Latest / Financial Survival Network / Tax-Saving Tips: Maximizing Wealth with Non-Operating Foundations - KC Chohan #6106

Transcript

Tax-Saving Tips: Maximizing Wealth with Non-Operating Foundations - KC Chohan #6106 · Financial Survival Network

• 0:00
  So you let's just say you have a business, and your business makes ten
• 0:05
  million dollars of revenue a year, and let's just say six million dollars of
• 0:09
  net profit. A lot of people will be paying close to forty fifty percent
• 0:13
  of that let's say two to three million in taxes if you donate some of
• 0:17
  that. Depending on the entity structure, you could donate on general thirty to
• 0:22
  sixty percent of your net profit and get a tax deduction for that. You're
• 0:26
  listening to Carrie Let's Financial Survival Network, where you get valuable information you just
• 0:32
  can't find anywhere else to thrive in today's trying times. You need the Financial
• 0:37
  Survival Network now more than ever. Go to Financial Survivalnetwork dot com and get
• 0:43
  your free newsletter and gift. Financial Survival Network now more than ever. And
• 0:53
  welcome. You are listening to watching the Financial Survival Network. I'm your host,
• 0:59
  Carrie Let's. Hey, so you're probably in a position where you're paying
• 1:03
  a lot of your income to your your your greedy uncle, and you want
• 1:10
  to put a stop to that. And if you're high worth individual, it's
• 1:15
  it's very easy to do that, perhaps easier than ever. And we've got
• 1:19
  k C. Showhand with us. Now, Casey, you help people pass
• 1:26
  on wealth generation generally generationally, I think I got that right, and you
• 1:33
  use foundations to do it. The how did you wind up getting into this
• 1:37
  area? Oh, it's a long story, but my background is in accounting
• 1:41
  and finance, all and raised in England. I graduated university, got a
• 1:47
  job with a big fortune five hundred company. I'm interested making cups of tea
• 1:53
  for the real accountants, and then quickly work my way up the ranks.
• 1:57
  Well, I said quickly eight years I was running the North American region and
• 2:05
  started my own business. At that point, I had no idea how to
• 2:07
  run a business, had only been a student at university and then a corporate
• 2:12
  employee. So we got into CFO services, which is what I was effectively
• 2:16
  doing internally for the big bugun five hundred company, and that then led to
• 2:23
  solving the same issues or seeing the same issues on a monthly basis from lack
• 2:29
  of financial knowledge for business owners. And then with our first few clients,
• 2:34
  quickly realized it wasn't just financial knowledge, it was also lack of tax knowledge
• 2:38
  as well, especially here in America. I could see both sides of the
• 2:42
  taxation system. Coming from the UK, but there was a lot of specifically
• 2:46
  in taxes, so we niched down into that and then figured out what all
• 2:53
  these elites are doing to save money on taxes and pay single digit tax rates.
• 2:57
  And Warren Buffett goes on TV and glow, so he pays a lower
• 3:00
  tax rate than is Secretary. And you know pro Public has released tax returns
• 3:06
  that a lot of these billionaires are all paying single digit tax rates. So
• 3:09
  we figured out what they do, which is, like you mentioned, all
• 3:14
  in foundations and nonprofits, and then re engineered that so that the average millionaire
• 3:20
  multimillionaire can use those same structures, one to pass on legacy to their family,
• 3:24
  but also make a difference in that community, all while saving money on
• 3:29
  taxes. So I always thought, like a nonprofit, you give up control
• 3:32
  of your money and it goes into this foundation eventually winds up like the Ford
• 3:38
  Foundation, where the MacArthur Foundation, and that's the end of your involvement.
• 3:44
  So how do you keep control while still putting your money into this nonprofit.
• 3:49
  It's all to do with the subsections within sub sections of these nonprofits. So
• 3:54
  if you look at normal business entities that most people will know, let's use.
• 3:59
  An LLC is an example, s CORP, ander c COP. They
• 4:02
  are all structured based on ownership, either shares or members, right, So
• 4:06
  if you and I both owned an LLC and we were fifty to fifty,
• 4:10
  we would both own our independent fifty percent shares. The way that nonprofits work
• 4:15
  again, there's different subsections. So you could go into an operating nonprofit,
• 4:21
  a non operating nonprofit, a private foundation, a public foundation. There's so
• 4:26
  many subsets in that world, the same way they are in the LLCs,
• 4:30
  CORP and c COP world. So the subset that we uncovered during our research
• 4:36
  into all these billionaires was it's a non operating private family foundation. That's the
• 4:44
  entity type that allows you to donate to that entity, get the tax deduction
• 4:50
  at the personal the LLC level whoever's donating into it, but then, like
• 4:55
  you mentioned on the flip side, retain control of that entity. So you
• 5:00
  could, as an example, be the president of donate to it from yourself
• 5:05
  and then fully control the activities of that nonprofit, which is very different to
• 5:12
  a lot of the way other nonprofits are set up and structured, where you
• 5:15
  have to have at least x amount of people on the board, you have
• 5:18
  to have different subcommittees. There's a lot more flexibility with a private, non
• 5:25
  operating family foundation. So the private, non operating foundation is the key.
• 5:30
  That's what we found, that's what we use. All right, So you
• 5:35
  managed to sty'll take control. But you can't get any money from the foundation
• 5:40
  once it's set up, can you. Yeah. There's very strict guidelines and
• 5:44
  rules on self dealing and disqualified people, which ultimately means if you've put in
• 5:49
  money. Let's say you put in a million dollars of cash and you get
• 5:54
  the tax done, you get the tax deduction on your personal taxes, you
• 5:58
  can't turn around and then using So you've got to be very careful about sticking
• 6:04
  to the rules. The key is knowing what those rules are and knowing that
• 6:10
  these types of foundations often own multiple private jets, yachts, real estate all
• 6:15
  around the world. So there's depend The preconceived notions that most people have are
• 6:21
  not in fact true, and there's a wiggle room within them if operated correctly.
• 6:29
  Interesting. Interesting, all right, So give us an example of how
• 6:33
  this works. So you let's just say you have a business and your business
• 6:39
  makes ten million dollars of revenue a year and let's just say six million dollars
• 6:44
  of net profit. A lot of people will be paying close to forty fifty
• 6:47
  percent of that, let's say two to three million in taxes if you donate
• 6:51
  some of that. Depending on the entity structure, you can donate on general
• 6:57
  thirty to sixty percent of your net profit and get tax deduction for that.
• 7:01
  So then in argument's sake, it's a million dollars just for round numbers,
• 7:05
  you can get a million dollar tax deduction in your business, so you don't
• 7:09
  have to pay that personally. And then that million dollars isn't just given away,
• 7:14
  it's donated to a charity, where on the other hand, you fully
• 7:17
  control that charity. So you can invest the market, in real estate,
• 7:24
  in pretty much anything that you see fit, as long as it isn't classed
• 7:27
  as too risky. So don't go for petty stocks, go for the big
• 7:30
  blue tib stocks as an example, but you fully control those funds. Now,
• 7:36
  the beauty about it is with a private family foundation, you can hire
• 7:41
  other family members, so you can hire your kids on payroll, your wife,
• 7:44
  your uncles, cousins, brothers, sisters, whoever you wish, and
• 7:47
  they can all take an active part in that foundation. You can then also
• 7:53
  do foundation retreats and foundation activities all around the world wherever you wish to make
• 8:00
  an impact. So if you wanted to go to Australia and take all of
• 8:03
  the members of the foundation with you to go do a retreat in the outback,
• 8:07
  or the go on safari somewhere in Africa, or whatever it is that
• 8:11
  you want to do to help make an impact for your charity, then you
• 8:15
  can do that. So that's some of the common ways. And then I
• 8:18
  touched done a second ago where assets can also be owned by these foundations,
• 8:24
  So a lot a lot of the time, what you will see is that
• 8:26
  foundations have lots of real estate. The reason real estate is used a lot
• 8:31
  is because there's something called the property tax exemption. So if in certain circumstance,
• 8:39
  if your property is fully paid off so you have no mortgage, you
• 8:43
  can get a property tax exemption, which is a huge deal for the right
• 8:46
  type of people, because you could be paying one percent, maybe one and
• 8:52
  a half percent of the property value in property tax. So if you've got
• 8:56
  let's say one hundred million dollar portfolio of real estate it and you're paying one
• 9:01
  percent, that's a million dollars a year you'd be paying just in property tax.
• 9:05
  There's a lot of different advantages of having a foundation that type of person.
• 9:15
  Don't any towns and the counties fight these property tax exemptions to foundations.
• 9:24
  No, you're just got to apply and you've got to get the exemption both
• 9:26
  at like you said, at the city level and then also at the federal
• 9:31
  level as well. But as long as you're not using that property as a
• 9:35
  person is actually used as part of the foundation, there shouldn't be any issues
• 9:39
  with that. What you what you tend to find is a lot of the
• 9:43
  bad press that has happened over the years is people are putting their primary residents
• 9:48
  in the founder the same deductions, which they shouldn't be doing, and that
• 9:52
  can actually lead to losing your tax exempt status. So i'd highly recommend not
• 9:58
  doing that. Yeah, So you got to and be very protective of your
• 10:03
  tax exempt status, right, So absolutely, yeah, because that's the key
• 10:07
  to getting zero capital gains because within these foundations there's no capital gains tax as
• 10:11
  well. They have something instead of capital gains tax. It's called net investment
• 10:16
  income, and that's only taxed at one point thirty nine percent, Right,
• 10:20
  now. So it's a much lower rate at one point three nine percent compared
• 10:26
  to capital gains tax, which can be anything above thirty percent usually, So
• 10:31
  what's the what's your minimum income required or assets to take advantage of something like
• 10:37
  this? Can you see generally speaking, when you go to the likes of
• 10:41
  UBS or any of the big banks that they're looking for you to have a
• 10:45
  twenty million plus portfolio, take your full relationship over to them and be locked
• 10:50
  in with them for the long term. Or a multi family office will produce
• 10:54
  something similar. But what we're trying to do is get to that lower level
• 10:58
  of million ad that is successful. It doesn't want to tie up everything.
• 11:03
  So if you're making about five million dollars a year in your business, or
• 11:07
  if you're paying over five hundred thousand a year in taxes, this usually makes
• 11:11
  sense to look into this as one of your options in your overall strategy.
• 11:18
  Right, all right? Really interesting? Hey, any millionaires out there,
• 11:22
  if you want to get in touch with KC, how do you do that?
• 11:24
  Case? Yeah, just go over to together CFO dot com. That's
• 11:30
  together cf or dot com. All right, Well, I could talk with
• 11:33
  you for quite a while on this. I find it fascinating, really interesting
• 11:37
  that these things are available. Hey, you got a question for KC or
• 11:43
  myself, Shoot me an email kl at Carrie LUTs dot com and you'll find
• 11:48
  a link to kse site and the show. It's to this interview on Financial
• 11:50
  Survival Network dot com. Please sign up for your free newsletter. Got a
• 11:56
  lot of money saving ideas, money making ideas. You don't necessarily have to
• 12:01
  be a millionaire for them, but it doesn't hurt either. In casey appreciate
• 12:05
  you coming on talk to you said, welcome, Thanks for having me,
• 12:07
  Thanks for listening to Carrie Letz's Financial Survival Network, your solution to today's trying
• 12:13
  times. For the latest, go to Financial Survivalnetwork dot com. Financial Survival
• 12:20
  Network now more than ever.