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With no hidden fees and a 100% purchase guarantee, you can feel confident when you book your premium LA tickets with Sweet Hop. Visit Sweet Hop.com today. Radical Personal Finance, episode 15. Ladies and gentlemen, welcome to the Radical Personal Finance podcast. Today's show is going to be about one of my favorite topics, taxes.

Well, actually, taxes aren't my favorite topic. My favorite topic is how to avoid taxes. And that's what today's show is going to be about. How to avoid all of your taxes. Stay with us. So if you want to know the one thing that's going to make a bigger difference in how much money you have to spend in your life than just about anything else, I would say that that one thing is taxes.

And more than anything, how to not pay them. So today we're going to talk about how to not pay your taxes. Now, obviously, you have the solution of simply just don't pay them. But that solution comes with certain other consequences that you may or may not be comfortable with.

I'm not comfortable with those consequences. That's up to you. But you choose what you want to do with that. I'm not comfortable with those consequences. So today we are going to be talking about how to avoid the taxes. And this is going to make, I believe, a bigger difference in how much money you have to spend, how much money you have to save, how much money you have to invest, than almost any other topic that I can think of to discuss today.

So before we get into that, a couple of quick announcements. So super excited. Today is July 8, Tuesday, and we are live in iTunes. So you will find us live in iTunes now. Just got the approval yesterday. So feel free to go on there and look us up under radicalpersonalfinance.com.

Subscribe, please. Would love to hear from you if you are enjoying the show. If you're not enjoying the show, that's cool, too. Happy to hear from you if you have that to say. But we are live in iTunes. So now we have the largest directory. And I have also submitted the show to a number of other places.

So feel free to not use iTunes if you don't want to use that. But I know that's the 100-pound gorilla in the marketplace. And more people are using that than just about anything else. Also, I have our email list set up. So consider, if you're interested in the show and you're enjoying the show, please come by the website and consider subscribing to the email list.

And here's why. We do a lot of shows. As you know, we do one every single day. And you may or may not be interested in all of the topics that we have here. So I don't expect necessarily expect you to be interested in all the topics. That's fine.

But in our email list, you will receive a notification as soon as we publish the show every day. And that notification will contain all of the show notes. Now, I do my best to give good comprehensive show notes. But realistically, it takes a long time. And so some days it's short and I got to get it done and get it published.

And some days I can spend a lot of time putting the really nice show notes together. However, if you would like to get an email that contains all of those show notes, none of this dumb, you know, first three paragraphs, then you got to go click over to the site.

It bothers me when people do that. I know why. I guess you're supposed to have people come into your website so that they can connect with you there. But usually a lot of times I get them on my phone and I don't want to go to the website. I don't want to click over to Safari.

So I usually just hit cancel. So in my email list, you receive the full show notes each and every day. And then you can decide if it's something that you're interested in listening to, interested in referring to, or interested in just skipping. No problem either way. So please come by the site at radicalpersonalfinance.com.

You'll see right there on the front page top right, get notified of new episodes. And would love it if you would join our email list. It's only going to be used for sharing the show information and the show notes. Expect it to be a lot of emails. It's going to be one every day.

So five days a week, basically, you'll receive an email. But I think that will be the best way for you to keep tabs on what's going on with the show every day. And also those show notes contain all the links, all the information from the day's show. So if you'd like to check me out, if you want to fact check me, if you want the outline of the show, that would be a really good way and convenient way for you to do it.

Also appreciate your comments. Comments on the show, I really appreciate those. It's going to help a lot. And those of you who are listening at this point, you have the opportunity to guide -- to provide significant input into the direction of the show. I'm creating what's in my mind, the kind of show that I would like to listen to.

But you have the opportunity to guide the show. I'll give you an example of a really great comment I received just last night on the about page over at the show by the user name is, I guess, Freganito. I like Freganism. That's cool. I'd like to talk to someone about Freganism at some point in the future.

But he was just talking about topics of interest to him or her. It says, you know, great to have you back. I think your show has huge potential. Topics of interest, hard assets such as platinum. Is it possible to use an IRA to buy hard assets? Money supply basics such as inflation.

Why is inflation this topic always presented as a complex topic when it's actually really simple? Why do so many people misunderstand it? Why can a credit card company get such high percentages but savings accounts get less than 4%? I love those topic ideas. I think that's super fun. I don't know anything about investing in hard assets such as platinum.

Never done it. Never had any interest in it. Pretty comfortable with the topic of investing in gold and silver. But I have no knowledge whatsoever about something like that. But I'd love to know if you guys -- that's the kind of topic that I'd love to interview somebody. So my reply back to him was, hey, do you know anybody who's really good at a question like that?

And if you do, let me know and I'll try to get in touch with them for an email. And I've got it now on my list of -- excuse me, for an interview. And I've got that show topic now on my list of potential show topics of things that would be interesting to talk about.

And then is it possible to use an IRA to buy hard assets? Absolutely. That's one of the most researched topics among the gold and silver bugs that you find. The answer is yes, it is possible. And no, I wouldn't do it. But we'll skip that. We'll save that for another day.

It doesn't make any sense to me to do it that way. But we'll talk about that another day. So today's show, we're going to talk about tax planning. And so let's jump into the meat and potatoes. I expect today to be pretty deep. I expect to be doing a lot of teaching.

I expect this not to be light and easy listening. And don't worry if -- I think you -- don't worry if you don't get everything. Feel free to listen to the show a couple times. Or just figure -- you know, you'll pick up what you need to pick up.

And we'll revisit these topics again and again in the future. But today I want to lay a foundation for the topic of tax planning. I want to lay a foundation for how it's done and -- for how it's done. Why should you care? Tax planning is vital. A huge, huge, huge portion of our income goes toward taxes in all forms.

And there are a lot of taxes that we pay in our society. There are a lot of taxes that we pay. But we have the option, basically, to pay -- we really have the option to pay whichever ones we want to pay. They're all optional. And I'll explain that in a second and I'll prove it to you.

They're optional in a way, but they're not optional in a way. And we'll get into kind of how that works. I've got a few of my favorite quotes from -- about taxes I'll sprinkle in here. And the first quote is this from Forbes Magazine, May 11, 1992. "Politicians tax the middle class for the same reason some people rob banks.

That's where the money is." So that's what we're going to be talking about, hopefully, allowing your bank, your personal bank, not to be robbed. This is a really big deal. I've looked up some numbers this morning from the Tax Foundation, which is a Washington, D.C.-based think tank that collects data and publishes various studies on tax policies.

And obviously, as with all think tanks, you've got to figure out, okay, what's the bias, what am I comfortable with. A lot of people don't like them. Some people do. But I like the work they do. And every year they publish what they call the Tax Freedom Day, the National Tax Freedom Day.

And the National Tax Freedom Day for 2013 in the United States of America, they estimate to be April 18. So that means the first four months -- what, would that be four months and 13 days or three months and 13 days? From January 1 to April 18, you spend that entire time working to pay your taxes on a national basis.

In Florida, where I live, we have it a little bit better because we don't have a state income tax. It's a little better. Our Tax Freedom Day is April 15. And if you're interested in the actual dates for your state, feel free to click in the show notes and you'll see the link to that PDF with all of the data.

On average, Americans now spend more time working to pay their taxes than they spend working to provide food and shelter combined. And that's a pretty startling statistic. Now the problem is that that number is in many ways very misleading. And the reason is because that number is based upon a per capita average.

So basically you can say the per capita average of tax revenue and taxes paid and divide that among each person. That's what per capita means. And then that's where it averages out to. But that's not true because taxes are not paid proportionately. We do not have an average tax rate on each person.

We don't have a flat tax where each person pays the same percentage of our income. And then the tax base upon which taxes are based for each person varies. And so you find that some people's Tax Freedom Day is literally January 1, and some people's Tax Freedom Day would be later than April 18.

Taxes are really paid disproportionately by different sectors of society. So depending on what tax system we're talking about, for example, income taxes are primarily paid by rich people. But payroll taxes are paid by everybody who earns wages. So again, using Heritage Foundation numbers here, according to the most recent 2014 numbers I looked up this morning, from the Heritage Foundation, the top 10% of earners paid 71% of federal income taxes in 2014.

Remember that. The top 10% of wage earners paid 71% of federal income taxes in 2014. Now that doesn't necessarily mean the wealthiest 10% of the country paid 71% of federal income taxes. Federal income taxes are not paid based upon wealth. They're paid based upon income. It only means that the top earners, the top 10% of earners, paid 71% of federal income taxes.

Also, in all of these statistics, anytime you're reading a statistic and it's pointing out, look at this statistic versus that statistic, and you see people on the political left and on the political right, everyone bandies about their preferred statistics, and all of them are lying with their statistics, a couple things to look for.

Look at what's being taxed. Look at the tax base. Look at the tax rates. Understand. Look at is your data, is it household data, or is this per capita data? Because household data and per capita data are very, very different, and you need to always pay attention to that.

I won't go into that in depth at some point, but there are a couple economists I'd like to interview and bring on at some point to talk about that, because that's a very meaningful difference when you're reading statistics. I believe tax planning is going to affect--should affect-- just about every decision that you make.

And usually people are relatively ignorant about tax planning, and usually people just don't know--you don't know what you don't know. But why should you pay attention to it? Well, first of all, you're going to make more money, and you're going to have more money to spend, because smart tax planning can allow you to increase your income and your investment returns by really up to one-third.

It's huge. It's a huge, huge difference. And that's real money, real spending money that you can spend, real saving money that you can save, real investment money that you can invest. I do--there are--many people argue about investment strategies and investment philosophies, talking about who can be-- can you beat the market, can you generate alpha in your investment portfolio.

I don't really care. Ignore that. Save that for another day. I do know what you can do is you can do smart planning. And unlike having to be right on an investment hunch or an investment idea and having to have that be right, which is probably the most difficult thing that you can do, you can create a plan where you just simply--you invest in a tax-efficient manner.

And this will increase your returns in a huge way. Another way it can affect you--do you want to buy property? Do you want to buy real estate? If you understand your tax deductions for--in real estate, for example, your home mortgage interest or your real estate taxes, this will dramatically affect your costs, the cost of buying property, and it will dramatically affect your buy versus rent calculations.

It's not the only thing, but given the fact that you can deduct up to $1.1 million-- you can deduct the interest on up to--in the current tax code-- on up to $1.1 million of mortgage indebtedness, a million bucks for a primary residence, $100,000--excuse me-- a million bucks for primary mortgages and $100,000 for home equity mortgages.

That is a huge amount of tax savings. That is a huge amount of tax savings if the situation makes sense for you. Now, we're not--obviously, if you're making $20,000 a year, you're not deducting $1.1 million worth of interest. You're not deducting the interest on $1.1 million worth of indebtedness.

But if you have a high income, this may make a substantial difference, and you've really got to consider it. Interest in retirement--we all are familiar with tax-advantaged retirement accounts-- IRAs, Roth IRAs, SEP IRAs, 401(k)s, all of these things. Using these accounts can make a dramatic difference in how much money you need to save for retirement and a dramatic difference in how much money you have to spend in retirement.

Now, it's not the only thing. IRA is not a magic bullet. You could argue that in some instances, it would be superior if you had-- I'll give you an example. If you had a traditional IRA, and you just simply put a stock that didn't pay dividends in that IRA, and you bought one stock within that IRA, and you kept it alone for 40 years, then you sold it, and you incurred all of the income on that gain, then all of that income would be paid-- would be taxed based upon ordinary income rates.

Whereas if you had bought the stock outside of an IRA, and you bought the stock, and you didn't sell it for 40 years, and you appreciated and valued dramatically, didn't pay any dividends, well, then now that capital gains would be taxed at capital gains rates, and there would be a dramatic difference between them.

And although I didn't run the calculations again this morning-- I'm just doing this off the top of my head-- you would come out ahead not putting that stock inside of the IRA. Yeah, pretty sure about that. Just double-checking it in my head. You would come out ahead not putting that stock in the IRA.

But granted, that's not how people actually invest, generally. A, as we talked about yesterday, only 15% of the country actually owns stocks. Everyone else owns investment vehicles. The taxation on mutual funds is very different, and so it would be a very different scenario. But if you understood that, you could understand how to structure your-- how to structure your planning in order to help you have more money over the long term.

And you would--the simplest way is, in that scenario, you're usually-- what a good financial planner will first talk to you about is, usually you'll keep your capital gains investments, so your stocks that you're expecting to appreciate in value and not to pay a lot of dividends or at least not to pay any non-qualified dividends, you would keep those out of your IRA, and you would put your ordinary income property, namely your bonds, inside of your IRA.

So that's a very basic planning technique. However, you should be aware that sometimes that's exactly the wrong move. Sometimes you actually do want to accelerate income, and that's not going to be covered in today's show, but we will talk about that in the future. What about choosing which job offer to accept?

How about understanding how a company's benefits work? If you have one company that offers you a $100,000 salary and another company that offers you a $70,000 salary but substantial benefits, how would you look through and figure out which one would be in your best interest? It may be that company A or company B would be better, depending on how it's structured.

How to save for college is a big concern for a lot of parents. How do we save for college? How do we make sure that we do it in a tax-efficient way? There are a dozen ways to do it. Everyone says, "Well, a 529 account." A 529 account has its place.

It's a useful tool. It's not the only tool, and I don't think it's particularly the best tool. It is a tool within an arsenal of financial planning tools. How about when you're giving money away to friends or family or supporting your favorite charities? If you understand the gift tax rules and you understand your deduction rules, you understand your charitable rules, you can wind up with the person that you want to receive the money receiving a substantially higher amount of money than if you don't understand the rules.

Or if you die, what about estate planning? Making sure that your heirs receive a substantially higher amount of money. A simple example between types of IRAs, traditional IRAs versus Roth IRAs. Let's say that you have two accounts. You have a traditional IRA with $100,000 in it, and you have a Roth IRA with $100,000 in it.

You're not going to need one of the accounts for your retirement. You're going to spend one of the accounts, and you're going to leave one of the other accounts behind. Should you leave the traditional IRA or should you leave the Roth IRA? In general, broad picture, you want to make sure that you spend the traditional IRA and take the money out little by little over the years and leave the Roth IRA as an inheritance.

The reason is because the money in the traditional IRA has never been taxed. So if you leave it behind, and you leave it behind to your family, then your family will immediately inherit $100,000, which will be added to their taxable income. However, the Roth IRA has already been taxed, and my example assumes that you have a relatively low basis in the account.

The Roth IRA has already been taxed, so under that scenario, when your family receives the $100,000, they receive it with no income taxes due, assuming they follow the rules of distribution, getting it out of the account. What about your business? What organizational form should you choose? Should you open a business as a sole proprietorship, taxed as a sole proprietorship?

Should you open a business as a partnership, taxed as a partnership? Should you open a business as an S corporation or a C corporation? Or should you use an LLC and elect to be taxed under one of those tax schemes? It depends. There are advantages and disadvantages to each one.

There are things that you can do in a C corporation that you can't do in an S corporation. So on a C corporation, you would be dealing with the issue of double taxation, where that means the corporation pays tax on its profits, and then you pay tax on the dividends that you receive of the profits from the corporation.

However, in the C corporation, you could bring in certain types of benefit programs that you can't under an S corporation. So you could establish a non-qualified deferred compensation program. You could establish something like a benefit using a long-term care insurance program for executives and owners and front load those premiums, pay for them, and then the policy goes with the owner when he sells the business.

Or again, the non-qualified deferred comp would be wonderful in certain situations. You can't do those with an S corporation. You can do some of the long-term care insurance premiums, but you can't do non-qualified deferred comp with an S corporation. However, with an S corporation, you don't invoke double taxation.

You're only taxed on the money once. So what should you choose? Depends on each situation, but understanding those things is going to help you to make better ideas. Where should the business be located? Should you open in the state of Florida or in the state of Georgia or in the state of New York?

Simply deciding where you're going to open your business or how you're going to make business acquisitions. Should you pay for them in cash? Should you pay for business acquisitions in stock? How should your employee compensation be structured? Let's say you need to raise money. Should you raise money by issuing debt, bonds, by selling bonds, or by issuing equity and selling stock in your corporation?

Different taxation on the bonds versus the equity. So you need to understand those things and understand what would be better in your situation. Should the business own business rent property and it's renters' equipment and property, or should they own it? Should you set up different business structures? So should you establish one corporation that owns the property and then lease that to another corporation, or should you do it all in one?

Different advantages and disadvantages depending on the situation. I'll give you just one interesting one you'll see sometimes, especially with things like medical practices. There's a technique that you can use this as part of an income shifting technique that's called a gift leaseback. So you'll see this a lot in the medical community or where you have substantial equipment that can be worked.

So let's say that I'm a dentist, or I don't know, I guess a dentist will work. Let's say that I'm a dentist and I purchase an x-ray machine. And so with this x-ray machine, I've paid a substantial amount of money for it. The x-ray machine is -- I'm depreciating year by year in my business, but now I've fully depreciated it.

I've reached the end of my depreciation schedule. Well, at that point in time, I can make a gift of that property to potentially -- if I do it right and follow the rules, I could make a gift of that property to my children. And now my children own the property, and I can lease the property back from them.

So that transfers the lease payments -- the income from the lease payments, it transfers that to my children, allows me to pay them income. But the lease payments on my end in my business are fully deductible lease payments. So it's a small income shifting technique that can be really useful in the right form.

How should the business distribute profits? Each entity has advantages and disadvantages. Should it be wages and salaries? Should it be dividends? If it's a partnership income, should it be -- what's the accounting term? My mind is blanking. Should it be -- these CPAs can help me out. I'll look it up later.

It's the difference between wages and just guaranteed payments versus the partnership equivalent of dividends. I'm blanking on it. Partnership taxation is my least favorite of it all. But we'll get there someday. So this stuff makes a difference, and hopefully those are some examples that give you an idea. Now, I'm not an expert in all of these areas.

I am an interested student, and I would love to find some people that could have come on the show and teach in a systematic way about some of these techniques. And my story with it is when I started working, I've always been interested in tax, but I was always interested more in the political side of it, never in the actual practical side.

And I remember the first year that I opened my financial planning practice, and I'm sitting there trying to figure out my taxes, and it was another language. It was an absolute another language. And I'm sure that I missed deductions and missed things that I could have done in those first couple of years.

It was really overwhelming to me as far as the amount of information that I needed to learn. But I didn't know who to turn to, and so I started working with a few CPAs, tried to talk to a couple of accountants. I had one CPA that I really appreciated.

He did a really great job for me, and this particular CPA would teach me through. But then he left, and I had to try to work with some other ones. And what I found was that many CPAs are knowledgeable, but they don't have the time to sit and teach me everything I need to know about the tax code.

It's that if I'm paying them based upon preparing a return, they have a financial interest in preparing that return very quickly and maximizing their hourly compensation. And this is right. This is correct. This is how it should be. And most of them simply don't have the time necessarily to sit down and teach me about it, even if I am willing to pay.

And many times they're not accustomed to people walking in and saying, "I'm going to pay you a fee to consult with me." Now at the high end, I think many high-end CPAs do, but many CPAs who are very knowledgeable wind up having to prepare thousands of returns. Well, in that situation, you get comfortable, and your practice is structured upon doing a lot of returns for a small fee.

And so I just said, "I've got to learn. I've got to learn." So I have a real interest in these things, and I'm still not an expert. I'm not a CPA. I'm not an enrolled agent, at least not yet. That's one I do plan to become in the future because I'm interested in it.

But I haven't done these things, so I'm not an expert in it. But I do want to share with you some of what I have learned, kind of big picture. So hopefully this will be interesting to you. Today's show is designed to provide a foundation. Today's show is designed to provide a foundation for future shows on specifics.

And this is going to be part of my effort to really get past the fluffy stuff that you often hear in financial planning talk radio or things like that, or just do it this way. I want to really build an educational platform that says, "Here's how it works." Because once you have this outline in your mind, it makes everything a lot easier.

So categories of taxes. If we look and try to figure out, well, what are the different categories of taxes that we pay? There are a lot. And I remember a couple of years ago, I went and Googled the articles this morning, but there was a big article that made the rounds in the blogosphere about, "Here are 100 different taxes that you pay.

Just Google 'List of taxes Americans pay.'" And I found a couple on this list of 97 taxes Americans pay every year, or I found 100 taxes Americans pay every year. The problem is, these are designed primarily for shock value, to talk about the political implications of it. So I'll read here.

This was the second article that popped up and the one I Googled this morning. This is from the Economic Collapse blog. So that should give you an idea of the politics behind this one. "List of 97 taxes Americans pay every year. If you're like most Americans, paying taxes is one of your pet peeves.

The deadline to file your"--this is from March 24, 2014-- "The deadline to file your federal taxes is coming up, and this year Americans will spend more than 7 billion hours preparing their taxes and will hand over more than $4 trillion to federal, state, and local governments. Americans will fork over nearly 30% of what they earn to pay their income taxes, but that is only a small part of the story.

As you'll see below, there are dozens of other taxes that Americans pay every year. Of course, not everyone pays all these taxes, but without a doubt we are all being taxed into oblivion. It is like death by a thousand paper cuts. Our politicians have become extremely creative in finding ways to extract money from all of us, and most Americans don't even realize what is being done to them.

By the time it is all said and done, a significant portion of the population ends up paying more than half of what they earn to the government. That is fundamentally wrong, but nothing will be done about it until people start demanding change. The following is a list of 97 taxes Americans pay every year.

I'm going to go ahead and read some of these, but you don't need to write them down or anything. I'm going to organize them in a way that actually makes sense, unlike these silly lists. Number one, air transportation taxes. Just look at how much you were charged the last time you flew.

Number two, biodiesel fuel taxes. Number three, building permit taxes. Number four, business registration fees. Five, capital gains taxes. Six, cigarette taxes. Court fines. Disposal fees. Dog license taxes. Driver's license fees. Employer health insurance mandate tax. Employer Medicare taxes. Employer social security taxes. Environmental fees. Estate taxes. Excise taxes on comprehensive health insurance plans.

Federal corporate taxes. Federal income taxes. Federal unemployment taxes. Fishing license taxes. Flush taxes. Yes, this actually exists in some areas. Food and beverage license fees. Franchise business taxes. Garbage taxes. Gasoline taxes. Gift taxes. Gun ownership permits. Hazardous material disposal fees. Highway access fees. Hotel taxes. Blah, blah, blah. You can read the rest of the list.

The problem is -- I'll give you an example. They have IRA early withdrawal taxes. IRS interest charges. IRS penalties. Library taxes. License plate fees. Liquor taxes. What annoys me about these lists is that are they true? I guess technically. Sometimes -- let's see. Do they double count something on here?

Okay. They put property taxes and real estate taxes. I would combine those two things. But -- let that go. They have social security taxes, but they also have on here employer -- where was it? Under the E's. Employer social security taxes. That's one tax, but they've got it split into two for dramatic effect.

So these lists are fun to read, but just what annoys me is that you can't get past the political bent of it. And so half the audience reads these things and says, yeah, that's exactly right. And half the audience says, that's a stupid list and what a ridiculous thing.

Instead of both people actually understanding the foundation for these tax systems and how they work and why they work, and then understanding what you can actually do about it. It's hard to have an actual debate if you're basing your debate based upon a spurious argument about whether tanning taxes should -- a new Obamacare tax on tanning services.

What this matters. Is that true? Probably. I would imagine it's true. Number 75, state park entrance fees. State park entrance fees are not a tax. That's a fee. A tax is something for which you don't receive a specific benefit. So that's not even in the category of a tax.

A tax is a payment that's required -- here are my notes -- payment that is required by a government that is unrelated to any specific benefit or service received from the government. So if you're making a state park entrance fee, that's in response to a service which allows you the use of the park.

But that doesn't mean that arguing about state unemployment taxes, which are a tax, state unemployment taxes, that's not -- it doesn't mean that it's invalid to argue about it. But when you mix those things up, the debate just goes into the ditch. So here's how I basically kind of classify taxes.

I just read from my notes here that -- where is it in my notes? A tax is a payment required by a government that is unrelated to any specific benefit or service received from the government. The general purpose of a tax is to fund the operations of the government or to raise revenue.

Taxes differ from fines and penalties in that taxes are not intended to punish or prevent illegal behavior. Nonetheless, by allowing deductions from our income, our federal tax system does encourage certain behaviors like charitable contributions, retirement savings, and research and development. Thus we can view it as discouraging other legal behavior.

For example, sin taxes impose relatively high surcharges on alcohol and tobacco products. The key components of the definition of a tax are that number one, the payment is required. It is not voluntary. Number two, the payment is imposed by a government agency, federal, state, or local. And number three, the payment is not tied directly to the benefit received by the taxpayer.

So that's the foundation and the definition of taxes. And so in general, there are a few different -- there are various categories of taxes. And how I've categorized them is basically into three major categories. Federal taxes, state and local taxes, and implicit taxes. And so you'll hear what the differences between these taxes are.

So federal taxes are obviously taxes that apply across the nation. So there are lots of taxes that are in place to fund various programs. And a lot of this is considered to be programs of national importance. So things like national importance, things like national defense, or the interstate highway system, or educational programs, things like that.

And the basic categories of federal taxes are income tax, employment taxes, unemployment taxes, excise taxes, and transfer taxes. So the biggest of those, the big one that we all talk a lot about, is income tax. And income tax, it represents about 50% of all the tax revenues that's collected in the United States in 2010.

Most of the time, when you're talking about planning for tax planning, usually people are referring to the income tax system. It's important to note that the income tax system is not the only tax planning system that you can work under. You need to understand them all, because they all matter.

And each one in different situations is going to have different impacts and different effects in different planning circumstances. History of the income tax system. So you may have, perhaps you've researched this, perhaps not. I find some of the facts interesting. But we didn't always have income taxes. Congress originally started the first U.S.

personal income tax in 1861 to help fund the Civil War. And so this was intended to be a short-term solution to funding the Civil War. And so it started out at a maximum tax rate of 5%, and then it expired in 1872. So from 1861 to 1872, for 11 years, we had the original income tax system.

In 1892, Congress passed a new income tax system. But again, that was pretty controversial at that time. And there were a lot of people fighting it, a lot of people saying it should not be allowed to happen. But it was actually a very low amount at a very low rate.

In 1895, that tax was actually challenged in a court case. And the court case was called Pollock v. Farmers' Loan and Trust Company. And the U.S. Supreme Court eventually ruled that the income tax was unconstitutional because direct taxes were prohibited by the Constitution unless the taxes were apportioned across states based upon their populations.

And so the income tax, the second income tax, was ruled to be unconstitutional. Now this one, if you get into the tax planning world, you'll find that a lot of people say, "Well, the tax system is unconstitutional." It was. The Supreme Court found it to be unconstitutional. However, they then made it constitutional.

So in July 1909, Congress sent a proposed constitutional amendment to the states to remove any doubt as to whether income taxes were allowed by the Constitution. And in February 1913, the 16th Amendment was ratified. So if anybody tells you the income tax system is unconstitutional, I mean, who knows?

I'd love to talk to one of them one time. If you're in that camp, call me. I'll interview you. I'd love to hear how you justify that statement. But I promise, it's constitutional. Read the 16th Amendment. The amendment was passed on a constitutional basis, and now we have an income tax system.

And then Congress started the Revenue Act of 1913. And the Revenue Act of 1913 had a graduated income tax structure-- we're going to talk about tax structures in a moment-- had a graduated income tax structure with a maximum rate of 7%. And ever since then, that's been a major source of tax revenues, today accounting for greater than 50% of the government's revenues.

It shows you how sometimes in the laws of logic, you have something you call the "slippery slope fallacy." And I always struggle with understanding and defining and talking about the slippery slope fallacy. Because it seems to me that, yes, there is very clearly a slippery slope fallacy. But yet the idea and the concept of a slippery slope, in and of itself, doesn't seem to me to be a fallacy, when you see how it's been used over the years, and how a tax rate system that started at 5%, and then it was enacted at less-- I can't remember the exact rate when they originally passed the law in 1892.

But then in 1913, it starts with a maximum rate of 7%. And then today, you've got income taxes are taxed to individuals, corporations, estates, and trusts. And the rates vary across them, but basically it comes out to just under 40% is the maximum rate, depending if we're talking about the pure income tax, and if we're going to be specific in this talk, talking about purely federal income taxes, the maximum rate right now is just under 40% at the highest brackets.

So this just illustrates a little bit of the history of the federal income tax. And it's a major source of funds for the government to operate on. But it's not the only source of funds. So the next category that you have are employment taxes. So employment taxes consist of two different things.

There would be the old age survivors and disability insurance tax, so the OASDI, and that we commonly call the Social Security tax. And then the medical health insurance tax, and that's what we commonly call the Medicare tax. Technically, Social Security tax is not the name of it. It's called the old age survivors and disability insurance tax.

And then the Medicare tax is just what we commonly know, although it's medical health insurance. So those two taxes are the primary employment taxes. Social Security tax pays the monthly retirement, survivor, and disability benefits for the individuals that qualify. And the Medicare tax pays for the medical insurance for individuals who are elderly or disabled.

The tax rates on these taxes, they're based upon wages, and the tax base currently -- let's see, off the top of my head here, check the IRS numbers because they change every year. The tax rate base currently for 2014 for Social Security taxes is on the first $113,000 of wages, and then the Medicare tax rate is all wages.

And then the Social Security tax has two different components to it. You have the employer component, which for the Social Security tax is 6.2%, and then you have the employee contribution, which is another 6.2%. So totaled up, that becomes 12.4%. The Medicare tax rate is a 1.8% employer contribution and a 1.8% employee contribution under the current rates.

So if you total those together, it becomes 15.3% total. Note, a lot of times you'll see this false logic proclaimed. Well, it's not that much because the employer pays that additional amount. That additional amount comes out of your wages. In the past, I don't currently have any employees in any of my businesses, but in the past when I've had employees and I've paid taxes for them, I would be happy to pay them the additional -- what is it?

15.3 divided by 2, so that would be additional 7.65. The additional 7.65% of income. I would be happy to do that. That is part of their cost. When you count the cost of an employee, you are not just factoring in their salary. You are factoring in all of the costs associated with that employee, and that includes employment taxes.

It also includes other benefits programs. It includes other plans. So just remember that when you get into the political conversations, is that those are every bit of cost to the employer, and they need to be factored into it. Those are employment taxes. You also then have unemployment taxes, and you have both federal unemployment taxes and you have state unemployment taxes.

The state unemployment taxes vary from state to state, and then the federal government allows a credit based upon those state unemployment taxes. The tax rate is fairly low. It can be low as about 0.8%, can be even lower, about 0.6%, just depends on the calculations. And then the wage base is the first $7,000 of wages which are received during the year.

So you have both unemployment and -- excuse me -- employment taxes and unemployment taxes. I forgot, self-employment taxes. The self-employment taxes, the old age, survivor disability insurance, and the Medicare health insurance, the Social Security and Medicare taxes, that system is structured for the employers. However, there is an equal system that is established called the self-employment tax, and it's exactly the amount, it's 15.3%, where if you are self-employed, you are responsible to pay for the cost of those taxes under the self-employment tax system.

The next group of federal taxes that you have are excise taxes. So excise taxes are taxes that are put on the retail sale of specific products. So these products would include alcohol, diesel fuel, gasoline, tobacco products, and then other services like telephones, air transportation, tanning beds. When you open your cell phone bill, if you ever do, and you look at the obnoxious amount of taxes, those are excise taxes based upon the telephone tax.

If you hear about the gasoline tax, the gasoline tax is a federal excise tax, which was intended to fund the road programs. So when you look at -- when you understand all those things, those all come under the category of excise taxes. And then you have the transfer tax system.

And so the transfer tax system would consist of estate taxes and gift taxes. So you would have -- gift taxes is any kind of transfer among people who are alive. And then estate taxes, also called the death tax, is taxes based upon the transfer of property at death. And then there's one additional component to the transfer tax system called the generation-skipping transfer tax.

And that one is its own obnoxious nightmare, but we'll talk about that at some point when we talk about estate planning. But you have those three taxes together make up the transfer tax system. So transfer taxes are transfers of money from one person to another, and that will all fall either under the gift tax system, the estate tax system, or the generation-skipping transfer taxes.

And we always -- generally you'll just find it gift taxes or estate taxes because generation-skipping transfer taxes are part of the estate tax system. That's it for federal taxes. Under those categories, you can place most of the federal tax systems and kind of categorize them in a way that's more understandable than reading over here where it says number 86 on this list of tire taxes, or number 87 where it says tolls, another form of taxation, not another form of taxation.

That is a fee for the use of something, or a traffic fine. I'm not sure about traffic fine. I had to think about that. So that's federal taxes. Now we go on to state and local taxes, and there are four categories of state and local taxes. Income taxes, sales and use taxes, property taxes, and excise taxes.

So the difference here is that there are no employment taxes, although there are state unemployment taxes. But we've got here, first of all, income taxes. And so this varies dramatically among states. Some states and some local governments as well impose an additional income tax. There are, off the top of my head, I think five or six or seven states who don't.

I live in one of them in Florida, and so I live in Florida. We don't have a state income tax system, and that's wonderful. So you have a lot of people that have a high income that will come to Florida. When you compare the tax rates of earning, let's say you earn $3 million a year, and you compare what the tax rate would be if you earned that in Florida versus if you earned that in California or in New York City, there's a dramatic difference in the income tax system and in the amount of income taxes due on that money.

New York City, if you live in New York City, you have three levels of income taxes. You have federal income taxes, you have New York State income taxes, and you have New York City income taxes. So you've got to look at those income taxes. Now, the argument that would go in the other way-- for example, in Florida, generally people consider us to have fairly high property taxes.

So we'll get to that property taxes in just a second. But the argument goes that, well, in California you have low property taxes, so you have a very high income tax rate, but you have a low property tax rate, and that should make up the difference is the argument.

The only answer to the argument, the only conclusion, is for you to actually look at your actual situation. The next category of taxes is sales and use taxes. So sales taxes would be based upon the sale of goods and some services, and so the person selling the good or service is responsible for collecting and paying the tax.

And so usually in the state of Florida I think our sales tax system is 6% in my county. It ranges a little bit among counties. But we have a 6% sales tax, and so that's the tax base is the total value of the good or the service, and then we pay a 6% sales tax on that.

Use taxes are intended to be a way of leveling the playing field among different jurisdictions on their sales taxes. Use taxes are probably the least known about tax system, but most states actually have a use tax. So the idea is if I go to a neighboring state that doesn't have a sales tax and I buy a product under that system and then I come to Florida, then I'm supposed to pay a use tax on that product, which is supposed to compensate the state of Florida on the sales taxes that they lost out on.

Now this is probably the most evaded tax. We'll talk about evasion and avoidance in just a moment, but this is the most evaded tax in my opinion. I don't have any data that I can point to on that, just simply because people aren't aware of it. But the idea is we want to minimize, discourage people from buying goods out of state so that they can pay the sales tax in the state.

So all of the online shopping that we do and you buy from Amazon and in the past when they didn't charge sales taxes, that's what all this hullabaloo is about. But only recently are states starting to enforce it, and the key thing is that it's a lot easier to enforce on a big ticket item.

If you go to another state and you buy a car in a state that doesn't have an income tax, when you then register it in your state, you're then going to pay the income tax because the car has to be registered. If you're buying a book online from a state that doesn't have an income tax and you're having it shipped to your house, are you supposed to report that as a use tax?

You are. However, is that practically done? Of course not. I think most of us are tax evaders under that system. And again, if you're not aware of your state's use taxes, just look them up. I've not researched every state, but I would bet you that most states have a use tax system.

Next category is property taxes. There's basically two kinds of property taxes. There's real property taxes and then there are personal property taxes. These taxes are what are called ad valorem taxes. My Latin pronunciation is not the best, so correct me on that if you know it's better. Ad valorem taxes, that's what you see written on your property tax bill.

It says the tax base is the fair market value. So as the market value of the property goes up, then the tax base increases, and so thus the amount of taxes that you owe goes up. Real property would be the land that you own, buildings, improvements, anything attached to the land.

And then personal property is every other type of personal property, and it can be both tangible or intangible. That may be boats, cars, planes, inventory, equipment, furniture. Intangible property could be stocks, bonds, and intellectual property. All of these can be taxed. Now, real property taxes are much more common or much more useful because it's harder to avoid them.

The state can send out an inspector, they can look at your home, they can see it from the aerial photo, and they can guess the actual value of it. And so they're a lot easier to enforce than our personal property taxes. But there are indeed personal property taxes, and this change is based upon the state.

And there's also state excise taxes, so same as the federal tax system, states will often impose excise taxes on gas, on alcohol, on tobacco, on telephones, things like that. So that would be their own system of state excise taxes, and that's why the price you pay for a pack of cigarettes in New York City is dramatically different than the price you pay for a pack of cigarettes in Valdosta, Georgia.

So that would fall under the excise taxes. The third major category of taxes would be implicit taxes. Now, most people don't think about implicit taxes. The first two categories are all explicit taxes, which means there's a direct tax, and we can easily draw the number for it. An implicit tax, however, is something that's not paid directly to the government.

And this is the result from a tax advantage the government grants to a certain transaction to satisfy their own objectives. So an implicit tax is defined as the reduced before-tax return that a tax-favored asset produces because of its tax-advantaged status. And so the biggest example here is municipal bonds.

And so under a municipal bond system, the first thing you say, "Hey, I don't want to pay so many taxes on my investments." What's the answer? Buy municipal bonds, because municipal bonds are not taxed at the federal level. And so if you are an investor purchasing municipal bonds, depending on the type and the jurisdiction, you can avoid the taxes based upon those municipal bonds.

However, because the taxes are lower, that increases the demand for the municipal bond, and because the demand is higher, that then drives down the price. And so because that drives down the price, then the government can reap a benefit from selling the tax-exempt bonds. So if my state were going to issue a bond, and they were going to charge, let's say that they were going to charge a specific interest rate, and they had to sell the bond at a certain price based upon a certain interest rate, and they could collect a certain amount of income tax on that, or if they could just sell it without any income taxes, the cost savings that they would-- let's say they're going to sell a $10,000 bond, and they're going to tax it at-- if a taxable bond is going to be 10%, then there would be-- if the tax rate is 20%, then there would be income taxes due.

Income taxes due of $200 on it, and then the investor would receive an after-tax income of $800. But if we were going to sell a state municipal bond that was tax-exempt, then the market price of that bond could be sold for less, and so it could be sold with a lower tax return.

And so even though the income was lower, we would wind up having the tax advantage. I'm struggling with how to explain this. This is one of those things where it's better to read a book. But basically the difference is the cost savings, and that's the implicit taxes. So there is a tax burden on the investor.

The tax burden on the investor is either to pay the explicit income tax on the bond or to pay the higher price that the investor pays to get the tax-exempt bond, and that's called an implicit tax. It happens every single day. It happens all day, every day, but it's hard to estimate because then you get into the system of supply and demand, and you're trying to figure out how on earth do you estimate these numbers.

So hopefully that gives you a good overview of the tax systems and how it works. So let's get to how to avoid them. So I maintain that all taxes are optional, and "all" is a strong word. Let me rephrase it. Most taxes are optional. You can avoid almost all of them, but you have to be willing to take the actions that you can take to avoid them.

Very simply, if you make under a certain amount of money, you pay no federal income taxes and you pay no state income taxes. Now, are you willing to make that small amount of money? Depends on your situation, and whether or not you're willing to make that small amount of money is going to be up to you.

But all taxes are avoidable, but they may not all be avoidable at the same time. If you don't want to pay so many gasoline taxes, you may be able to avoid the gasoline taxes by buying an electric car. But now you're going to pay the taxes that are charged based upon your electric bill, unless you can set up a solar system that's going to charge your electric car.

Well, now you're going to pay sales taxes on the cost and the acquisition of those solar panels, unless you buy them in a state where you don't have to pay sales taxes. But then the company is still paying the taxes on the profit, and so there is still a contribution to the tax system, but you can, or to the tax systems I should say, probably a better way, but you can indeed minimize your contributions to those systems based upon your actions.

I'm going to read to you two paragraphs, three paragraphs, out of one of my favorite tax planning books that I really recommend, and the author's name is Jeff Schnepper, and this book is called "How to Pay Zero Taxes." And when I found this book several years ago, I strongly, highly recommend it to you.

I will try to remember to put a link in the show notes. I have an affiliate link, so if you want to use that, buy it off of Amazon, I'll get, I guess, a small commission off of that. I don't know what that rate is, but that would be much appreciated.

But I'll read three paragraphs from page 26 of his 2013 edition. And this, to me, are staggering statistics, and I find it really interesting to read through these three paragraphs. "Taxes have been likened to a plague of locusts on a field of wheat. Yet there are several individuals earning millions of dollars who pay little or no taxes, and many more who earn hundreds of thousands of dollars each year, whose tax bill is just as small.

For the year 1998, filed in 1999, 2,085,211 individual tax returns were filed, showing income of $200,000 or more. Of those, .07%, or about 1,467 returns, showed no U.S. tax liability. For 1999, filed in 2000, 1,605 returns with incomes of $200,000 or more showed no U.S. tax liability. For 2000, filed in 2001, 2,328 returns with income of $200,000 or more showed no U.S.

tax. And 2001 returns, filed in 2002, without a tax liability, increased to 2,959." I'm going to skip through a couple, and let's go to 2009. "In 2009, 1,470 people earned over $1 million and paid zero taxes, and 20,752 taxpayers with incomes of $200,000 or more paid zero taxes. These people are able to avoid paying taxes by the use of sophisticated tax strategies devised by high-priced and very professional tax planners who guide their clients along the cracks in the federal tax code.

Most of those cracks have been put there intentionally by Congress as economic and social incentives. For example, to encourage capital spending and to support the U.S. auto industry, a combination of provisions in the tax code allows a knowledgeable average taxpayer to buy a $12,000 car at a net cash cost of only $6,641." See page 316.

"If that car has run only 60,000 miles in its first five years, the net cash outlay for the car can be reduced to below zero. In effect, the taxpayer gets a free car. More important, his costless acquisition is completely legal. Exactly how to do this will be explained later in the book.

As the examples indicate, Congress has created a financial mechanism whereby certain actions substitute for tax payments. Rather than taking the taxpayer's money in taxes and then paying it out in direct support for certain activities, Congress has indirectly accomplished the same goal by granting taxpayers some credits and deductions if they make expenditures in certain defined areas.

How to Pay Zero Taxes will expose these areas and detail how you, a now enlightened reader, can structure your transactions to benefit optimally from these completely legal strategies and techniques." When I read those numbers several years ago when I first got my hands on that book, I couldn't believe it.

2009, 20,000 people made $200,000 or more and paid no income taxes. And what was it, over 1,000 people made $1 million or more and paid no income taxes. I thought that was incredible and amazing. It was 1,470 people earned over $1 million and paid zero taxes. Now, I still don't know how to do it with a million bucks.

And the thing is that you will learn is people are looking for simple solutions. There aren't simple solutions. It is a combination of things-- one upon the other, one upon the other, one upon the other. And I do not know of any way to transmit this knowledge to everybody except to say I wish that there were CPAs who specialized in nothing, did no returns, but just simply did tax planning practices and people consulting them.

I am working to get towards that level of knowledge myself. I've got a good bit of knowledge, but I'm certainly not there. But all of this is based upon tax avoidance. So let's talk about the difference between tax avoidance and tax evasion. And so tax avoidance is simply choosing to align your activities in such a way that you avoid taxes.

You can choose to drive on the federal interstate highway system instead of on the local turnpike in order to avoid the fee of the turnpike. You can choose not to drive a car and rather to ride a bicycle in order to avoid the fees on the gas taxes. That's tax avoidance.

Tax evasion would be basically if you're driving on the turnpike and when you get to the toll booth you drive around in the median in order to not go through the toll booth. That would be tax evasion. Tax evasion is illegal. Tax avoidance is absolutely legal. And that is what everyone should be doing.

Now, I have a soft spot in my heart. There are people who actually do and are so committed to what they do that they're willing to consider tax evasion. However, there are consequences associated with that and consequences including prison, and you would have to be okay with that. I'm not okay with that for me personally, but I do encourage tax avoidance.

But then you get into the problem of ethics. So the question is this, is it ethical to avoid taxes? Let me read you a couple of quotes, and I'll just talk to you how I think about this, and you consider it for yourself. Here are three of my favorite quotes, and I first read these in Jeff Schnepper's "How to Pay Zero Taxes" book.

And again, I strongly commend that book to you as an excellent resource for you. "As a citizen, you have an obligation to the country's tax system, but you also have an obligation to yourself to know your rights under the law and possible tax deductions and to claim every one of them.

Donald Alexander, former commissioner of the Internal Revenue Service under three presidents. Quote, "As to the astuteness of taxpayers in ordering their affairs so as to minimize taxes, it has been said that the very meaning of a line in the law is that you intentionally may go as close to it as you can if you do not pass it." This is from a court case, Superior Oil Company versus Mississippi.

And the reference is in the show notes. Quote, "This is because nobody owes any public duty to pay more than the law demands. Taxes are enforced exactions, not voluntary contributions." J. Frankfurter, Atlantic Coast Line v. Phillips, another court case. And then here, quote, "When men get in the habit of helping themselves to the property of others, they cannot easily be cured of it.

The entire tax code in economics terms mirrors the course of most addictions, advancing dependence, diminished returns, and deteriorating health of the afflicted." A 1909 editorial opposing the very first income tax. As we know, that wasn't the very first income tax. It was actually opposing the redone income tax. So what about the ethics?

Well, this is going to be a very intensely personal situation. I will tell you this. It's not my mission in life, but one of my missions of the show is to help people avoid millions and millions of dollars in taxes. I do not particularly like what the tax revenue is spent on.

I don't particularly think that most of it is very good. I would generally oppose most of it, although we could have a discussion about that. I have no idea what the policy solutions are for this country in general. But I do know that regardless of any policy decisions on the macro scale--that's not my job, that's not my problem-- but I do know that regardless of any of the policy decisions on the macro scale, as individuals we can all order our lives in such a way that we gain the maximum benefit from what we're doing.

And one of those things is avoiding taxes. Now, people talk about tax loopholes for the rich. This really bothers me. I cannot find any tax loopholes for the rich. I can't find a section in the tax code that says rich people are allowed to use this and poor people aren't.

If anything, all of the tax loopholes that exist in the tax code are for the poor. So you can make not much money and you don't have to pay any taxes, but if you're rich and you make a lot of money, you're going to be paying some taxes. There are no tax loopholes for the rich.

There is one tax code, and it is equally applied to both the rich and the poor. The advantage and the disadvantage is that generally rich people usually get to be rich because they do things that rich people do. They save money, they invest money, and they pay for good advice.

And poor people usually get to be poor in this country, not in other countries around the world. It's a separate topic. But in the United States of America, poor people usually get to be poor by doing things that poor people do. And often that's spending money frivolously, not saving it, and not getting good advice.

All of the information is there in the library. So if you're interested in this stuff, get a library card and go read the book on how to save money on taxes. There are dozens of books that are published every single year. You can get them all for free from the library and read them.

Now, are there systematic structural problems? Probably, and that's our job is to help our neighbors save on taxes, and that's why I'm doing this. This podcast is 100% free, and you go listen to it, and I hope you save a lot of money on taxes. But there are no tax loopholes for the rich.

There is a one tax code, and it is applied equally across all citizens. I feel better. This just bothers me so much because the problem is lack of education. And so, yes, as a rich person, if I'm going to pay a million dollars of income taxes in a year, it's worth it to me to consider hiring somebody and paying them $100,000 if they can figure out how to help me save that million dollars.

And this is what drives me nuts about political code is that if you enact a new law, the people that can afford to pay for someone to read through the law to find the way to the exception, they're going to do it. So the entire job in general of a financial planner is to help people do smart stuff, and I have a job because the tax code is so complicated in a sense.

And so there's always exceptions and there's ways to do it, but they aren't simple. There are some simple things, but they are not simple. So I'll leave that there, but that one is -- you can ascribe that quote to me. There are no tax loopholes for the rich. There is one tax code, and it's applied equally across the board to all citizens, whether or not they are rich or they are poor.

Just like there's not -- you get the point. Moving on. A couple of ideas here, and let's talk about the structure of taxes, and then I think we'll wrap up for the day. And we will continue. This will be part one of a many-part series. But first of all, you need to understand some tax terms, and if you understand these tax terms and some tax strategies, these tax terms are going to make a big difference to you.

Oh, I forgot. Excuse me. Before I do that, I want to read one more quote from this "How to Pay Zero Taxes" book, and this is coming from page 30, and I think that this helps to answer some of that ethical objections. I apologize. This is too important for me not to read.

And so the thing to recognize when you get into discussions about tax policy and people talk about, well, what's fair and what's not fair, the remarkable thing I used to say prior to when I had studied any of this stuff in depth, I used to say, well, the tax code is not fair.

It doesn't make sense. I have since learned that the tax code is extremely fair and does make sense. The ideas behind the taxes, the tax system and the tax code, the ideas are generally applied equally across the board. And so I would encourage you to, as I've studied things, you find that if you have a tax principle in one place, you'll find it applied everywhere.

You'll find that it's applied in exactly the same way across the board. So partnership taxation is structured in such a way that it is trying to be the equivalent of corporate taxation. And the kind of the philosophy behind it are indeed, the philosophies are indeed consistent across the board.

But I want to read this talking about why tax expenditures exist and because people often ask, well, why does the IRS, why does the government allow you to have a retirement plan and save the money on the taxes by using an IRA as a retirement plan? Well, the doctrines are consistent.

In general, what you'll find is that the government is trying to incentivize people or disincentivize people to do certain things. And the primary tool that the politicians have to incentivize what they think is in your best interest is through the tax code. So we're going to read here from page 30 of how to pay zero taxes.

I think Mr. Schnepper does an awesome job with this section here. Time is money and these dollars, tax dollars, come out of your pocket and drain your ability to save and invest. While inflation compounds your financial concerns by draining your ability just to keep even. Even if your earnings can keep even with inflation, you still lose.

For example, assume you have a taxable income for 2012 of $85,650 and pay $17,442.50 in taxes. You have $68,207.50 left to spend. With both inflation and a raise of 8%, you will now earn $92,502 and pay $19,361 in taxes, leaving you $73,141 to spend. But due to inflation, this $73,141 is worth only $67,290.

In real dollars, the progressive nature of your tax structure and the purchasing power decay caused by inflation have together decreased your real buying power by $68,207.50 minus $67,290 equals $917 on a $6,852 increase in earnings. So the impact of state and social security taxes further magnifies your financial dilemma.

Let me clarify that because it's hard to listen to numbers when you're listening to auto. Taxable income in 2012 was $85,650 and you were left with $68,207 to spend. Taxable income the next year was $92,502, but after taxes and inflation, you were left with $67,290 to spend. So what happened is that your $6,800 raise increased your actual spending money by only $917.

You wound up with $917 less to spend after receiving a $6,852 increase in earnings. I'm going to pause in this quote for a minute, in this excerpt for a moment. This is why you have to consider all aspects of financial planning. More money is not always better. It may be, let's say that you have a job that is fairly simple, fairly easy and keeps you with a certain amount of time.

It may be that in order to earn more money, you then have to take a job that is fairly complicated, fairly stressful and takes a lot more time. You need to really consider all of the impact of that and it's possible that you'd be better off to take the higher job and it's also possible that you'd be better off to avoid the higher job and simply choose to maximize your free time.

This is good, sound personal financial planning, but you need to actually know and run the calculations to be able to do this. Now obviously this is an example that the author has chosen to prove his point, but it does prove his point. The person had a $7,000 raise and had $900 less money to spend after inflation and taxes.

So if you can have something where you have, instead of taking the $7,000 raise, you take more free time, you wind up with the same spending money and more free time. So consider it and that's why good personal financial planning makes all the difference in the world. Continuing reading here.

What can you do? One simple answer is to try to reduce your taxes and the rest of this book will tell you how to do so. Some of the techniques found in this book are the result of mixing complicated and convoluted tax code sections, but all of them are completely legal.

Some are legal not because Congress intended them to be there, but because both Congress and the Internal Revenue Service were lax in their homework and the tax code language allowing them is there. My comments, it's not my problem that Congress and the IRS can't talk together. While Congress writes the tax law, that law is read and interpreted by the courts.

Quite often the Internal Revenue Service and the courts differ in their interpretations of various code sections and their applications. The courts always win. Even if a tax effect is contrary to original congressional intent, the courts must and do support the language of the code. Such effects are the law and can be changed or eliminated only by congressional action.

Until such action is taken, it is fully within the legal rights of the American taxpayer to use such code combinations to reduce, minimize, or even completely eliminate taxes. Each individual must pay taxes, but not one penny more than the law requires. If you want to make voluntary contributions to our federal treasury, you have bought the wrong book.

On the other hand, most of the techniques detailed here have been intended by Congress. In many cases, legally reducing your income tax liability is both good for you and good for America. Certain kinds of receipts are intentionally excluded from gross income for tax purposes in order to achieve some economic or social objective.

These provisions are frequently referred to as tax incentives and are specifically designed to encourage certain types of activity. Tax incentives have the same impact on the federal budget as direct expenditures because they represent revenues not collected by the federal government. These special tax provisions, therefore, have been labeled tax expenditures or tax aids by the Treasury Department.

These expenditures are revenue losses arising from provisions of the tax code but give special or selective tax relief to certain groups of taxpayers. These provisions either encourage some desired activity or provide special aid to certain taxpayers. For example, the federal government seeks to encourage certain forms of investment. Thus, business investment is encouraged by the accelerated rather than straight-line depreciation.

This tax advantage has been legislated so that businesses will have additional capital to be able to expand. Tax-advantaged investment helps create new businesses and new jobs. These new jobs produce more paychecks, and these additional paychecks produce more taxes. In the long run, if everything works as it should, everyone wins.

Alternatively, other tax expenditure provisions have been adopted as relief provisions to ease tax hardships or to simplify tax computations. For example, the elderly and the blind receive special financial benefits through a deduction called the additional amount. The other tax benefits for the aged, the retirement income credit, and the potential exclusion of Social Security annuity payments from taxable income also fall into this personal or tax hardship category.

These revenue losses are called tax expenditures because they are payments or expenditures by the federal government. This is a form of implicit taxes. Payments are expenditures by the federal government made through a reduction of taxes rather than a direct grant. Just as a forgiveness of debt is equivalent to a payment, so a remission of tax liability is equivalent to an expenditure.

According to the Congressional Budget Office, in 1980, a total of 92 provisions were considered tax expenditures. These were estimated to cost $206 billion in fiscal year 1981, based on laws in effect at the start of 1980. Projected 2012 individual tax expenditures are almost $1.3 trillion. The financial benefits offered by tax expenditure provisions resemble those available through entitlement programs on the spending side of the budget.

A tax expenditure provision can provide special tax relief in any of the following ways. 1. Special exclusions, exemptions, and deductions, which reduce taxable income and thus result in a smaller tax liability. For example, tax exempt municipal bond interest or the exclusion from taxable income of employer discounts or dependent care assistant programs.

2. Preferential rates, which reduce liabilities by applying lower rates to all or part of the taxpayer's income. For example, the special reduced maximum tax rate on long-term capital gains income. 3. Special credits, which are subtracted from the tax liability rather than from the income in which the taxes are figured.

For example, the child tax credit or the foreign tax credit. 4. Deferrals of tax, which general result from allowing deductions that, according to standard accounting principles, are properly attributable to a future year. For example, accelerated depreciation allowances. A taxpayer paying later rather than now in effect receives an interest-free loan of the deferred liability.

Tax spending and direct spending are alternative methods of providing federal subsidies. Nearly any tax expenditure could be recast as a spending program, just as most spending programs could be replaced by tax expenditures. Thus, the choice between tax spending and direct spending is essentially a choice between alternative administrative mechanisms.

Dropping down the page here and two more quick paragraphs. In reality, though, many of these expenditures are the result of pressures applied by special interest groups seeking relief provisions for their own constituencies. For example, why is there an additional standard deduction amount for the blind and not for the deaf?

The answer, I suggest, may have more to do with the political and lobbying power of the two groups than with any inherent difference between the hardships. These special provisions also arise out of the political needs of our individual representatives in Congress. These are off-budget expenditures that show up as a reduction of revenues rather than as an increase in congressional spending.

In effect, they allow our representatives to increase our federal fiscal deficit to spend more tax money without appearing to do so. Arguments are made that these tax incentives are simple and involve far less government supervision and detail than strict expenditures. It has also been argued that these incentives encourage the private sector to participate in social programs and promote private decision-making rather than government-centered decision-making.

Whether these asserted virtues of tax incentives are in fact valid or whether their defects outweigh their claimed advantages is not the subject of this book. The fact that they do exist is critical. In order to minimize or eliminate your taxes completely, you must first accept the fact that the techniques to be detailed in this book are both legal and, for the most part, specifically intended by Congress.

That they have not been publicized or made widely known by the Internal Revenue Service is not surprising. Despite publicity releases and continuous claims to the contrary, the Internal Revenue Service is a revenue collector. While the professed goal is a fair administration of the tax law, the service's job is to collect your tax money.

No Internal Revenue agent ever received or ever shall receive a raise or promotion by suggesting to a taxpayer how to arrange a financial situation to reduce or eliminate taxes. To discover those techniques, you either have to pay thousands of dollars to a professional tax practitioner, attorney, or accountant, or you can turn to the next chapter.

So with that, that's all I'm going to read from this book here. I think that's a good enough start. Again, I highly recommend Jeff Schnapper's book. It's really, really excellent. One thing that I want to point out, and I'm going to wrap up with two more quick comments on some explanations of different options for taxes.

But two more quick comments. First of all, this book was--what's the cover price? $20. $20 at the bookstore could save thousands and thousands of dollars, and he does a good job, although it's a little hard if you don't have some background. He does a really good job in this book, but if you don't have some background in how the tax code is designed, then it's a little hard to digest.

But $20 at the bookstore can save you untold thousands of dollars. So the answers to how to get rich are usually simple, but they're usually found in education, and this would be a good example, so make note of that. But the point is that all of these techniques are intended by Congress, either explicitly or implicitly, they are intended by Congress.

And just because of the fact that you don't know about them doesn't mean that they shouldn't exist or that they don't exist. The key is going out and understanding them. But the problem with tax planning is--and even the problem with financial planning-- I, as a financial planner, I can't tell you what I can do for you until I actually know your situation.

Because if you--just the difference of if you own a business or if you're an employee, that makes a huge difference in the options that are available to you. So until I actually know a situation, I can't tell what planning techniques I can use or what I can find. This is actually the problem that we as financial planners struggle with in marketing.

People say, "Well, what can you do?" Well, I don't know because I don't know your situation, and everything is so dependent. In essence, the job of a financial planner is you basically just have to absorb thousands and thousands of pages of laws and rules and ideas and then be a good listener to try to figure out where they apply in a specific situation.

So--but I encourage you to go out and get the education. Three quick last bullet points in my notes, and we're done for the day. Number one, there are different ways--well, first of all, you need to understand how taxes are calculated. A tax--the tax that's paid is equal to the tax base times the tax rate.

And this is important that you understand because one of your opportunities is usually to try to adjust the tax base and/or to adjust the tax rate. So the tax base is defined as what is actually taxed, and this would usually be expressed in monetary terms. So, for example, Social Security wages are based upon a tax base--excuse me.

Social Security taxes are based upon your tax base of the first $113,500 of income, if memory is correct. So that's your Social Security wage base. That's the tax base. All income over the $113,000 is not taxed based upon Social Security taxes. But it's only taxed--the tax base for Social Security is wages.

It's not profits, or it's not--so it's not taxed on dividends, and it's not--the Social Security wage base is not on interest. So you could earn a million dollars of income from profit, a million dollars of dividends, and none of that would be subject to the Social Security taxes. Or you could earn $100,000 of wages, and all of it is subject to Social Security taxes.

Or you could earn a million dollars of wages, and only $113,500 of it is subject to the Social Security wage base. So this is important to understand. What is the wage base for the tax that we're trying to avoid? Or, excuse me, what is the tax base for the tax we're trying to avoid?

And if we're trying to do good Social Security planning, we're basically trying to minimize the tax base, which is wages upon which Social Security will be charged. And so this would be one of the most fundamental-- every accountant will talk to you about this. If you are earning income based as a sole proprietorship versus earning income as an S corporation, almost every accountant I've ever spoken to, their first thing will be to encourage you to consider filing wages as an S corporation.

Because if you have $100,000 of self-employment income, all $100,000 of that is subject to the self-employment tax at 15.3%, which is a combination of the Social Security tax and the Medicare tax, totaling 15.3%. But if you are an S corporation owner, and let's say that the average wage in your industry is $50,000, so you can pay yourself $50,000 of wages, and let's say then that you can then pay $50,000 of profits in the form of a dividend, you will avoid the taxes, the Social Security taxes, on $50,000 of your income.

So by understanding what the tax base is, it makes that planning technique make sense. So a tax is equal to--the tax due is equal to the tax base times the tax rate. The tax rate determines the level of taxes that are imposed on the tax base, and this is usually expressed as a percentage.

So in Florida, we have a sales tax, and this is a 6% sales tax. So if I buy a $100 item at the store, then I'll pay $6 of taxes on that item. But the key is to understand what is the actual tax rate. And there are three different tax rates that we use, and there's three different tax rate structures.

So the three different ways that we measure tax rate-- the first is what's called the marginal tax rate. And so the marginal tax rate is the tax rate that applies to the next additional increment of a taxpayer's taxable income. And so this is most easily understood under income tax planning.

If you earn $100,000 of income, you have a certain tax rate that's on that. But then if you increase that income by $20,000, you would calculate what is the specific tax rate, the marginal tax rate, on the next $20,000. And I guess I should use an actual number from the chart.

So if the federal married filing jointly tax tables, if your taxable income is over--what's this one here that I have-- is over $142,700, then you look at the table, and you owe $27,735 plus 28% of the money that's over the $142,700 number. And so that's how you calculate the tax rates.

So you have your marginal rate that comes in based upon the additional income. Now here's the problem. One of the biggest problems you hear in tax planning-- many taxpayers believe that all of their income is taxed at the marginal rate. And so this makes people say, "Well, I don't want to earn-- I'm earning currently $142,699, but I don't want to earn another $2 because then that would push all of my income up from the 25% bracket into the 28% bracket." That's not true.

So just because you earn two more dollars, you don't push all of your income up into the additional bracket. It's just simply that the additional income above that number is now taxed at 28%. Or if you could trim some income off of that, you save off the 28% savings.

Both of them are important. So the marginal--you can't just say, "Well, what bracket are you in?" Someone says, "I'm in the 28% bracket." You can't then automatically say, "Well, you earned $142,000, so I'll take 28% of that." It doesn't work that way. It's that the brackets go up, and the higher bracket is only charged on the higher amount.

This is really useful in tax planning because all the savings come off the top. So let's say that somebody is in the 35% bracket, and we can arrange a plan that's going to drop their income. Well, let's keep it more believable-- or let's keep it more mainstream instead of going up to the 35% bracket.

You need to be earning $400,000 or $500,000 to be in the 35% bracket. So let's just say we're going to do something between the 25% bracket and the 15% bracket. So the difference here is from $70,000 to $140,000. So if somebody is making $100,000, and we can defer $30,000 into retirement plans, we can avoid the taxes on that $30,000, and all of that money would have been taxed at 25%.

So that can be a substantial savings when you're in that higher bracket. And so because all of the marginal brackets are at the margin-- that's why they're called marginal-- then you have a lot of opportunities for doing savings there. So that's the marginal tax rate. The next number that we talk about is the average tax rate.

So the average tax rate represents the taxpayer's average level of taxation on each dollar of taxable income. And so this would be-- the average tax rate would equal the total tax divided by the taxable income. And so you can look at this one on your return. I think it's line 62-- I don't remember the exact lines off the 1040 right now, and I don't want to look it up.

But if you just look at the line that says "total income," and you look at the line that says "total tax," and you divide that, that becomes your effective tax rate. Here's my plea to you. Every single year, please calculate your effective tax rate. As a financial planner, I always ask people what their effective tax rate is, and nobody knows.

Number one, your effective tax rate is not your marginal tax rate, but you need to track that number. You need to track effectively what percentage of my income is being taxed. And this is a very important number because it will calculate for you the ratio of the total tax paid compared to the taxable and the non-taxable income.

And so you want to make sure that you really understand what the-- I got confused. That went on to the effective tax rate. Calculate your average tax rate, and then calculate your effective tax rate, which is the average rate of taxation on each dollar of total income. And that includes both taxable and non-taxable income.

We'll talk through that in another show, what kind of income is taxable and what kind of income is non-taxable. In essence, what you need to know is that any economic benefit that you received is basically classified as income, but there are some types of income that are specifically excluded and becomes non-taxable income.

But you want to calculate what your effective tax rate is. And this is the number that--one of the major numbers that you should be calculating each year to see, how good of a job am I doing? How good of a job is my accountant or my attorney or my financial planner doing?

You want to understand these numbers so that you can understand kind of what's working year to year, and you can see the changes in your actual situation. So that's your marginal tax rate, your effective tax rate, and your average tax rate. And I'm sorry I went through them in order.

I was looking at my notes, and I got out of order. So marginal tax rate, what additional bracket are we going into? Average tax rate is the average level of taxation on each dollar of taxable income. And then the effective tax rate is taxation on each dollar of total income.

And the most useful of those is actually going to be your effective rate followed by your marginal rate, because we can save a lot of money on those things. Then finally--or two more things. Tax rate structures. There are three basic ways that tax rates are structured. They can be structured as a proportional tax rate structure, as a progressive tax rate structure, or as a regressive tax rate structure.

So a proportional tax rate structure would be known as a flat tax. And so this would be a constant tax rate, which is applied throughout the tax base. So the best example of this would be a sales tax. If you buy $100 in Florida, if you have a 6% sales tax, if you buy $100 of goods, you will pay $6 in sales taxes.

If you buy $1,000 of goods, you'll pay a 6% of that, $60 of sales taxes. And if you buy $100,000 of goods, you'll pay--what is that? $6,000 of sales taxes. So that would be an example of a flat tax rate. That's not how the income tax system works, although there have been proposals for that.

There's a lobbying group that I think they call the Fair Tax, and basically their idea is to impose a national sales tax, and that would be a type of flat tax. But that would be a proportional tax rate structure. The second type of tax rate structure is a progressive tax rate structure.

How this one works is it imposes an increasing marginal tax rate as the tax base increases. So this would be our current federal income tax code. As your income increases, the higher you go, the higher the margin. In the past, if memory serves, it was up as high as 90% in the past.

So you got to a point where each additional dollar you earned, 90% of it went to taxes. Currently the highest marginal bracket is 39-point-something percent, 40% basically, although there is an additional Medicare tax that can be imposed. We'll take that one apart at some point in the future. Basically you can be up to about 40% or 45% if we're counting in the Medicare tax under that scenario on each additional dollar of income.

So you've got to decide at what point in time is the tax rate too high for me for it not to be worth the money to do the effort. But we currently have a progressive tax rate system. Now the third kind of tax rate would be called a regressive tax rate structure.

Under a regressive tax rate structure, now there is a decreasing marginal rate as the tax base increases. As the tax base increases, the total taxes paid increases, but the marginal rate goes down. This is pretty uncommon. The best example I know of would be the Social Security tax. If you earned $50,000 of income, then you would pay taxes on that.

Let's assume employer and employee, so let's just say 15.3%. However, if you earned $300,000 of income, the rate drops substantially because the base stops. So it's actually a regressive tax system. Not common, so that's why it's even hard to apply it, but this is a regressive tax system. Now some people would say, if you look at it through the eyes of an effective tax rate, some people would say that there are taxes that are regressive because it's based upon the effective tax rate rather than the marginal tax rate or the imposed dollar tax rate.

So, for example, something like a sales tax would be a proportional tax by definition because as the purchases increase, the rate becomes constant. But if you were to compare that to income, and you were going to compare that to somebody with a higher income had lower expenditures on taxes that imposed sales taxes, then that would be a regressive versus someone with a lower income that more of their money was exposed to things that were subject to sales taxes, then the sales tax system would actually be a regressive tax rate when viewed in that light.

So it's hard to get through. Hopefully that makes sense to you. And so the last thing is that there's really only three tax planning strategies, and everything comes down to this. It all comes down to timing, shifting, or conversion. And this is based upon income taxes is my summaries.

There are other tax strategies that can be applied to other things. So, for example, strategies for avoiding sales taxes would involve different strategies for avoiding income taxes. So our strategies for avoiding sales taxes is that in the grocery store, certain types of foods are taxed, or certain types of groceries are not taxed as sales taxes, and certain types of products are taxed as sales taxes.

So if you look, and you actually look, it's a little long convoluted thing, but I read through the law one time because I was interested to figure out what qualifies as something that is groceries versus packaged products. And we usually, most of our grocery budget, will usually buy things that are not subject to sales tax.

And you could do this intentionally, and it just has to do with the packaging, and this is state specific, but check your state. Go look at your laws and just try to see. Or a simple example would be buying something new versus something used. So if you buy a brand new washing machine from Washing Machines R Us, then you're going to be, in my state, you're going to be paying sales taxes on that.

But if you buy it on the used market on Craigslist, there's no sales taxes charged on the sale of that. And I'm not sure if that would be subject to use taxes or not, but nobody pays the use taxes. So let's just ignore that for a moment. But that would be something that would be a good example of sales tax planning strategies.

But with basically income tax planning strategies, the three strategies that are always going to be employed is timing, and so timing would be either deferring or accelerating taxable income and tax deductions. So sometimes we want to push income off. Sometimes we want to bring income forward. Traditional IRAs are usually marketed based upon deferring income.

And so you say the idea is that by deferring income from now through the future, then you will pay lower -- you'll have a lower tax base now, but in the future when you're retired, you're going to be earning less money, and so now your tax base is even lower.

So therefore it's better to recognize that income in the future. This is a timing strategy. And now the criticism that's usually brought against this strategy is you don't know what the tax rate is going to be. And so some people would say you're better off using a Roth IRA because you're going to go ahead and incur the income now under your higher tax base at the current tax rate, but down the road you won't have to recognize that income.

So we're going to bring that income forward because we think that the tax rate is going to be higher down the road. If the tax base and the tax rate under Roth IRAs and traditional IRAs are identical, if I have $100,000 of income now and $100,000 of income in retirement, and the tax rate is 15% now and the tax rate is 15% in retirement, financially they are identical from a tax perspective.

But if I know what my base is going to be or what the rates are going to be, then we can kind of figure out which is better. Now the problem is we don't usually know. We don't know what the tax base is going to be and we don't know what the tax rate is going to be.

And so you'll often find if people believe that tax rates are going to go up, then you'll often find them saying get a Roth IRA. Or if people say that the tax rates are going to go down, then we would know, get a traditional IRA. If we knew that our tax base is going to be higher in retirement because we're going to be receiving an inheritance income and trust income, maybe we would adjust that.

So it's hard to know. We're basically guessing. But we're making maybe educated guesses or we're going based upon internal biases and assumptions. Or we're going on something else. So for example, a Roth IRA is much more flexible than a traditional IRA and that may outweigh some of maybe a potential tax consequence.

Or if we're in a state that we don't have a high state income tax, let's say that we're in Florida and I don't have to worry about state income taxes, this would be different than if I were living in California and I wanted to avoid the state income tax on that money and then I would go ahead and pick it up when I moved to Florida to a state with no income taxes.

So that would be an example of timing. So either bringing income forward or pushing income back. Or sometimes we're bringing deductions forward or pushing deductions back. And this would be especially applicable in business when we're using a business entity, whether do we deduct this now or deduct it later, but it's also applicable for individuals.

The second basic technique is going to be income shifting. So can we shift income from a high-rate taxpayer to a low-rate taxpayer? So in this example, can we set up a business entity where if I want my children to benefit economically from my business, but I'm at the highest tax bracket, can I set up a business entity where my children are partial owners of the business and therefore we can get them money at a lower bracket?

And they're in a lower bracket, so therefore there's less money going to the government. Now there are lots of rules. There's kiddie tax rules we've got to look out for. There's passive activity rules and other things. But this would be a good example of income shifting. Or we could have the idea of conversion.

And so under conversion, we would basically want to be converting our income from high to low tax-rate activities. So the example here would be could I convert my high-tax-rate hobby into a low-tax-rate business? So if I'm in the business--I don't know, the one that always comes to an example is racehorses.

Owning and buying racehorses could be a hobby or it could be a business. And racehorses--horses actually have their own line in the tax code about what's considered a business and what's considered a hobby. But if I could transfer my fishing expense, my fishing hobby, where I go out every weekend and I go fishing, if I could turn that into a business, either I'm going to be a professional fishing guide or I'm going to be a tournament fisherman and this is how I'm going to earn my money, then I may be able to take that boat expense and convert it from a high-tax-rate hobby where I pay for the $50,000 or $100,000 boat with post-tax dollars into a deductible expense where I can now use the business tax code and have it be a qualified business expense.

So lots of rules governing all of these things, but conceptually all tax planning is going to come down to either a timing strategy, an income-shifting strategy, or some kind of conversion strategy. Now in the future, we're going to be going through a lot more of this information in the future, and there's going to be substantial development as time goes on of these concepts, but hopefully this sets the foundation for teaching through some of these ideas.

Here's the key with tax planning. You don't know what's applicable to you until you actually look through each of the things that could potentially be applicable to you. If you're not interested in boating, that idea is not going to work, but if you are interested in boating, that may work.

In everything, there are lots and lots of rules that have to be followed. So what is considered a qualified business expense, what is considered not, these are major things and everything has its own small little rules, but the laws exist, and if you just simply arrange your activities in such a way that you can abide within them, why not?

And there are so many things that could be done. I think tax planning is probably the most powerful tool that we as financial planners can wield, or that you as a--whether you're a financial planner, whether you're just a layperson looking at your own finances, look at your tax rates, but everything is based upon your actual situation, upon you tracking your actual numbers.

So that's it for today. I hope you've enjoyed the show. I'd love to get some feedback on it. Let me know if it was too deep, too fast, too slow. Today's show is episode 15, so the URL is radicalpersonalfinance.com/15. I would love to hear from you, and hopefully this will set a foundation for lots and lots of further planning going forward.

Subscribe on iTunes. Tell a friend about the show if you like it, please. Give me some feedback. I would love to hear any feedback that you have. And I hope that this show helps you to save some money. Disclaimer, as always, financial planning is incredibly personal, and even though I'm trying to do a good job of giving you detailed, comprehensive information, please don't do something in your situation without consulting a professional.

I have no idea how the California tax system works. I've never worked there. I don't have any clients there. I've got a basic understanding of it, but it's very different than Florida. So don't take anything that I say with Florida experience and try to apply it to another scenario.

That's it for today. Thanks for listening. Have an awesome day. Whew. Didn't know if I could do it, but I did. That's a wrap. Toyota's Black Friday deals are too good for just one day. So right now, every day is Black Friday at your Toyota dealer. Hurry in and get a low APR or a great lease on our most popular models, like the powerful Camry, sporty RAV4, tough Tacoma, rugged Tundra, and even the RAV4 Prime with its astonishing range.

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