THIS IS MY 100TH BLOG ON UNDERSTANDING MONEY
TOOLS
Wow! 100 blogs
on this site. Just shows how bored
I have been to write so many!
I decided to write a blog that will teach you in one way how
to skirt the system and yet be legal.
Several of my friends who are around or over 60 years old
are now finding that they need to continue working as the corporate world has
left them behind and they can’t afford to retire. This might be you!
To keep up they are going back to college for both knowledge and another
degree, mostly around technology industry.
I think the best way to define all this is with a
hypothetical situation, albeit true.
Let’s call the person John. John is financially stuck, needs to get another degree and
with that credential hopes to specialize and get outsourced consulting work
with small companies. The “catch 22” here is that it takes money to go back to
school, and without a degree he is limping along with temporary jobs paying
little.
Here’s some advice.
Colleges in the past 15 years have gone into the money-making business,
I believe taking precedence over the educational business. Change your mindset, go back to
college, start making a list of colleges.
These don’t need to be local colleges and see if they offer subjects
that might apply to your goals; check out tuition costs for the degree. Students don’t need to be local,
teachers don’t need to be local; everything accomplished “on-line”. Colleges want students, mainly
“on-line”, students don’t occupy space,
low overhead cost and schools can have hundreds of students in a
class. Some colleges offer classes
where you work on a team basis, 4-6 people on a team. The school will help you get a student loan no matter your
age (I have one friend at 62 another 57 who have new low interest student
loans). These loans are paid
monthly and in the $1,800-2,000/month income range. This gets the financial monkey off your back, as it did
John, when you combine this money with part time work that you have been doing.
Here is where we start manipulating the system more. For easy calculations let’s say the
loan is $2,000 per month. Let’s
also assume it will take 18 months to 2 years to get your new degree as you
most likely will need to take additional courses because you haven’t been to college
now for 40 years. At the completion of your new schooling your student loan
might be $48,000 plus interest.
Your repayment of the student loans will be on a monthly basis figured
upon your earned income. Here is
the strategy, and why America is in deep trouble with student loans now well
over $1 trillion and not being paid back.
The concept is to keep your earned income down to bare bones for
repayment calculations.
During your college term, or after, set up a “C” Corporation. Everyone should have a corporation if
they are in business! The only negative to a corporation is paperwork on state
filings and electing officers, a board, etc. The major difference between a “C” Corporation and today’s
popular Limited Liability Corporation (LLC) is that with a “C” you can retain
earnings and not have to distribute almost all income within a given year. It does have the negative of double
taxation, that means you pay taxes on the income flowing into the corporation
at the taxable rate and then personal income tax when/if you take a salary of
distributed money. I recommend
naming the company something other than your name to distance yourself from
it. If you control all the stock
in the corporation you only need one officer. This person does not need to be
you. The stock can be in another
entity’s name, perhaps another corporation that you control. Don’t re-create the wheel. Look at how the wealthy get around
taxes and copy what they do. They
retain the best law and accounting firms.
In this situation, as you now have graduated from college
and earning income as a consultant you flow your income through the
corporation. As with an LLC you
have normal business expenses and those can be deducted from gross income. As your student loan is based upon your
earned income, you place yourself on a low salary from the corporation and pay
your income taxes. (your accountant can advise you on approximately how much
income you should take each year so as not to trigger a tax audit). If additional personal money is needed
to live take that as a stock dividend from your corporation, as dividend income
is at a lower tax rate and not subject to FICA. The balance of the money in your corporation carried forward
can be invested. (As an actual
situation one of these friends has a student loan from year’s back and because
of his low income pays $57/month, that is only $684. a year). In conjunction with the corporation I
recommend that you see an aggressive Certified Financial Planner or Account to
set up various retirement plans under ERISA, (Employee Retirement Income
Security Act), such as a 401-K Plan, SEP, IRA, or Roth IRA to delay paying more
taxes. Legal counsel may advice the use of trusts. Everyone should have a “living trust” including medical
wishes. Many doctor’s offices and hospitals now require one. Living trust
assets avoid going through probate at death. Rather than continually transferring assets into this trust
you can have a “pour-over trust” from your living trust. Other common trusts are revocable,
irrevocable and charitable remainder.
As an older person going back to school and taking this
direction you can play the numbers game on how long you figure you will live
and never pay back the money on your loans. If you want to go further with this thinking, you could set
up your corporation with a lawyer in one of the states that does not have
personal income tax and use an address your legal counsel would recommend. If you do become financially successful
in your new endeavors you might want to move your more expensive assets and
titles to cars/RV/boats, etc. into your corporation. Some states like California, Arizona, Colorado, Connecticut,
New York and others have high fees for licenses and taxes. Other states like Montana, South
Dakota, and North Dakota are very low.
Register these expensive “toys” and your corporation in those states and
save money. For this reason many
large boats are registered in
Delaware.
Another way to get lost in the system is to have one
corporation owning partnerships and stock from other corporations. In the real estate development business
and oil and gas business we had many companies set up for every development in
case one had financial problems or a lawsuit pending; one would not detract
from the other businesses. Just
smart business!
I dropped out of the business world in 1992, but before that
played around with some big money.
If you start making a lot of money you might go further on sheltering
income. Even though I am dated on
tax law, I might mention a method that we used. It was a “partnership” structure (controlled by one
individual, not partners) thus avoiding corporate, personal taxes and
FICA. We set up corporations
outside the US in places like the Grand Cayman Islands at a bank to avoid
taxation. (Banks will always help
you as long as you remain within the law.) Other places that protect such investments and welcome money
as a tax haven would be the Isle of Jersey off England and the city of Zug in
Switzerland. You need a good law
firm setting everything up and remaining within the law. With today’s computers and technology
all money is tracked carefully.
Companies continue to leave the US with their headquarters
for lower taxes. Coming from
Wisconsin one recent move was Johnson Controls from Milwaukee to Ireland. Wisconsin as well as other states
cannot afford this to continue and we need much lower tax rates.
I hope this scenario has brought some value to you, and
perhaps can save you money.
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