See, there’s a huge difference between tax avoidance and tax evasion. Tax avoidance is good and smart business, tax evasion is illegal. We don’t recommend it, and you will never hear anything from us that will suggest in any way, shape or form about utilizing tax evasion, but tax avoidance. Everyone in this room uses tax avoidance constantly. You may say, “I don’t.” Well, if you ever wrote off the interest on your mortgage of your house, you were avoiding taxes. If you ever took a deduction for one of your children, if it was tax avoidance. Your spouse, tax avoidance.
See, those aren’t tax evasion though, those are totally legal. But, there are other things. I’m not going to spend a lot of time on a lot of these others, but I just want you to know in 1913, there were actually two tax forms created that year. There was the 1040 which all of you have used your whole life and is the only one that most of you know about. But, there was another one called a 1041, but it was put up on such a high shelf that you’ve never even heard about it.
That shelf was so high that even in 1913, you had to have a net worth of between $20 and $25 million and be able to have cashflow through your hands of about $2 million a year in 1913. If you did that, then you could use this other system which was very lucrative and very beneficial. It’s available to everybody as long as you got $25 million. Different set of rules on a different playing field. They created the rules and then set them up on a shelf high enough that you couldn’t use them.
They also were, I’m sorry, they were also exempt from insider trading. Martha Stewart went to prison for this if you remember that. But, a lot of our elite politicians are actually exempt from it. This is how a politician can go into to a political office, a congressman or senator and have a net worth of say $500,000 and come out of office later on with a net worth of $10, $15 million. He’s allowed to trade on much of the information. Probably not all of it, but much of the information that he has from his position. The rest of us would go to jail for that. Different set of rules.
Accredited and qualified investing. The rules say that you can … There are certain investments that you can’t make unless you have a $2, $2.5 million net worth and a couple hundred thousand to $250,000 a year of cash flowing through your hands every year. If you don’t have that, there’s a lot of investments that you can’t make. You’re relegated to making most of your investments in platforms like IRAs, 401(k)s, money markets and those types of things that have relatively low returns in comparison.
If you were a qualified investor, you might be able to invest in something like an IPO or into some other stocks that require this and your returns might be 18, 20, 25. A lot of the people that we’ve talked to at this elite level, they will not make an investment that they don’t expect a 1000% return on their money, but those aren’t even available to you and I.
You’re getting the idea and I’m going to bunch push through some of the rest of these. When you can use some of these systems, then education can be a tax write off. Now, I put four kids through college. I never got a single tax deduction for that. But for the elite if they’re structured properly, they are actually able to write that off. Do you think that might make it easier to get an Ivy League education if it costs you half as much as everybody else? Yeah, it might be.
exempt from the ACA, the Affordable Care Act for the health insurance. In many ways they’re exempt from that and the elite politicians have their own plan. It’s something that you and I just don’t even have access to. Exempt from social security. When you use certain corporate structures and when you collect your money in various ways, you can avoid social security, and our politicians are exempt from social security. They have their own complete retirement plan.
Social security costs, every one of you that’s working for a wage, 15%, 7.5% out of your employer’s pocket and about 7.5% out of yours. You can say, “Well, that 7.5% comes out of his pocket.” Well if it’s out of his pocket, then he can’t put it in yours. It ultimately is your benefit and is all part of your income stream. Most of you have never looked at what you actually make at your job.
For many of you, you’re getting at least 7.5% more, plus you’re getting a workman’s compensation insurance policy that they’re paying for on your behalf. So, you have many benefits outside of the check you get on Friday that you’re not aware of, but they’re mandated to most of us. If you’re a small business person, it’s called the self employment tax. It’s actually a flat 15% of all of your earnings, so you’re going to pay it anyway even if you’re self employed.
But, some of these are able to structure their businesses. If I own a corporation instead of working in my company, I don’t have to pay self employment taxes on all the profits and proceeds that come to me by being the owner, the stockholder of the company. But if I work there, then I have to pay those taxes. You see, it’s just a different way of looking at it. A lot of them don’t have to pull a paycheck out every Friday, so they’re able to protect themselves on a whole nother 15% level.
This last one, trusts and foundations is important for you to know about. Not that we’re going to get in great detail, but it’s just another way that they play in a different playing field. What I really want you to walk away with today is this, this idea that they never use money only once, right here. We’re going to try and get that on target there. Never used money only once. Now that may at first … It bothered me. It’s like, well of course you can only use once. I make it, I spend it, it’s gone.
But, what I found out from them is they never, unless they absolutely have to use a dollar only one time. That’s where we’re going to spend a lot of our time today, is on that concept. But, I’ll go back to the trusts and foundations because I really want to get across something not about trusts and foundations, but how the rich are using money in a way that you can’t comprehend because you look at everything that they’re doing through your own set of eyes and your own experience.