Live a great life on less than $200K/yr?

[Russ H]

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America's new Health Care Bill: To pay for the changes, the legislation includes more than $400 billion in higher taxes over a decade, roughly half of it from a new Medicare payroll tax on individuals with incomes over $200,000 and couples over $250,000. A new excise tax on high-cost insurance policies was significantly scaled back in deference to complaints from organized labor.

OK, fastlaners: THIS IS NOT A POLITICAL THREAD.

So no snarky comments. PROGRESSIVE SUGGESTIONS ONLY.

Here is your situation:

-You want to live a life of abundance.

-You may have upwards of $1,000,000 per year coming in through your companies/entities.

-You want to limit your income to $200K/yr (if single) or $250K/yr (if married).

In the US, this is relatively easy to do. Lots of ways to do it.

How would you go about doing this?

Only rule: Your body needs to spend a lot of time in the US.

******************

HOW DO YOU DO IT?

What are the things you do to live well, but not have income?

Ideas:

-Outside entity owns house you live in; you rent (or even better-- you stay in a home that is rented/leased by another entity)

-You own an income-generating company that reviews restaurants. You write off your meals.

-You own or control an income-generating company that relates to world travel. You write off your travel expenses.

-You own or control an income-generating company that relates to [your interest]. You write off [your interest]

*********

Other approaches?

-Russ H.

 

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[GlobalWealth]

You can defer income taxes through offshore entities (yes, legally).

 

[PaulRobert]

Nothing to comment, just interested with the possible routes you can take to legally do this.

I could only think of ways that would make the IRS very unhappy and is illegal. And that is not the type of game I play.

 

[Russ H]

Nothing to comment, just interested with the possible routes you can take to legally do this.

I could only think of ways that would make the IRS very unhappy and is illegal. And that is not the type of game I play.

Agreed. We like to keep the IRS happy.

GlobalWealth, I realize offshore entities is, in part, what you do.

Can you share a bit, without giving away too much detail?

It would be really great to get your perspective-- how these things are set up, how they are maintained/taxed/run, and how $$$ is taken out of them (and taxed).

Hoping you are willing to do this-- if even just a little bit. I think it would really help move the discussion along.

-Russ H.

 

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[phlgirl]

If possible, take necessary action for either yourself or your spouse to meet requirements of a 'real estate professional'.

Passive Activity Loss ATG - Exhibit 2.4: Real Estate Professionals

Buy leveraged real estate in line with your income, so that depreciation may be used to offset your other income.

Move in and out of real estate investments (increasing in value and debt, as your income increases), using 1031 exchanges.

 

[Jill]

Move to Texas (or any other place with a low cost of living). For example, you could have this house for $450,000:

9700 sq ft French Chateau with Library, Media Room, Gameroom and Exercise Rooms, In- Law Suite, 5 Car Garage and 24 Foot Ceilings on 3 acres.
​

 

[GlobalWealth]

Agreed. We like to keep the IRS happy.

GlobalWealth, I realize offshore entities is, in part, what you do.

Can you share a bit, without giving away too much detail?



-Russ H.

Sure. Ironically, I have been dealing with this all day today (its 720pm here). This is a very, ver complex strategy, but if you qualify, it can be hugely beneficial. There are lots of details to sort out so this is absolutely not a DIY project. Most CPA's will tell you it isn't possible or it isn't worth the effort. The reason they say this is because of the complexities, they just don't know how to do it.

The basics for this strategy are your business needs to sever physical ties to the US. Meaning, no physical office, no US servers, no US banking, no US email, etc. In addition, you need to have your company registered in the right country so that you don't end up with double taxation when you decide to repatriate income (bring it back to the US). For example, a company that operates websites can establish a Belize IBC, host servers and email offshore, manage your primary banking relationship in a non-US bank, and prove that clients are not only US. I help clients set up the entities they need along with the proper structure, and then I introduce them to a CPA that deals with these tax issues. I AM NOT a CPA and cannot offer professional tax advice here. And having the right CPA is absolutely critical here. You cannot afford to make errors with your reporting as the fines can be astronomical.

For people who have a large amount of liquid net worth, the best option is offshore private placement life insurance (PPLI). Don't get confused here, the life insurance I am talking about is an investment vehicle with a death benefit as a secondary function, not the other way around. If you had $500,000 in cash, you could fund your PPLI and directly manage your portfolio of investments in any way you see fit. For example, if you managed your investments where it returned 10% per year, $50k, you could take an annual loan of $50k against your policy. this loan is tax free as it is not classified as income. once you die, your death benefit pays the loan back and your heirs get the difference in principle. This is also an excellent tool to protect your wealth from litigation as life insurance policies are not vulnerable to litigation.

 

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[EastWind]

Sure. Ironically, I have been dealing with this all day today (its 720pm here). This is a very, ver complex strategy, but if you qualify, it can be hugely beneficial. There are lots of details to sort out so this is absolutely not a DIY project. Most CPA's will tell you it isn't possible or it isn't worth the effort. The reason they say this is because of the complexities, they just don't know how to do it.

The basics for this strategy are your business needs to sever physical ties to the US. Meaning, no physical office, no US servers, no US banking, no US email, etc. In addition, you need to have your company registered in the right country so that you don't end up with double taxation when you decide to repatriate income (bring it back to the US). For example, a company that operates websites can establish a Belize IBC, host servers and email offshore, manage your primary banking relationship in a non-US bank, and prove that clients are not only US. I help clients set up the entities they need along with the proper structure, and then I introduce them to a CPA that deals with these tax issues. I AM NOT a CPA and cannot offer professional tax advice here. And having the right CPA is absolutely critical here. You cannot afford to make errors with your reporting as the fines can be astronomical.

For people who have a large amount of liquid net worth, the best option is offshore private placement life insurance (PPLI). Don't get confused here, the life insurance I am talking about is an investment vehicle with a death benefit as a secondary function, not the other way around. If you had $500,000 in cash, you could fund your PPLI and directly manage your portfolio of investments in any way you see fit. For example, if you managed your investments where it returned 10% per year, $50k, you could take an annual loan of $50k against your policy. this loan is tax free as it is not classified as income. once you die, your death benefit pays the loan back and your heirs get the difference in principle. This is also an excellent tool to protect your wealth from litigation as life insurance policies are not vulnerable to litigation.

but the rule said, "your body needs to spend a lot of time in the US", I do realize that for an ecommerce company or manufacturing this is easier. but how about those in the forum into real estate.

how about if you need to have some presence in the states? i would imagine you can do the same thing, then open another company in the states that does business with the offshore company. but the company in the states does business to break even. no loss/no profit. hence the offshore entity will end up with all the profit.

for example, if you make goods for $2, and can sell em in US for $10. but to break even you have to sell it for $4. the offshore company will sell it to the US branch for $6. the US sells it for $10 and breaks even. the offshore makes $6. how practical is this tho?, a lot of us here have our body stuck in the good ol US.

Russ, not to be off topic, but the title of the thread makes it seem like living on less than $200k/yr will be a struggle? outside of mortgage, car loans, most personal expenses are pretty cheap unless you are paying for your kids college education. I can live a great life on $100k a year. LOL

 

[GlobalWealth]

but the rule said, "your body needs to spend a lot of time in the US", I do realize that for an ecommerce company or manufacturing this is easier. but how about those in the forum into real estate.

how about if you need to have some presence in the states? i would imagine you can do the same thing, then open another company in the states that does business with the offshore company. but the company in the states does business to break even. no loss/no profit. hence the offshore entity will end up with all the profit.

for example, if you make goods for $2, and can sell em in US for $10. but to break even you have to sell it for $4. the offshore company will sell it to the US branch for $6. the US sells it for $10 and breaks even. the offshore makes $6. how practical is this tho?, a lot of us here have our body stuck in the good ol US.

Russ, not to be off topic, but the title of the thread makes it seem like living on less than $200k/yr will be a struggle? outside of mortgage, car loans, most personal expenses are pretty cheap unless you are paying for your kids college education. I can live a great life on $100k a year. LOL

If your RE is in the US, this option will not work at all. This violates one of the main rules. Your main business activity cannot be in the US. If you own apartment buildings in Miami, your business is physically in the US and you have clear nexus here. But if your business is on the web and you sell information, or tshirts, or beer coozies, your customer base can be global. As long as you don't have a US office and no physical presence in the US, this is possible. Agin, this is very complex and I am oversimplifying a bit as each situation is completely different. but for the right person, this can be hugely beneficial.

the trick with selling a product to your US subsidiary or sister company for zero profit is an old trick that won't fool the IRS. They are pretty sophisticated and have seen any and every trick in the book. This is not an opportunity to create a 'sleight of hand' and fool the IRS. If you legitimately can qualify for this option, it is hugely beneficial. But playing little tricks like selling your product where your US company sees no profit is very transparent to the IRS.

 

[snowbank]

Move to Texas (or any other place with a low cost of living). For example, you could have this house for $450,000:

9700 sq ft French Chateau with Library, Media Room, Gameroom and Exercise Rooms, In- Law Suite, 5 Car Garage and 24 Foot Ceilings on 3 acres.
​

Jill,

Are houses like this close to things?

If so, can you send me the link so I can move in.

 

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[phlgirl]

the trick with selling a product to your US subsidiary or sister company for zero profit is an old trick that won't fool the IRS. They are pretty sophisticated and have seen any and every trick in the book. This is not an opportunity to create a 'sleight of hand' and fool the IRS. If you legitimately can qualify for this option, it is hugely beneficial. But playing little tricks like selling your product where your US company sees no profit is very transparent to the IRS.

TRANSFER PRICING

The pricing of goods, which are transferred within a company. Transfer Pricing is a hot item for many local tax authorities, as everyone wants to make sure they get their piece of the pie. The rule of thumb is to make the transactions as if they were at 'arms length'. That said, as Global Wealth points out, there are various ways to take advantage of these business processes, as long as you play by the rules. The key here is Consistency in approach.

For more on Transfer Pricing:

Transfer pricing - Wikipedia, the free encyclopedia

And even more.......

http://www.kpmg.co.il/Events/The_Far_East/presentations/Transfer Pricing Presentation May 2.pdf


Wow, I really did learn something in corporate America. Bobo, as far as your question on how to take advantage of the new world, I would think becoming an expert in this area (or building a team of experts in this area) could be very profitable. Guidance on structuring the companies (more on that later) and remaining compliant with local tax authorities would be helpful to many looking to move operations abroad.

 

[Jill]

Jill,

Are houses like this close to things?

If so, can you send me the link so I can move in.

LOL. Not so much. It's in a town called Midlothian which is on the outskirts of town. But you CAN get a 5-6k sq ft house in my neighborhood for the same price. Depends on your definition of "things" I guess.

 

[Russ H]

Russ, not to be off topic, but the title of the thread makes it seem like living on less than $200k/yr will be a struggle? outside of mortgage, car loans, most personal expenses are pretty cheap unless you are paying for your kids college education. I can live a great life on $100k a year. LOL

Actually, that's my next thread: How to live like a king/queen on NO income*.

But let's have fun w/this one first. It leads to the next one.

-Russ H.

*of for you youngsters, "how to be ballin' in the money with nothing comin' in".

 

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[Russ H]

Bobo, as far as your question on how to take advantage of the new world, I would think becoming an expert in this area (or building a team of experts in this area) could be very profitable. Guidance on structuring the companies (more on that later) and remaining compliant with local tax authorities would be helpful to many looking to move operations abroad.

:icon_super:

 

[hatterasguy]

You can play a lot of games, I know people who do with with rental income.

 

[Russ H]

the trick with selling a product to your US subsidiary or sister company for zero profit is an old trick that won't fool the IRS. They are pretty sophisticated and have seen any and every trick in the book. This is not an opportunity to create a 'sleight of hand' and fool the IRS. If you legitimately can qualify for this option, it is hugely beneficial. But playing little tricks like selling your product where your US company sees no profit is very transparent to the IRS.

Thank you for being direct about this.

So many legal ways to make money, it's silly to try and fool the IRS. Do it right-- follow the rules.

:rulez:

-Russ H.

 

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[Russ H]

You can play a lot of games, I know people who do with with rental income.

Getting paid in cash and not declaring it is just plain stoo-pid.

Just ask yourself a simple question:

"Is this worth spending 10 years in prison?"

For me, the answer is NO.

Always cracks me up to see local business folks complaining about how they can't get loans, or sell their businesses-- BECAUSE THE NEVER DECLARED ALL OF THE INCOME.

Moral of the story: Play by the rules, declare all of the income, and you will be amazed at how things go your way.

I don't want this to sound sanctimonious-- that's not the point. Point is-- hiding cash is for LAZY people. Do it the right way: Make every single penny of it visible, and do legal things w/it.

-Russ H.

 

[rcardin]

I am not sure I understand the question completely. You want to have companies or entities bringing in 1 mil but only show 200k as personal income to hit the healthcare maximum income?

Maybe I am lost but I could live quite nicely on 200k a year and not have to work.

 

[Russ H]

I am not sure I understand the question completely. You want to have companies or entities bringing in 1 mil but only show 200k as personal income to hit the healthcare maximum income?

Yes. The exercise was prompted by the new health care laws-- and looking at how to develop a "work around" the $200K/$250K caps-- where much higher taxes are supposed to kick in to support/pay for the new health care plan.

I guess my main point for starting this thread is/was to make folks aware of all the great (legal) options for living the high life without generating lots of personal income.

For instance:

If you "own" a mega-mansion like most middle and upper class folks, you wind up owning only a small part of it (equity) while the bank/lender owns the rest. You make big payments on that

-If you own a house outright, all you have to pay is the property tax, and utilities, and upkeep/repairs.

-If SOMEONE ELSE owns the house, you only have to pay rent (or, someone else pays rent). Note that crime doesn't pay-- don't rent the place for $100/mo if it's worth $4000/mo. Figure out a way for some other entity to LEGALLY pay the rent-- and you live there. For instance, if you're the property manager, you can live there rent free, as a caretaker for the owner of the property.

*****

This thread is an exercise in creative thinking-- thinking how to live well, but not doing it the traditional way of making lots of $$$ and spending lots of $$$.

Same logic works if a "use tax" is initiated-- the more you consume/use, the more you're taxed.

Secret is to not "consume".

Anyone? Sonya, you're a whiz at this. Can't believe you haven't taken a stab at this yet!

-Russ H.

 

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[Jill]

Maybe I am lost but I could live quite nicely on 200k a year and not have to work.

That's because you live in Texas!

 

[rcardin]

Very true Jill. We never saw the insane increases in prop values. I think I live quite nicely on less than 100k combined income.

If I had to come up with a way to bypass the 200k rule I would look at corporations. Me being the president or ceo and taking a salary with perks, Place to live paid for by the corp. Board meetings in exotic locations twice a year. This is off the top of my head so I really don't know if it would work.

 

[hakrjak]

Charitable donations come to mind.... Each year I donate a % of my excess inventory to charity from one of my S-Corporations. This % allows a rather large loss to flow through to my personal tax return, and generally offset any big gains I might have.

I think my accountant explained it as -- (I don't really understand the magic he does), when a company donates to charity -- they can write off the retail value of whatever they donated, regardless of what their wholesale cost might have been. So you can actually end up making out pretty well by being a charitable CEO.

Cheers,

- Hakrjak

 

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[hakrjak]

Very true Jill. We never saw the insane increases in prop values. I think I live quite nicely on less than 100k combined income.

If I had to come up with a way to bypass the 200k rule I would look at corporations. Me being the president or ceo and taking a salary with perks, Place to live paid for by the corp. Board meetings in exotic locations twice a year. This is off the top of my head so I really don't know if it would work.

You're onto something here buddy. An S-Corporation can host it's "Annual Meeting" anywhere it chooses to. Mine is almost always in Las Vegas, or on a cruise ship in the Carribean

- Hakrjak

 

[Russ H]

You're onto something here buddy. An S-Corporation can host it's "Annual Meeting" anywhere it chooses to. Mine is almost always in Las Vegas, or on a cruise ship in the Carribean

- Hakrjak

Lots of B&B owners have vacation rentals in Hawaii, funded in part from their cashflow. Some don't make any money.

But you can always visit a rental to see how it is, and make sure everything is OK. A big part of that visit is deductible.

-Russ H.

 

[hatterasguy]

Getting paid in cash and not declaring it is just plain stoo-pid.

Just ask yourself a simple question:

"Is this worth spending 10 years in prison?"

For me, the answer is NO.

Always cracks me up to see local business folks complaining about how they can't get loans, or sell their businesses-- BECAUSE THE NEVER DECLARED ALL OF THE INCOME.

Moral of the story: Play by the rules, declare all of the income, and you will be amazed at how things go your way.

I don't want this to sound sanctimonious-- that's not the point. Point is-- hiding cash is for LAZY people. Do it the right way: Make every single penny of it visible, and do legal things w/it.

-Russ H.

Yeah well, a lot of people do it.

Just do what that aftermarket car warranty guy did in St Louis. He had his company "donate" all of its income to a church he created. Than he skimmed the money out of the church. Amazingly the sheeple think its legit and some still go their. I forget his name but he just built a 32k sf house their to give everyone the big middle finger.

Not my style, I want to be able to sleep at night.

 

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[Russ H]

Getting paid in cash and not declaring it is just plain stoo-pid.

Just ask yourself a simple question:

"Is this worth spending 10 years in prison?"

For me, the answer is NO.

Always cracks me up to see local business folks complaining about how they can't get loans, or sell their businesses-- BECAUSE THE NEVER DECLARED ALL OF THE INCOME.

Moral of the story: Play by the rules, declare all of the income, and you will be amazed at how things go your way.

I don't want this to sound sanctimonious-- that's not the point. Point is-- hiding cash is for LAZY people. Do it the right way: Make every single penny of it visible, and do legal things w/it.

Yeah well, a lot of people do it.

A lot people are stupid.

Doesn't mean i want to be stoo-pid, too.

-Russ H

[ame]http://www.youtube.com/watch?v=erwv8vcZEoU[/ame]

 

[rcardin]

The key is to be able to deduct everyhting through a seperate entity.

Think along the lines of a church. Non profit, yet they hold a massive amount of real estate. The preacher is paid a minimal, (sometimes massive) salary. The perks are in housing allowance, ie house supplied by the church. Possible car allowance paid for by the church. Professional development opportunities abound as a missionary in any country.

Think way outside the box. What if your were a missionary church? Could you write off all of the expenses to travel anywhere to spread the word, any word?

Way outside the box I know. not trying to get political or religious here

 

[hakrjak]

Lots of B&B owners have vacation rentals in Hawaii, funded in part from their cashflow. Some don't make any money.

But you can always visit a rental to see how it is, and make sure everything is OK. A big part of that visit is deductible.

-Russ H.

I like where your head is at on this. I own a property in a mountain resort town here that I check up on when I can, as well -- same principal.

I don't think you have to get too creative to get your income under $200k in this excercise... It seems pretty simple to me, #1: Incorporate #2: Buy Real Estate #3: Be charitable #4: Make sure that anythnig you want to do, be it travel, ski, attend pro sports games, or whatever -- can be written off by making it into a business expense. Also be thinking & working on your business, no matter where you are or what you're doing!

And of course, hire a great tax person who can put everything in order for you.

Cheers,

- Hakrjak

 

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[Russ H]

I like where your head is at on this. I own a property in a mountain resort town here that I check up on when I can, as well -- same principal.

I don't think you have to get too creative to get your income under $200k in this excercise... It seems pretty simple to me, #1: Incorporate #2: Buy Real Estate #3: Be charitable #4: Make sure that anythnig you want to do, be it travel, ski, attend pro sports games, or whatever -- can be written off by making it into a business expense. Also be thinking & working on your business, no matter where you are or what you're doing!

And of course, hire a great tax person who can put everything in order for you.

Agreed.

Stay tuned for my follow-up thread to this (ie, how to do it all for nothing)

-Russ H.

 

[BigEasy25]

Agreed.

Stay tuned for my follow-up thread to this (ie, how to do it all for nothing)

-Russ H.

Can't wait for this one! I just recently purchased a home with a detached apartment that is going to pay the mortgage so I am now hooked on the idea of trying to live for "free". It opens up so many doors to pursue something you have a passion for.