Aaron Young: Tax Class #1 - Tax Avoidance

Foreign.

Welcome to part one of our mini series on tax reduction. This is Ryan Daniel Moran. Welcome to Freedom Fastly. You know, I posted an angry tax rant video a couple of weeks ago that got millions of views very quickly. And while I, while I was posting that video, I was with Aaron Young, who's going to be our guest today. And what was interesting is within a first, the first few hours of that video going viral, somebody said, you've got to have a conversation with Aaron Young. Which is interesting because I was with him when he posted it. I brought Aaron on to talk about legal ways to reduce taxes. And I also wanted him to talk about the dirty side of this. You know, we hear a lot about tax loopholes and tax havens. Are they a good thing? Are they a bad thing? Where is the line between the two? Which ones are legitimate, which ones aren't legitimate? Now Aaron knows what it looks like to have the government come knocking on his door. He served 14 months in prison for something that he didn't even do. So Aaron is a little bit more risk averse when it comes to dealing with some things that might be loopholes or kind of shady. So I thought he would be the absolute perfect medium to talk about the idea of we want to reduce taxes. Obviously, we don't want to go to prison. So where are the legitimate and legal good ways to reduce our tax burdens that everyday entrepreneurs can use? And we go through the full gamut in this class. We talk about deductions you can take on the simple side of things all the way to starting foundations and what the benefits and negatives are to being offshore. You know, I think you'll find him very middle of the road in terms of fairness and in terms of what our responsibility is, while also having a responsibility of reducing unnecessary burden because we don't want to pay more tax than we owe, no matter what Bernie Sanders says. So you will really enjoy this chat with Aaron Young if you have ever felt pain while writing that tax check. So enjoy today's show. Hey, fastlaners, this is Ryan Daniel Moran. Welcome to Freedom Fastlane. Today I'm joined by Aaron Young. Aaron is the CEO of, of Laughlin Associates. He's worked with countless entrepreneurs on structure and setup in order to properly reduce taxes. He has a fascinating story and today we're going to talk about how we can defer and avoid taxes legally in ways that are cool and ethical and don't have the IRS knocking at your door. So, Aaron, thanks for hanging out with us at Freedom Fast Lane.

Yeah, it's great to be here with you, Ryan. Thanks for having me on.

So we had kind of an interesting experience because while we're recording this, we're kind of on the tail end of one of my tax rant videos going fairly viral. And right at the beginning of its virality, somebody said, this guy needs Aaron Young. And what he didn't know is he and I were standing right next to each other when that happened. So that was a pretty cool experience. I thought.

It was sort of a strangely small world because that video that you had done on April 15 was blowing up at the time I first saw it at, like, 47,000 views. And while we sat together at dinner, it was climbing up into the hundreds of thousands and ended up, I don't know, way over a million views. What was amazing was that, as you said, one of it wasn't even a guy that I was sure who it was, but he said. He said, boy, Ryan needs to get. If he's paying that much tax, he needs to get another CPA and talk to Aaron about how he can structure himself to pay less tax. It's a funny small world, but the fact is there aren't that many people on a national or international scale that are talking openly about things. You can get a CPA or you can go to some kind of clandestine cruise in international waters to hear some crazy stuff, but there's so much you can do.

That'S probably stuff you don't know to do. Things that can give you a huge advantage, hold on to lots of money, and they're still absolutely within the scope of the law. So, yeah, it's funny that we got that introduction while we were standing together.

Yeah. We were literally sitting next to each other at dinner when that happened, which is fun. So I want to address something, Aaron, and I have my opinion on this, but I'd like for you to speak to this. At the time of this recording, we're just on the other side of tax day. A lot of the comments on the video that I shared were, you greedy, immoral entrepreneur who doesn't want to pay taxes while the rest of us suffer, and we're on the other end of the Panama Papers, which a lot of people are up in arms about. And I want your opinion of, is it even ethical? Is it moral to create structures that reduce your taxes? Is it even ethical to think about, how do I reduce my burden to the irs?

So, you know, it's almost an ironic question that you would ask about morality or, you know, is it righteous to do this. What's righteous is to follow the law, to follow the rules. And so if somebody out there doesn't want to take the time to know what the rules are, they don't want to take the time to, like, you know, if you're. It's your responsibility to be healthy, right? It's your responsibility if you're going to exercise or eat, right? You only go to the doctor. You go to the surgeon when it's a cataclysmic situation. But the rest of time, it's your responsibility to be wise about your health. Likewise, it's your responsibility to be wise about your financial health. But most people are so freaking lazy that they don't. They just. They just take all of their information from sound bites on tv. And if they're not successful, they want to gripe about somebody who is. So there's nothing immoral or moral about following the rules. They're just facts that exist. And if we take the time to understand them and apply them in our situation, we will get the greatest benefit. So screw the people that say it's immoral and tell them to get off their lazy butts and go do something to make their situation better. Boy, did that get on a rant. I all of a sudden felt like.

You don't have an opinion on this at all.

No, I'm not opinionated.

So there is this fine line in my brain that I'd like for you to speak to where I. I tend to be a. Somebody who would prefer the government to stay out of things. So naturally, I want to give them as little of what I've earned as possible. But at the same time, I don't want to go to their federal prisons. So where is the balance here of aggressiveness plus creativity in combination with staying on the right side of I, you know, want to keep my freedom?

So, okay, first of all, remember this. You go to jail for tax evasion. So if you're lying to the government about the money that you made, and particularly when you lie on your tax return, which at the very end, no matter if you don't understand how your tax return works, you give all your documents, all your checkbooks and statements and 1099s to your CPA, and they do it right, and then you just sign it and pay a check if you need to, the government really couldn't care less that you used the cpa. They don't care what you charged or, I'm sorry, what you paid to get your taxes done. They couldn't care less your name is the one that's at the bottom of the return. And the government says if you lie to us then you go to jail for up to five years. So the real, the first trick is just don't lie. Right, don't lie. So if you don't lie, you'll stay out of jail. Now into a more practical standpoint as far as how to reduce what you have to pay, it's a couple of things. One is the closer you are to a W2 employee and that's all you have that you know as far as the way you can be taxed if you're just working a job and they're taking taxes out, your tax return will be really simple. And most of the things you buy in your life will be after tax purchases. If you start a corporation, there's a guy named Sandy Botkin who wrote a book called.

Well, okay, it escapes me. It's like Tax deductions for dummies. But Sandy says you have to be brain dead not to own a business. Even if it was a small multi level marketing business. Because something that's super, super easy to get into and low cost.

If you have a business all of a sudden a lot of things that you use every day become tax deductions. And so if you want to start getting aggressive, first you set up a business, take whatever deductions you can there. Then maybe you start looking at what kind of businesses are getting special tax treatment every year. The government on IRS.gov they post the things where there's tax credits or other kinds of tax advantaged industries to be in so you can, you could actually go get into that sort of a business. If you do some real estate speculation you ought to get set up and a real estate investor because it gives you a whole ton of other tax deductions that you can take that you wouldn't otherwise be able to take. For instance, I just went on a trip to Mexico. I'm set up as a real estate investor with the IRS because I do enough business every few years to justify it. And my whole trip to Mexico while my wife was taking art classes, I was looking at real estate and making offers on property. So much of that trip now is a write off rather than just being a nice vacation.

What does that, what does that mean to be seen as a real estate investor by the irs? I mean I have a portfolio of real estate. But to be officially classified as a real estate investor, that, I mean that sounds like somebody officially knights you as a podcaster or as a good looking person. It seems very arbitrary. So what does that exactly mean?

Those are experiences, I guess you've already had then. So the.

Every year the rules change slightly, but it has to do with how much, how much money are you making by buying and selling real estate or how much passive income do you have from holding real estate. It says you're a real estate. The actual designation is real estate professional, which I at first sort of scoffed at because I thought you had to be like a real estate agent do that. But real estate professional just means that whatever this year's number is for the government, if you meet that, that threshold of I'm making this much money in real estate, then they designate you as a real estate professional. As a real estate professional, there are a number of deductions you can take that aren't available to somebody who has like one rental house and you know, or kind of very, very.

Is involved in a very small way. But if you're actively doing stuff, it's pretty easy to be defined by the government under their law or not laws, but their rules as a real estate professional. And when you do that, then if you just pay attention to things you're doing every day or trips you're going on or, you know, you look at things that are supposed to be, you're thinking, oh, that'll be a fun trip to go on. I did this in Spain a few years ago. It was actually the first time I ever understood this was my CPA knew I was going to Spain and Morocco for a couple of weeks and she reminded me, hey, remember, you're a real estate professional. So if you go out and are looking at properties and maybe even coming back with ideas of how to buy property or you're looking to fund some deals, you'll be able to write your trip off.

This loop that we're in. Right. Ryan was you said, what are some ways that we can be creative and be aggressive without breaking the law? So there's a way, and a lot of it has to do with having a great cpa that you're going to end up paying more money than if you pay your uncle to do your taxes. But that person will get out in full of things that you're doing and tell you how if you do it like this specifically, you'll be able to deduct the expense.

So it sounds like the real estate professional status almost makes your real estate investment practice a business so you get the same write offs that you would in a business. Plus I know there's the depreciation write off that you can scale unlimited if you have that status. Are those the types of extra write offs that you're talking about?

Well, those are, those are good write offs. What I'm talking about specifically, since the question was how do we get creative, how do we get aggressive but not get in trouble? I was saying when you start to think about there are certain things the government will let someone who's designated, like let's say real estate professional, they'll let them take deductions where other people wouldn't be able to deduct it. A trip to Spain would not be considered a business expense when you're, you know, going and seeing all the museums and seeing all the sites. But if you are designated as a professional and you go and spend a portion of the trip, everywhere you go, you're popping into the real estate offices, you're asking about the climate, you're getting a report, you're grabbing some flyers, all of a sudden your trip is a write off. And that's thousands and thousands of dollars that would have been after tax that become pre tax. And as you start to make more money, you're constantly looking for what are things that I can be doing as business expense so I don't have to take as much money and get creamed so hard on my personal taxes. Your tax rate on that video you talked about the top tax rate, business rates are actually higher than corporate rates are higher than individual rates.

If you're planning, much of it can be depreciated. Your situation. I really do, and we won't do it on this podcast, but I really do have some ideas for you how you might not run into the same situation next year.

Well, you're welcome to do that here. That might be interesting to talk about or at least interesting for me to hear about, but let's keep this rolling. So I mean, I obviously get the idea of maximizing your write offs and deductions as a business. I think everybody should have a business, even if it's a tiny little business, because it all of a sudden gives them write offs. It's one of the reasons why I'm usually in favor of people on paper quitting their job and then getting rehired as a contract employee, if that makes sense. Because now all of a sudden the equipment that you use for work and the vehicles you use for work all of a sudden can fall into that category of possibly being business expenses. But apart from deductions, is there anything that can be done? I mean, we hear about tax loopholes for the rich Which I think is overblown. But we are on the other side of Panama Papers. We are kind of in a controversial time when some people want to flat tax, other people want to raise taxes. This term of fair share gets thrown around.

Are those loopholes real? And if so, like, the first thing comes up for me is where the hell are those loopholes? Because I want them. But, but it more seems to me that it's the real loopholes are just smart planning. Would you speak to that?

Yeah. So loopholes. I don't, I don't know that there are loopholes, but there are certainly things that exist, like let's say foundations. Most workaday people are never going to set up a family foundation that's going to be funded with.

There's ways to make charitable donations and in planned giving programs where you put a bunch of money into something, you take a big tax deduction. After so many years, that money can flow somewhere like into a trust or into a foundation. Once the foundation is funded, then this is what, for instance, what the Kennedys and the Rothschilds and the Vanderbilts still are all doing these things. The money gets into a foundation. Once it's in the foundation and it's protected and it's sort of tax exempt, they're able to take money and loan money to the great grandchild of the person who funded the whole thing and they can go buy a house and then they can pay it back and that puts some interest back into the foundation and they can hire their kids and they're doing all this stuff with money that's growing in a tax free situation. And as long as they keep giving a certain amount out to charitable causes, the foundation is sort of like this.

Protected little island, kind of like Monaco, you know, is this little, this little dinky country that's got all these special rules associated with it. The foundations become huge loopholes, you might call it. If you're looking at it from the perspective of somebody who's working for 25 bucks an hour and they have no way they'll ever get there. The real idea, I believe is one, wealthy people have a tremendous influence on government leaders. And two, government leaders end up getting rich, right?

You look at what people who didn't have much money, like the governor of Arkansas, right, who then goes in and is president, his wife's working as a lawyer at a law firm. He's never really made any money. And then they come out of the White House into a big beautiful multimillion dollar estate and they start to do things and there's all of a sudden money there. Loopholes for the wealthy. When President Obama and Mitt Romney both had to do their financial disclosures when they were the nominees last presidential cycle, where was almost all of their money for both of them, not just Romney, almost all of the money was in Cayman Islands. Why? Because there's tax advantages, not tax evasion, tax advantages and protection for the money it's hard to get at through the US court system. And so wealthy people have learned to use the laws of this land and other countries to appropriately use or move their money around and have it at play around the world. People who are just trying to barely get wealthy, they have a little bit of money, they get conned into bogus opportunities by kind of scammy guys who will get them to do things where they're cheating on their taxes. And when you cheat, you open up a huge problem. I thought the Panama Papers were interesting because.

You had all these reporters putting all this pressure on these banks and one bank in particular. And it was fascinating to me that so little of.

The names that came out of it were US names.

That doesn't mean that US people aren't using these countries. But it's interesting to know that if you're not a US citizen and if you're looking at the world of tax havens, the most aggressive, largest tax haven in the world is the United States of America. And if you're not a US citizen, you can come in here and you can grow money like crazy and not pay any taxes on it. And so it's a little disingenuous when the IRS decides to go after its own city. You know, the US citizens who are trying to use some kind of a small structure and you know, who knows where when we're protecting people from all over the world who are keeping their money here. There's, you know, there are reasons why we had billions, over a hundred billion dollars to give back to Iran because Persia.

The King of Persia had been using the United States as a tax haven for years from his country. And lots of people do it. So, so I want to, I want.

To unpack this, Aaron, because.

Yeah, good, you said a lot in.

The last three and a half minutes or so. And I'm chomping at the bit here. So first we talked about foundations which the way that you described them basically sounded like almost as if you were setting up a non profit under your own name where as long as you were making a certain amount of, of donations to charitable causes every year that that would give you an avenue to basically store money that could be invested at your discretion and that could grow tax free, almost like a separate ira. But you would have to give a certain percentage to certain charitable causes. That's how I interpret it. Am I accurate?

Yeah, I think you, I think you got that very, very close to right on. Right. I mean, there's a foundation can work very much like a nonprofit public charity.

Except for the people inside the foundation typically have additional interests. You know, Bill and Melinda Gates, you know, that's a foundation, it's incredibly well capitalized. They're doing all this good work out there in the world, but they will be able to do a tremendous number of things that are sort of positive for their family or for things that personally matter to them that you wouldn't really be able to do in a typical 501.

Public charity. And some of those things were the things that you just described. Kind of repeating back what I said, you have tremendous control over what happens with the money. Whereas in a typical nonprofit, what I would call a public charity, like the.

American Lung Society or the Red Cross or the NFL.

These are designed to deal with a very specific purpose. They have oversight that if they don't do what they're supposed to do, that they can have their nonprofit status taken away. Whereas a private foundation can go after all kinds of different things that matter to it as long as they're following the tax rules. Basically, the IRS works a little bit like the mafia.

As long as you're doing everything that they want you to do, they'll protect you from everybody else.

I've got an interesting question that I can't help but think of this because I know, for example, the Tony Robbins foundation is there to feed a bunch of. Feed millions of hungry families, great cause. But I also know that that foundation takes donations. And when I make a donation or someone makes a donation to one of those foundations with the understanding that it's going to go to certain cause, does that mean that there's flexibility for the owner of the foundation to use their own discretion for how that money might be made personally as a longtime investment? And I'm not arguing that that's what happens. I'm just. That objection comes up in my brain. Can that kind of stuff happen?

Well, I. So most of these foundations are not designed to take in money for a cause and then rather than support the cause, support the founder. But there's no getting around the fact that as the leader, if you're a well funded foundation or a well funded charity, that the leader can make a lot of money running it and promoting and being the main rainmaker to pull the money in. And that's why you saw with all the shakeup of the NFL a few months ago, that the.

What do you call the guy that runs the NFL?

The chairman.

The chairman, yeah. There's a different name that I'm trying to come up with, but the commissioner. The commissioner. Commissioner, yeah, the commissioner of the NFL was making a tremendous salary. And when it. When it kind of was all of a sudden put made public in the press, in the news that it was a nonprofit, you know, not paying any taxes, people kind of freaked out a little bit. So in that case, you have a leader who's taking a lot of money. In the case of a private foundation, you can not only make a good salary for running the foundation, but you can do things for your family and do things for, you know, people around you that you want to do. You can get hired by and paid by and basically live forever off the foundation.

Okay, got. I didn't realize that there was a difference between a public and a private foundation. So that, that helps. I don't think anybody here, hopefully nobody who's listening, is gonna go out and take, you know, donations through a public foundation and then do something immoral with it or use it for their own selfish gain. But what you're saying is if you have one of these private or.

Family based foundations, you could pay yourself a salary, you could make investments, you could give to causes, and that's one of the structures that you can use. That's really interesting.

Do you know what the percentage is or what the minimum contribution is to causes in order to qualify for that? And do you know how much flexibility there is over what. What constitutes what would contribute to that overall percentage?

Well, I don't know. I don't know if there's a specific percentage. The rules in the IRS code around foundation says the primary objective of the foundation needs to be the charitable work. And so I guess as long as it's. There may be a specific number, but I don't know it off the top of my head. I know that the reason for its existence has to be the charitable work. And you've got to be able to demonstrate that you're doing that charitable work. But I don't know if there's a percentage of donations, let's say. Remember the other part of this though, is a lot of it's not donations. A lot of it is wealthy people funding it themselves, taking tax deductions to put into the foundation, so they make a lot of money. They make a deduction into the foundation, which is a tax deduction for them. And then once the money is in there, there's ways of doing things inside of there that you can, you can have huge events, you could, you can have, you can take trips, you can go participate in international conferences, you can hire your kids, you can make loans, you can do all these things out of the foundation that was funded by basically pre tax money. Right?

You're putting something into, instead of it being after tax money that you're putting into a savings account, you're taking money, taking a huge deduction for putting it into something you still control and then controlling it to accomplish other things you want to do in a tax advantaged way.

At what point is someone wealthy enough to where something like that makes sense? I'm sure it's not as easy to set up as an llc and I'm sure that it probably opens you up to audits and special attention, if you will. So at what point does it make sense for someone to consider something like that?

I think if somebody's got a million dollars, you know, they sell their home, they're going to downsize. You know, you're in Southern California, you sell your house, you've got a bunch of equity. You know, you can set up a nice little foundation for a million dollars and you'll start to, especially if you don't start tapping too much of it yet and you're only using the interest on it, you could start doing it and you could start getting some of the advantages inside of it. And I think if you, a lot of people, I see a lot of people set up foundations at about the five million dollar level. And at five million dollars, it can start getting, you know, kind of creative. You've got enough money, enough interest coming off, you can hire an appropriate person to really run it because it's big enough. Even if that's you.

If you're a million dollar foundation, it can't really afford to have any staff. But if it's $5 million all of a sudden, you could get paid to do that job.

A lot of it's going to have to do with how much interest is it throwing off and what is, you know, how much is it trying to give away versus how much of it is trying to maintain its own life.

That's really interesting. Now the other big piece that you kind of dropped on us was, I had no idea that when in the last election cycle that there, that the majority of the money Was. Was in the Cayman Islands. We hear a lot about that. I mean, offshore banking and offshore loopholes are kind of a term that's thrown around a lot. So when it comes to the law and what the, the facts are, what is the process and. Or what can you actually do when it comes to utilizing the benefits that come from Puerto Rico or the Cayman Islands or Panama or Monaco or these other places, how does that process work? Does it. Which parts are legal, which parts are not, and what are the benefits and challenges there?

Well, okay, first of all, only because you just said it, I want to make a clarification. Puerto Rico is not what you would consider a tax haven. However, Puerto Rico right now has a tremendous benefit for people who want to open a business there. I think they. I think they've got a cap at 3% corporate tax, I've heard. So there are.

So.

Yeah, yeah, yeah. So there are people that are going to Puerto Rico, which is really part of the United States, because they need to stimulate growth there. And so the government is giving them a tax, you know, I won't say a holiday, but a significant tax incentive to do something via Puerto Rico. So there's that. Here's the main thing about these little islands and all these tax havens. Or for the most part, the tax haven countries are little dinky countries with not a lot else going for them. A lot of them were British protectorates. They were part of the British Empire. And as England needed to start letting go of their kind of being the nanny state for these little countries and that had a lot of poverty and needed a lot of help, England said, I'll tell you what, you can still be part of the Commonwealth, but now you're free to do what you want to do. And if you want to be a tax haven, kind of like Switzerland, then that's fine, and we'll still protect you with our army. And that's a way for you to make money on this little, you know, steamy little island. And so you see places like, like Cayman and Barbados and Nevis and places like that in the Caribbean. Also what they call the Channel Islands, Jersey, Guernsey and Sark, which are right up against the French mainland. But they're part of England or part of the Commonwealth, and they're all tax havens. Lichtenstein or not Liechtenstein. Isle of man is another British Commonwealth. Little Rock in the middle of the Irish Sea. That is a tax haven country. So what happens is people go there who are doing international business. They set up a company in one of these jurisdictions and they're able to do business around the world, and the money comes back to the mother ship there on that island. And.

Whatever money could legally come back there is at zero or incredibly low taxes. The problem with Americans doing this is that Americans are taxed on their worldwide income. That's an unusual concept for almost every other country. Almost no other country besides the US Is taxed on worldwide income, but US Citizens are. So the problem with American citizens going to try to do business from around the world and pull it back to a tax haven country is that you're still going to have to pay Caesar, you know, back here in the United States.

The other thing about tax saving countries is they're private. And so the privacy will lead some people who go into it justifying that they're going to do everything by the book. But the privacy can sometimes let the worst part of us come out. And you can cheat. You can get money that nobody knows you have out there and spend it and never have it reported to the government. That's why the IRS is so aggressively going after people who are using tax havens to see if they're cheating.

Would you help me understand the difference between, like, what is cheating in that context? Because the way that I'm understanding it is I understand what constitutes one of these, one of these tax havens. I know why they exist. My understanding is that the IRS gets their money anyway if you're a US Citizen. But if you keep it there, then it has some benefits of just staying in that country. So what, what exactly would be considered, you know, non kosher in that type of a haven?

So a lot of those tax haven countries, if you moved money out there, let's say you moved money out there appropriately to after tax.

As a US Citizen, you have it in offshore tax haven, and then you make some investments in the name of your international business company, and the money grows. You know, you just hit the lottery somehow. Now you've got money out there, but there's nobody reporting that income to the United States. And a lot of US People will not report it to the United States because they, you know, they're mad at the government or whatever. So now there's money there. Then they get a debit card from their bank, and the debit card doesn't even have their name on it. It's just a debit card with a pin. And they start using that to go to Target and go to, you know, to buy some new shoes at Nordstrom's or something, or buying heavy equipment or buying a House or doing whatever, and they do it all under this veil of secrecy.

That's cheating. Okay, that's cheating. Something that could be appropriate would be because you're worried about lawsuits in the United States would be to take some after tax money. I knew a guy who did this exact thing. I'll describe. He took after tax money. He was in a highly litigious industry. It was workman's compensation. He was making a lot of money in the workman's comp industry. He had all this cash. And so a legal way to move money to safety in one of these countries would be to with after tax money buy like an offshore self insurance policy. And the only individual that could draw on the insurance policy would be the person who bought it. So no third party person could ever draw it down. So that would be a legal way to move the money out there just to get it out of harm's way. But as soon as you start wanting to spend any growth that happens on that money, then you need to be reporting it.

So forgive my, forgive me for being dense, Aaron.

Forgive me for being obtuse.

So it sounds to me the way I'm interpreting what you're saying is that if you were to take after tax money and put it into a business or an investment in the Cayman Islands and that money were to grow as capital gains, or if you started a business, it started to shoot off profits and you don't report on that money, you don't pay us tax on that money. That, that would be cheating. That would be illegal. If that's the case, and tell me if I'm wrong, but if that's the case, what in the world would be the advantage of keeping money there in the first place?

Sure, it's not that the company can't make money and it's not that the government gets paid on all that. What they get paid on is your income. So if you have a business in another country and you're getting paid but you don't report it, that's tax evasion.

So if you're taking a salary from that business or from those investments and you're not reporting that, that would be cheating because you're just avoiding your. What, what is really your responsibility to pay. But if that business has profits and that business, those business profits stay on that island, those are taxed according to the rules and rules and regulations of that country and island, correct?

That's exactly right.

Okay, so let's pretend.

So why do people do it? Is that what you're asking?

Well, My next question is, how the heck do I do that? So let's pretend we're not recording here and say, I mean, I have profitable businesses, I live in the United States. Is it possible to shift a profitable business location to one of those havens, or does it need to start there and have the owner or employees visit there so many days a year? What are the actual rules for taking advantage of those havens?

So every country has their own rules, and the United States says too, there's no getting around paying the IRS for your personal income. All right, so there's no getting around that. But the business, if it was truly being run from that country.

That business could grow in a tax exempt way. Just like the United States is a big tax haven for non US Citizens, other countries are tax havens for people that are not part of their country like U.S. citizens. And you can grow with incredible tax benefits out there. The challenge is always, what if I want to start spending the money? And if you want to start spending the money for personal stuff, you want to go buy birthday presents or something, or food, then that's it's going to be taxed. But if you're trying to play a bigger game and you're trying to accrue a whole bunch of money, there are sometimes advantages to doing it, at least having international companies or trusts as part of your planning. But just like you're seeing in the news right now, all these large companies are trying to get all of this money that is being held offshore back into the United States by these domestic companies who are doing just on a massive scale what we're talking about right now. They're moving money out, they're growing it out there, and they're not subject to U.S. tax. But the Americans are saying, can't we get you guys to come back? And these companies are saying no, because you're going to take 30% of the money that we got out here, which we don't have to do right now. So what's our incentive to come back? The idea here is what we want to do as individuals is follow the trends that we're seeing happening with the big companies, because our small companies can have the same benefits and have the same stumbling blocks as these big companies do. So.

There isn't a simple way. There's sneaky ways that are simple. There's complex ways that are legal. And the complex ways can give you tremendous advantage over almost everybody that you're walking around next to in your life. But they're not. They're not going to be too good to be true.

So here's how, here's the context in which I'm thinking about what, what you're saying, because in my now semi famous tax rant video, I say that, you know, in that business that I'm referring to in that video where we had this inventory and we had some cash flow issues and we were okay, but I take a very modest salary from that. The, the entire play is to roll all of our profits back into the business, back into more inventory, back into more people. And even though I, at the end of the year hadn't taken that much from the business, I got hit with the, the big tax bill because of the structuring. What I'm hearing you say is if that business had been based elsewhere, if it had been based in the Cayman Islands, I obviously am going to pay my taxes on what I owe for my own personal salary. But the money that I had to pull out of the business in order to pay tax, I could have left in the business in order to continue to reinvest. So when I say, what could I buy with this 170,000, hire more people, I literally could have done that had the entity been based there. Am I understanding correctly?

Conceptually, that's correct, yes. There's always a deeper dive, but yes, conceptually that's true. But let me tell you something else. There's a reason why.

Barnes and Noble and.

Amazon and Tesla and all kinds of Visa, there's a reason all of those companies keep inventory, massive amounts of inventory in Nevada, because in Nevada you're not taxed on your rolling inventory. And so there's advantages for the situation that as I heard you describe it, where you had all this stuff in inventory, you would have maybe still paid the irs, but you wouldn't have paid California.

I see, okay.

And so there are, there are rules here. They don't make it all go away, but they do make it less painful. And that's, you know, different states, even in the United States offer that. There's advantages for oil related things that have been passed now, laws that have been passed in North Dakota, there's unbelievable homestead exemptions in Texas and Florida. That's why O.J. simpson, when he got exonerated in the murder trial, but he was getting ready to go into the civil trial, he put all of his money, everything he had into this mega mansion in Florida because nobody could take it away from him there. There's all kinds of interesting little things, state to state, that are laws that have been created to draw your money to their state for some reason. And so just like these little tax haven countries, there's stuff in the United States. Colorado's got some very interesting private banking laws. And those are, you know, a private bank is another cool way to control money and have different rules than a regular business.

So I want to, I want to go there next. But first, the majority of people who listen to Freedom Fast Lane are involved in some sort of Internet business that can technically be run from anywhere and they don't have to have a physical location, although some do, including myself. So if it had a completely virtual company, would starting in one of those.

Island tax havens make sense to do? Assuming it's a virtual company, I think.

For somebody who's what I would call relatively small, you know, you're not a 50 or 100 million dollar company.

I would not go to the tax haven countries because I think that your potential liability, the government is constantly looking at those small companies that are doing something internationally, particularly what we would call offshore.

So your, your risk probably outweighs the reward. But a ton of online companies go to states like Wyoming or Nevada because at least there's no state income tax. There's complete protection for shareholders and officers and directors. You can't, in Nevada, you can't even lose your shares like you can in the other 49 states. If somebody sues you and wins, they can't take your company away from you.

What is the risk? Because the way that I interpret what you said, that as long as it's done legitimately and legally and you're paying your personal tax, you can be fine. So what would, what is the risk if you're set up correctly in one.

Of those havens, if you're, if you're doing more than holding money, like keeping it in savings or in passive incomes, you're actually doing business. This happened recently. Well, a couple years ago now in the online poker industry. There were three major online poker companies all owned by US Citizens. Two of them were in offshore tax havens. One of them was in the United States. The government just came after them, the offshore ones, they came after them hard and came after their clients and basically took away the incentive for anybody to want to work with them. And the only one that survived of the three big online poker companies was the one in the United States.

It's not that anybody's necessarily doing anything wrong. It's that the government doesn't want you to do it. And since they have a huge budget and they have investigators and they have guns in prisons, and anything that says the United States of America versus Ryan Moran just doesn't look good for you.

That's really what they do. It's more by inference and by creating a living hell for you than it is because you did anything wrong.

This is true, Ryan, you probably don't know this. It's basically impossible for a US Citizen to have a stock brokerage account in Canada. Almost all of the precious metal plays, gold and silver and platinum and so on, are done in the Canadian. The Vancouver, British Columbia Stock Exchange. Okay? Almost everybody that's deeply involved in mining is in the. Is in the exchange up there. Canada. The United States says you can have an account up there, no problem. Canada says you cannot, as you can as anywhere else, but not as an American. But guess what? It's not that they don't want the Americans as clients. It's that the government went to them and said, if you do this, we'll shut down your banking in the United States. So what do they say? Okay, cool. We won't do it. We won't let Americans play up here in our soccer pitch. So this isn't. This isn't even me trying to be a conspiracy theorist. This is just me saying the United States government has tremendous clout all over the world, and we're the largest economy. Everybody needs to play in the sandbox. And so what happens is, if anybody. This goes back to the Panama Papers issue. If the government gets uptight enough about it, they will put pressure. If they can't make the pressure come through the International Monetary Fund, if they can't make it come through pressuring an individual bank, they'll do it through embarrassing a lot of people and putting tremendous pressure on those little companies to where the companies say, screw it, I'll just, I'll give this up. It's not worth it anymore.

So in other words, you could open up a business in the Cayman Islands and you could have the money stay there, pay tax on your salary that you take from that business. But you open yourselves up to a lot of government pressure by doing so, and that trade off, in your opinion, isn't always worth it.

Yeah, I think if you were going to go to Cayman Islands with your money and open up some kind of a tourism business, and you're going to be operating a business there, that's one thing. But if you're sitting in Southern California and you're selling all your online trainings or your supplements or your Frisbees or whatever it is you're selling online all through a Cayman company and the money's all staying there, and you're only repatriating a small portion of it as a salary.

The government will, once it's discovered, they will at least dig into it, which will cost you a lot of money to deal with their looking into it. And at the worst, they'll allege that you're not paying your full, fair share of taxes and you end up in a criminal battle. I know about that because I've been through that. And it wasn't even about me. It was about somebody that we'd been referring business to. They never came after my company, but they came after me saying that I knew or should have known what the other guy was doing.

I spent $2,000,000 fighting that suit. This is public knowledge. I spent $2 million fighting that suit and ended up doing a plea bargain because I ran out of money to fight. And I went to prison for 14 months. And I never had any restitution. There was no fraud. They didn't have any problem with my personal tax returns or my company. They said I knew or should have known what somebody else was doing. That was enough for me to go to prison.

My goodness. I'm sorry that happened to you.

Me, too.

How long ago was that, Aaron?

That was 10 years ago, actually. You know what? We're coming up on it. It was 5-15-06 that I reported.

Wow. Okay. So my next question, naturally, is then, what the hell were Mitt Romney and Barack Obama doing keeping their money in the Cayman Islands?

They're holding their money there. They're holding it.

Help me understand the difference.

It's like the difference between putting it into a savings account and putting it into an operating business. And so if you've got a lot of money, you want to get it away from a litigious US court system. We have 94% of the world's litigation in the United States. And if you're high profile, like a Barack Obama or a Mitt Romney, people are constantly throwing darts at you. And so by moving money away.

To not only a tax haven, but it's safe from US Litigation by moving money over there, they can hold it in any number of different kinds of structures, and it's just safer. So it's the thing that most people. Ryan, I'm just going to teach this quick little principle that I've learned from many years of running companies, having companies in Europe, in Canada, doing business all over the world. Most US People, understandably, are focused on, I'm paying too much tax. It's not fair. How much tax I'm paying or it's not fair how little somebody else is paying.

Paying.

This is a national conversation and people gripe about it. But what I've learned, and as I've observed, people that I've known, as I've observed some of my clients, as I've observed my own experience.

Taxes are just nothing more than tolls on a toll road. If you're doing business, you know, if you're driving from point A to point B and there's a toll road, you're going to pay that three bucks every day to be able to drive. And.

If you skip it, then that's called evasion. That's tax evasion. You can get a ticket for it, right?

So paying taxes, once you learn the rules and you get the very best tax treatment you possibly can, which I promise you is probably dramatically better than you are getting right now, if you learn that, that's one thing and it's just a cost of doing business. Whereas litigation, especially a federal case or especially a criminal case, but any kind of litigation, it shows up in your life almost out of nowhere, and it's like a meteor hitting the earth. It just changes the entire landscape. And so it's much more valuable, in my opinion, to avoid litigation than it is to be overly concerned about your taxes. The thing to do on taxes is find out. You know, everybody gripes about how gigantic the tax code is, but for people like you, for people like me, for people like a lot of the people listening in, that huge, giant pile of regulations and rules is there's just all kinds of gold nuggets that if you know they're in there, they'll benefit you. If you ignore it, you're going to pay the highest amount of tax that your CPA is comfortable with you paying. But if you get somebody who's really awesome to help you, you will end up finding all kinds of value, even value you don't even know exists right now in the code. There's a reason why huge corporations and wealthy individuals buy politicians.

So.

Notwithstanding of that final comment, because that could take us down another different rabbit hole. But the. You're basically saying that the two presidential candidates who had their holdings in the Cayman were not necessarily doing so from a tax perspective as much as it was from a litigation perspective. So they may not have been using it for the haven of not paying tax. They were using it from the haven of avoiding being sued because they're a public figure.

Yes, and I'll go one step further without getting too convoluted if you go to Cayman island on vacation and you start looking at what kind of companies are set up there, Cayman island is full of hundreds and hundreds and hundreds of insurance companies that are owned by wealthy people. And it's possible, and I don't know this, this is complete conjecture. It's possible that sort of like a foundation, that these wealthy individuals, including those two that we talked about, could have their money in a captive insurance company which provides other tax advantages, advantage ways of deploying money. That's a whole other conversation on.

Captive insurance companies.

The whole reason is keep it safe and keep it usable in the most safe way possible.

You wanted to talk about private banking and I cut you off. So I want to bring the conversation back there.

Oh, well, just in short, like a captive insurance company, an insurance company that you control that is getting premiums from you or companies that you own, and lots of lots and lots and lots of companies use captive insurance. Probably your cellular phone insurance is a captive insurance company in some island country.

But you can also form a bank. Now, there are a lot of people who try to tell you can do it really cheap or they give you misinformation about it. But as you get a little wealthier, you can set up a bank charter that's used only for private banking. There's no certificates of deposit or anything. It's basically just a checking account kind of a bank. Money in, money out. But it gets you access. Just like the real estate professional gives you certain benefits, banking has certain benefits as well. So these are just all things to dig into. Just if people that are listening to this will just Google some of these things, they will start to say what might apply to them. Or as I always talk about, you want to begin with the end in mind and say, here's where I'm headed. What would be the perfect scenario for me when I get there? So maybe I should find out what that is and reverse engineer how I'm going to grow this company, how I'm going to grow this charity, how I'm going to grow this real estate investment empire. What am I going to do? What's the right way to be set up for the big benefits down the road? Let me start learning about that now.

Now I want to conclude by asking a question that this, this, this is a problem for me.

Okay.

How do you actually find good qualified people who can handle all this for you? And at what point is there diminishing returns? Yeah, it seems like the really good people are hard to find, inexpensive and it almost Just makes more sense to keep it really simple. So how do you find the right advisor who can, who can stay ahead of the curve for you?

I think if you're really serious about doing some of these things, rather than going to some guru at a seminar who will say, here, I'll show you exactly how to set up a captive insurance company.

Because people say, oh, I could pay $2,000, I can go to that event and learn about it. I think you're much better off to go to a real blue chip marble floor.

You're in Southern California, so aren't you in Southern California? No. You're in Austin, aren't you?

I am.

Yes, you're in Austin. Okay, so you already know about the homestead exemption. So go to someplace in downtown Austin, downtown la, downtown New York. Go to a really great tax attorney and pay $600 an hour to talk to them. They will tell you exactly the right way to do it. And While you may spend 6, $6,000 instead of $2,000 at the seminar on the Lido deck at some cruise ship in international waters, you're going to get really, really good advice. And if you're even qualified at all to have something like a captive insurance company or a bank or a Foundation, spending $6,000 on advice is chump change versus the advantages you're going to get over just the first year or two. And so I would say, don't get bamboozled by somebody who's a kind of a snake oil salesperson. Right? Go and get somebody who's in a vetted real law firm that specializes in exactly the thing you're looking for. Pay a little bit of money per hour and it will pay off in gigantic dividends. Plus you'll have that legal professional that's a buffer between you and, and any flack you might get from the IRS or from the courts. I mean, this is how you do it, right? Most people want some shortcut. There isn't really a shortcut. The best shortcut is you doing your own homework before you go to the lawyer. So you go in with a plan instead of just with a big fat checkbook that they can start tapping into. You go in there and ask specific questions about exactly what you want to accomplish and let them answer the questions. And if you do your homework, you will find great advantages for you and your business. You're going to spend a little money, but you're going to get giant returns.

Aaron, this was an absolutely fascinating hour. Thank you so much for hanging out with us and sharing this. Where can people follow you or find out about your company? How should people connect with you?

Oh, thank you for asking. Well, they can go to Aaron Scottyoung and I don't know if you'll have a link, but It's Aaron. Yeah. AaronScotYoung.com and they can check out some of the things that I do there. And they can also go, I'm teaching a class that deals with a lot of these things and this is not a sales thing. But if you want to go watch a few free videos and see if you want to learn how to build a real business more than just a glorified job, you can go to theunshackledowner.com and I'll show you how I've built for 34 years a whole bunch of multimillion dollar companies that are able to operate even when I'm not, you know, standing there looking over people's shoulders. The summary of this whole thing, Ryan, is this. If you do things like a grown up, if you do things the right way, if you follow the rules, learn the rules, follow the rules, leverage the rules to your advantage, you can become really wealthy and you can hold your wealth if you try to take shortcuts and try to kind of get around the system somehow, you might make money for a little while, but it eventually will come back and bite you. And there's just no reason for that because there's enough benefit in just doing it right the first time.

Aaron, thanks so much for hanging out with us. This was a fascinating hour. Keep on changing the world. And thanks for hanging out with us on Freedom Fasting.

Thank you.

I hope you enjoyed today's chat with Aaron as much as I enjoyed it because I learned a great deal in this hour or so. The most interesting thing that we talked about today was the foundation was utilizing foundations and how accessible that is and treating that almost like another account that could possibly grow. I want to give one disclaimer and obviously say that I am not a tax lawyer or attorney or whatever the heck there is. I'm on a journey to discover this stuff just like you are. And I might know a thing or two. I practice some of these things in my businesses, but I am certainly no expert on this stuff. So please don't take anything that you hear hear on Freedom Fast Lane as professional advice or a reason to not seek counsel. I seek counsel and you should too. And I hope that in my journey I'm able to share some things that save you some money in legitimate ways and also help you make more money by growing your business and enjoying your life more. If you enjoyed today's chat, who wouldn't enjoy today's chat on paying less taxes? Please share it with an entrepreneur or any other person that you think would like to play the game a little bit better and a little bit more upfront and be a little bit more legitimate in the way that they do so. So please share it with your network and those who might have found value in it. And as always, I appreciate you. I believe that entrepreneurs are the key to all the change that we want to see in the world. I think that we have the personality and the ability to to create and facilitate that type of change that can completely turn the world on its head and make it a better place. We need you at your fullest. We need you at your best capacity. So keep on changing the world and I'll see you on the next show.