re golden. Never pay that $10k back. However as that debt grows if the value falls when the value equals your debt the account will be liquidated and you lose it all. That happened to me during Covid because the market tanked so fast overnight I couldn’t inject enough to cover the margin call and poof… $50k vaporized.
Either you use loan money to service the loan. But as he says you should tax plan. Live from interest, dividends, company dividends or rental income.
Great strategy; in a much better borrowing climate than we have today.
I agree - thank you!
Borrowing money against your own assets, reinvesting it, and paying it back with earned income is a much better scenario than borrowing from a bank.
I agree.
I do have one question that I still cannot figure out. For client A at the video section 4:33 how did 7 million turn into $483,000? Which math contributed to that amount?
Great Question. I asked my self the same thing
This example was pulled from JP Morgan. I’d assume there is a standard rate of return in both scenarios. You can view it here: privatebank.jpmorgan.com/nam/en/services/lending/securities-based-lending
If you buy a house and live in it for 2 years then sell it you didn't have to pay capital gains.
Muni bonds are tax free. Exceptions don't make the concepts of income and income taxes go away.
So basically use other people's taxed income to enrich yourself tax-free.
The American Dream!
That's great, you can borrow against your assets but how do you pay those loans back? do you take out and pay the loans with long-term capital gains? I don't understand eventually you have income somewhere to pay the loans back
That's the secret. You have to join the paid members section to find out.
If your assets are income-producing, like rental real estate, the rent pays for your loans.
@@Barnstable11unless your tenants dont pay. All the while you pay property tax, rental income tax, maintenance, insurance, hoa dues and more!
You don't repay the loan. That's the whole idea of this strategy. You just keep paying the interest payments from the original loan amount. You borrow more once you're low on cash. Wash rinse and repeat. Works great as long as you have enough assets to survive market downturns and your assets go up in value over time.
@@chrisj699 could you please let me know who your lender is? You know.. the one that doesn't expect the principal to ever be paid back? Don't worry, I'll wait.
Do you have to pay back from borrowing and or interest too?
Eventually, but the idea is that the benefits of borrowing can greatly outweigh the cost of taxes and interruption of your investment returns.
High leveraged folks are the first to crumble in unpredictable market shifts.
This guy is a goldmine
Ok, I am not sure I understand how this works. Say I incorporate my business and use your strategy. I would use the profits the company makes to purchase assets, say for simplicity's sake I buy ETFs in S&O, DOW, GOLD, SILVER and other markets such as food, tech and pharma. Now, who borrows the money? Me or my company? If it's me, how do I repay the loan if I have no income? If it's the company, how do I take the money out for my own use without it being considered a salary? The plan sounds very interesting but the details are missing.
You don't repay the loan. That's the whole idea of this strategy. You just keep paying the interest payments from the original loan amount. You borrow more once you're low on cash. Wash rinse and repeat. Works great as long as you have enough assets to survive market downturns and your assets go up in value over time.
This is why I bought variable universal life insurance. I don’t remember why but we needed cash fast for something and I was able to grab $10k from my policy and pay it back at 4%… or not. It just would have reduced my payoff when I died. I’m also a fan of real estate equity for loans etc but, like you, I also don’t like debt so I pay those off quickly if needed.
Great use case.
You can collect dividends or interest on your assets and live on that. It's not zero income, but it's a HELL of a lot less with low dividend stocks, for example, than selling stocks with significant unrealized income (turning ALL the profit into income).
I don't see how this could work in Kanadistan.
- There will be interest and likely principal repayments on the debt. The only way to finance thes are through a hamster wheel of more and more debt.
- Using cash flow from the asset itself to pay off personal debt is either income itself first, or a taxable benefit if paid directly by an asset that is a seperate legal entity.
- If debt was borrowed from such an entity in the first place, rather than arms-length lender, it will either have to report & pay extra high tax on the interest income, or the debt will be treated as dividend income to the individual and taxed.
Could you please elaborate on how we can use cash value life insurance to implement your Buy, Borrow, Die strategy? You mentioned it at the beginning but did not go into detail. Thanks for doing these videos for us, Sherman. I'm benefitting from them a lot.
Normally, a portion of your life insurance premium is allocated to a "cash value" component. Once you build your cash value to a certain level, some policies will allow you take a loan against it. In that event, the proceeds are not taxable.
@@mycpacoach do you pay back at the interest rate of the year you borrowed or the rate of when you pay it back? I'm thinking this a question for the insurance company.
@@mycpacoach Thanks for this response. Would you be able to to please consider doing a video going in depth into this?
In particular, could you please let us know if the gains from using a whole life insurance policy loan will be taxed? Can an individual deduct interest paid to the insurance company?
I have been telling black folk to do this for years. We have 2 CPAs in the family. You appear to be well-versed. How can I reach out to you for a consultation?
I just model my income to be tax free...
1. Build myself a house.
2. Live in it as my primary residence for 2 years.
3. Build another house while living in the first 1.
4. Sell the first house. Leverage the section 121 cap gains tax exclusion (250k single, 500k married) to avoid paying taxes on the profits.
$500k tax free every 2 years is the equivalent of $390k a year as a w2 employee.
If I make a profit over $500k it is taxed as capital gains at 15-20% depending on my wife's income that year.
No taxes. No debt. Building wealth like crazy.
If the wife can offload enough of her income out of taxable income status, there is a pretty sizeable threshold of taxable income a couple can earn and pay 0% on capital gains.
Including the standard deduction I think the total is over 50,000 for the year iirc
That's ordinary income+ nonexempt capital Gains of course.
there is a flaw in this. Any appreciation you gained in your primary residence, you will end up using it purchase the next house since that would also have increased in price
@@smithwill5849 you missed the fact that he isn't buying houses.
He is buying land and building houses.
He might have bought land once and subdivided it into buildable lots before he ever started.
So start off with 250k-400k to build multiple houses! Simple
@SurferRC , you don't need to start with a big house. $250k will get you a huge house doing the work yourself.
I can build for 30-40% the cost to buy in my market... that's only 2x a 15-20% deposit.
Want to start cheap. Build a post frame garage with an apartment in the front for less than $100k.
Sell it for more than 2x what you put into it. Slowly scale up.
Rental income from assets counts as income
I would think only if it is reported. There is no W2 for the IRS to know you have it.
Rental income from assets should be run through a business LLC - LLC Corp structure to minimize the tax. If you are creating this kind of leverage to acquire property there is no reason to do all that as just a person, you need entity structures to move to more beneficial tax/deduction structures. It absolutely works. Just because you start from a non-entity personal perspective, doesn't mean everything has to stay there. Use your leverage move to "start a business" which protects the assets and creates a favorable tax structure.
@@anthonynardella8907 Well I mean that would be illegal but even then, it could only really work with a cash tenant. Otherwise, if you're pulling in 36k a year in checks from a tenant... Hope you don't get flagged, because you'll have to explain that one and one there is a pattern over years of the same... Enjoy the jumpsuit.
How do I find a CPA who uses strategies like this?
Just complete this form and you'll be directed to one who can help you. mycpacoach.com/contact/
I do not understand this logic, I need more explanation and clarity. If you are not paying tax, are you not going to pay interest on the money borrowed? Depending on the interest rate and the return from your investment that would determine whether it is a worthwhile venture. Moreover how do you return the borrowed money without selling the investment at some point.
You don't pay taxes because loans are not taxable, but they still have interest. You would pay the interest and the loan principal down with the assets you own, assuming they are gaining in value over time. Since billionaires have such high stock and company share values, banks are more than happy to lend to them to pay for cheaper mortgage rates, other business investment, cars even, etc.
id be scared of a market crash. So i would not take a loan on stocks but i like the ideal of portafolios that can be passed to heirs wihtout taxes... will try to work that onto my plan
I agree. Certainly a risk to consider.
Easy way to lose everything too
and for the little guy holding crypto, less then $100,000 ?
The loans again our assets: Is there interest and fees?
I Have a question. If I trade options on my Robin-hood Acct and make 50K in a year.
What is that taxed at?
It’s not really owning a stock,yet it is more so owning the contract for a set period of time.
What about the interest you pay on the loans?
Did you see 5:51 and 6:45?
@@mycpacoachthis is only true for ultra wealthy that own businesses.
Bet you can't avoid interest though. ;) When you can avoid that, please let us know.
if you borrow then you dont pay taxes but you pay interest. so are you really ahead?
What do you think about what I mentioned at 6:45?
@@mycpacoach I know you dont have to pay tax on interest, assets should never be sold anyway as you said, so the only benefit I see is if you are using the loan to invest in something that pays more return than the interest you have to pay on the loan and I would think that anything that is not risky is not going to pay more than the interest you have to pay to lenders. Also, you said when you have assets you can borrow against them to fund your lifestyle. But is making interest payments on a large sum over time going to be cheaper than just paying the tax one time on the money you are using to make those payments? This is all new to me but you practically have to have software to compare over time if you are ahead or not. I have a friend who bought a lot of crypto early and he does what you said, he borrows against it and then uses the money for living his lifestyle. Im not sure if his bucket is staying full, or slowly leaking out. He may just be trying to run out the clock and live tax free before he dies. I guess if you have enough money you could do that strategy. Just go deeper in debt by borrowing against assets and just die deep in debt but all the while living a life of luxury and never have paid taxes while alive. Interesting things to think about. You are making me think. Thanks.
How to avoid tax?? It's easy - just be rich from the start.
>>>>>>WATCH>>>> RICHARD FAIN> 25 YEARS STOCKS
You lost me immediately when you say life insurance is an appreciated asset...😅
Never paid off your debt
Step one .become a billionaire
Invest in real estate. Early.
🤣
@bdm8960 lol yeah I 1980-1990 not now
Exactly!
So how do I do that?
Ok, so when you die you lose 100% of everything. Screw that, I want to enjoy at least a big part of my hard earned savings before I lose it all by death or retirement home
Never try this strategy with under 5 million. It won't work with small asset holders. This works best with 20 million or more.
Why
How about we dont leave our kid nothing confused on where this comes from another bullshit idea like american dream😂😂
Brandon wants to tax your unrealized gains.
So how would that work?
@@theodorehaskins3756 easy. Brokerage reports gain to IRS, you get a bill.
No way that's going to get passed.
@@mycpacoach there was no way trump was going to lose reelection either.