Investing 102

[GregWeld]

You guys have no idea how big a smile this puts on my fat little face! I know now that I can leave this earth and know this thread helped a couple people live better lives. My job is complete.

[GregWeld]

So -- I was just listening to statistics for "MAY" -- and the "sell in May and go away" -- which gets lots of questions in this thread. And I normally say - pay no attention to all that kind of stuff - it's trader talk - not investor talk.

May was UP (percentage wise) more than almost any other month.... so if you sold - you blew it. LOL

[Mizzouri]

Originally Posted by GregWeld

So -- I was just listening to statistics for "MAY" -- and the "sell in May and go away" -- which gets lots of questions in this thread. And I normally say - pay no attention to all that kind of stuff - it's trader talk - not investor talk.

May was UP (percentage wise) more than almost any other month.... so if you sold - you blew it. LOL

Next week's vote on Britain exiting the EU could create another nice dip (buying opportunity) in the market. One will have to be nimble as the ECB have pledged to bolster a transition (chaos).

[GregWeld]

Originally Posted by Mizzouri

Next week's vote on Britain exiting the EU could create another nice dip (buying opportunity) in the market. One will have to be nimble as the ECB have pledged to bolster a transition (chaos).

If you've been in the market long enough - you come to understand there is ALWAYS SOMETHING coming along that's going to be the next big market disruptor. About the time you set yourself up for some event happening - that something goes the other way. LOL

[toy71camaro]

Originally Posted by GregWeld

If you've been in the market long enough - you come to understand there is ALWAYS SOMETHING coming along that's going to be the next big market disruptor. About the time you set yourself up for some event happening - that something goes the other way. LOL

Curveball!

[Vegas69]

How about a discussion on legal tax shelters?


We've all seen the publicity about the super wealthy having a low tax rate. The reason for that is that they tend to invest their money in vehicles where they can grow their money and not have a taxable event. There is realized and unrealized income every year. The more you pay the tax man, the higher your realized income was.

I've been utilizing a SEP IRA for quite some time. Any capital invested yearly reduces your taxable income by the same amount. This allows us to keep more of what we earn, thus freeing up capital for investing. I believe the maximum contribution was $53,000 last year. You will need to pay taxes on the money when you withdraw it after age 59.5. However, your tax rate may be lower at that time and you can choose to withdraw money in leaner years, thus reducing your tax burden.

If you have employees and they wish to participate, you will need to make an equal percentage contribution on their behalf. Other similar vehicles are available like a simple IRA and self employed 401k.

1031 Exchanges: A 1031 exchange is utilized when an investment property is sold, but the investor wishes to avoid capital gains. The proceeds are held by an exchange company until a like kind property is purchased. This is a snow ball strategy that could allow you to keep growing your equity position without incurring a tax bill.

Converting an investment property to a primary residence: This can be done by moving into one of your investment properties for a minimum of two years. After two years as your primary residence, you can sell the property with no capital gains utilizing the 2 out of the last 5 rule. That means a single person can take up to a gain of $250,000 with no tax event, a married couple up to $500,000.

My understanding is that you still must be levied the tax bill for the depreciation you deducted while the property was an investment.

Charitable Contributions: I'm a believer in giving to those in need. I see it as a triple win. You get to help someone that really needs it, it feels great, and you get a tax break.

What else do you guys have?

[ironworks]

A client of mine gave me this idea.

We use my daughter as a spokes model and pay her the maximum she can get paid with out state or federal taxes. 6k in California. She has to pay social security and some other expenses out of the check. Then put that money into in an IRA. She will just pay taxes on the growth in how ever many years until she is allowed to use it or we tell her about that. I have thought about doing the same thing for my good long term employees as a benefit. 100 bucks a week is not a huge deal but over 20 years is alot of money.

[ErikLS2]

Originally Posted by Vegas69

How about a discussion on legal tax shelters?


We've all seen the publicity about the super wealthy having a low tax rate. The reason for that is that they tend to invest their money in vehicles where they can grow their money and not have a taxable event. There is realized and unrealized income every year. The more you pay the tax man, the higher your realized income was.

I've been utilizing a SEP IRA for quite some time. Any capital invested yearly reduces your taxable income by the same amount. This allows us to keep more of what we earn, thus freeing up capital for investing. I believe the maximum contribution was $53,000 last year. You will need to pay taxes on the money when you withdraw it after age 59.5. However, your tax rate may be lower at that time and you can choose to withdraw money in leaner years, thus reducing your tax burden.

If you have employees and they wish to participate, you will need to make an equal percentage contribution on their behalf. Other similar vehicles are available like a simple IRA and self employed 401k.

1031 Exchanges: A 1031 exchange is utilized when an investment property is sold, but the investor wishes to avoid capital gains. The proceeds are held by an exchange company until a like kind property is purchased. This is a snow ball strategy that could allow you to keep growing your equity position without incurring a tax bill.

Converting an investment property to a primary residence: This can be done by moving into one of your investment properties for a minimum of two years. After two years as your primary residence, you can sell the property with no capital gains utilizing the 2 out of the last 5 rule. That means a single person can take up to a gain of $250,000 with no tax event, a married couple up to $500,000.

My understanding is that you still must be levied the tax bill for the depreciation you deducted while the property was an investment.

Charitable Contributions: I'm a believer in giving to those in need. I see it as a triple win. You get to help someone that really needs it, it feels great, and you get a tax break.

What else do you guys have?

All excellent ideas!! I did get bit on a 1031 exchange when I assumed that paying a hefty $100K tax bill was worse than ANY property I could buy as a replacement. Big mistake, I sold at close to market peak in 2006 and ended up of course buying in one too and lost a lot more than what my tax bill would have been. In the future, start the 1031 process but if I don't find a property I'd buy even if I wasn't in a 1031, I'll just pay the tax, which is only deferred by a 1031, not eliminated.

Originally Posted by ironworks

A client of mine gave me this idea.

We use my daughter as a spokes model and pay her the maximum she can get paid with out state or federal taxes. 6k in California. She has to pay social security and some other expenses out of the check. Then put that money into in an IRA. She will just pay taxes on the growth in how ever many years until she is allowed to use it or we tell her about that. I have thought about doing the same thing for my good long term employees as a benefit. 100 bucks a week is not a huge deal but over 20 years is alot of money.

Genius!! If you put in into a Roth IRA (while they're still around) she wouldn't pay any tax on any of it EVER!

Depreciation of rental property is one of my favorites. You get to write off an assumed decrease in value while most likely the property goes UP in value. There is some tax recaptured when you sell but still a really good deal.

Also, not really a tax break but if you buy a rental property with a CAP rate that's higher than the interest rate on the money you borrow to buy it with you are making the split between the two rates on the BORROWED money! IOTW, 4% loan on a 5% CAP rate rental property nets you a 1% return on the bank's money. That's how they make money!

[dhutton]

Originally Posted by GregWeld

You guys have no idea how big a smile this puts on my fat little face! I know now that I can leave this earth and know this thread helped a couple people live better lives. My job is complete.

I think it has helped a lot more than a few. Some more than others maybe but a lot of folks just the same. Thanks Greg!

Don

[96z28ss]

Originally Posted by GregWeld

You guys have no idea how big a smile this puts on my fat little face! I know now that I can leave this earth and know this thread helped a couple people live better lives. My job is complete.

You have helped a lot more than a couple people with this thread.
I thank you every time I look at my portfolio, and say if it wasn't for Greg it would still be in someone else hands. I would of had very little control. Now I apply what you have taught. I won't be rich tomorrow, but I hope to retire comfortably.