three tax tips to save 99% by rich davis

the billionaire code to free capital

THREE TAX TIPS

OVER THREE YEARS

THAT SAVE YOU99%

PRENTED BY

Why do mentored investors choose start-ups over blue-chip companies?

QUTION:

Tax savingsANSWER:

OVERVIEW

An investment into a start-up company with an active advisory role allows the investor to take advantage of the company’s active net operating losses. These losses immediately unlock discretionary monies for the investor by transforming what was once a liability into an asset.

This approach exemplifies three of the most important rules of sound investment:First, all investors should seek to redirect all or a portion of their annual tax liability through careful tax planning and strategy.

Second, calculated risk mitigation tactics should be implemented for preservation and return of capital. To this end, well-engineered start-up companies that pose a fraction of the inherent risk while providing immediate positive cash flow are a primary objective. Third, upon continued success the mentored investor must seek proven legacy planning alternatives, the best of which allow for perpetual giving while taking advantage of the pricing inefficiencies related to the valuation of the investment into the start-up company.

TheThe tax-saving techniques discussed within this summary promote the elimination of some portion of the investor’s income tax liability for up to twenty* years. The investor receives the maximum tax benefit when offsetting the higher taxed liabilities such as ordinary income, alternative minimum tax and short term capital gains. Tax planning with this strategy is a must - as tax liabilities such as long term capital gains do not maximize the investor’s immediate return of capital since the benefit is often reduced by 50%.

(* Operational loss deductions can be carried back up to two years and forward up to twenty years)

OVERVIEW

It’s not how much money you earn – it’s how much money you keep” Rich Davis, Founder BEST FQ, Mentor

“Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a even a patriotic duty to increase one's taxes.” Learned Hand, Supreme Court Justice

“

Let’s take a closer look at how this approach works in a real-world scenario.

The total initial capital sourced for this example is $8,800,000. The use of funds is the construction, build out and FF&E of a 100,000 square foot bottled water distribution facility – known as the start-up company. In this example the capital consists of eight equal units of $1.1MM each.

THE BILLIONAIRE CODE TO FREE CAPITAL

The above is a classic example of the capital required for many start-up companies. Successful investors leave clues; the clues modeled on the next page are reserved only for the mentored investor seeking to excel toward billionaire status. The above is a classic example of the capital required for many start-up companies. Successful investors leave clues; the clues modeled on the next page are reserved only for the mentored investor seeking to excel toward billionaire status.

1,100,000

1,305,250

163,156

73,420

1,026,580

$

$

$

$

$

7,076,750

884,594

398,067

628,513

$

$

$

$ 628,513 $

1,100,000

471,488

628,513

$

$

$

INVESTMENT

TOTAL OPERATIONAL LOSSES

ALLOCABLE LOSS TO INVESTOR

TAX SAVINGS (45% COMBINED)

INVESTMENT BALANCE

The capital for the start-up company is to benefit the construction and operations of a bottled water packaging and distribution facility. The total estimated capital costs for this start-up is $8.8MM which is then allocated pro-rata to each of eight investors. The investor can be an individual, corporation or joint venture (IRC 162), but it required that they perform in an active advisory role for no less than 100 direct hours annually in order to qualifyqualify as an active owner (IRC 469), and therefore participate in the company’s operational losses for tax filing purposes.

The operational loss rewards the investor with an immediate tax saving benefit. The investor will utilize the pro-rata losses to offset their own tax liability. The initial investment in its entirety is allocated to the construction, build out and FF&E cost of the new facility. Qualified operational losses allow for a total or mutual tax benefit - deductible at the highest tax rate or the investor’s ordinary income tax rate. For illustration purposes we will demonstdemonstrate the investor/tax payer paying a current state and federal tax rate of 45%.

Demonstrated below, the investor’s annual tax liability is eliminated, thereby allowing for additional discretionary income and immediate free cash flow. This much-needed cash can then be utilized to fortify the investor’s inflationary hedge, reduce debts or fund their legacy planning.

TAX SAVING STRATEGY #1

$73,420 $99,517 $99,517 $99,517 $99,517

Year One Year Two Year Three Year Four Year Five

TIMELINE EXAMPLE

IN TAX SAVINGS (LOSS DEDUCTIONS CAN BE CARRIED FORWARD UP TO TWENTY YEARS)

Mentored investors understand both the potential for great gain and/or loss when participating in a start-up company. The potential for such loss is the reason the IRS wrote the code in favor of those willing to invest into often perceived riskier investments like start-up companies. Mentored investors enjoy the profitability of calculated risk such as this, along with, the satisfaction of knowing that a capital deployment of this size will encourage local commerce and job creacommerce and job creation. The IRS benefits from the future sales and income tax base which is why they are more than willing to offer the upfront tax reduction.

Mitigation of risk is the special ingredient of all successl business owners.

In the ne section we’ll answer all three

1. Total capital investment?2. Term of investment?3. Return on investment?

Three things all investors want to know:

TAX SAVING STRATEGY #2 (a)

Proper tax planning requires the start-up to match its needs with investors that have the business acumen to add value along with an initial investment of $1.1MM. The participating investor will need to have determined that the business is a manageablemanageable risk and that the opportunity to minimize their initial capital exposure through proper tax planning will also need to be clearly illustrated. Unlocked free cash flow hedges against the inherent exposure to risk of start-ups thereby giving top tier investors their compeinvestors their competitive edge.

As illustrated, the $1.1MM investment into the start-up company eliminates a half a million dollar tax liability to the IRS within the first two years.

Within the first 24 months the investment will also fund the employment of hundreds of workers, while promoting commerce to the local community. Engineers, architects, design specialist, general and sub-contractors, from grading to electricalelectrical to roofing will be employed. This is in addition to the domestic and foreign corporations who will provide the necessary FF&E to complete the build out of this new bottled water facility.

Identifying and mitigating risk is essential to the success of any start-up and free cash flow is the prime insulator to unforeseen risk. Statistically, start-ups that generate an immediate return of capital within the

first 24 months are the most successful. The differentiator is proper tax planning as illustrated below. The start-up in this strategy will generate for the investor 43% return of capital with the first two years. IRC 169 is the free cash flow catalyst of this tax planning strategy.

TAX SAVING STRATEGY #2 (b)

Monetization is a sound strategy that can be utilized to recoup a portion of the remaining 57% of outstanding capital.

TAX SAVING STRATEGY #2 (c)

future event of monetization.

Does this cumulaDoes this cumulative preferred return create phantom income for the investor? No, the cumulative preferred return will not be recorded in the books and records. It will be kept in a memorandum format to track the numbers. The net investment value adjusted by the cumulative preferred return will only be used when there is a merger, acquisition, liquidation, roll up or buyout.

In preparation of monetization, the start-up company illustrates a partial repayment of the remaining capital. In preparation of the offering the company is booking a preferred rate of return towards the net investment value. The balance of the capital is the initial investment minus the total operational losses. The preferred rate of return on this balance is 8.5%. The accumulative adjusted value of the remaining balance will continue to earn 8.5% annually and compounded upon conversion.The booked compounded value is off the balance sheet and will be used for the valuavalue is off the balance sheet and will be used for the valuation or basis of the

88,514$

52,250$

1,660,002$

140,764$

628,513$

56,691$

4,441$

52,250$628,513$628,513$

52,250

4,441

56,691

$

$

$

1,026,580

936,844

79,632

1,016,475

$

$

$

$

NET INVESTMENT AFTER TAX BENEFIT

NET BOOK VALUE

CUMULATIVE PREFERRED RETURN

ADJUSTED BOOK VALUE

TOTAL RETURN. INVESTMENT, PLUS TAX SAVINGS, PLUS CUMULATIVE PREFERRED RETURN

TAX SAVING STRATEGY #2 (d)

SECTOR

Water is the key source of survival for humans on planet earth. Water has enormous value and as population continues to increase scarcity will prevail therefore driving the value of water even higher.

The bottled water industry has a history of triple digit growth over the last two decades with no signs of slowing in the near term.

TIMING

A mentored investor would investigate the freight lanes and distribution centers actively utilized by big box grocers to ensure private labeling contracts while seeking to mitigate competitor overlap.

SALES

Cash flow in this example is the tertiary source of capital repayment. When reviewing a company’s ability to repay capital by generating a profit a mentored investor evaluates three very important criteria. The three start-up company risk factors include: sector, timing, and sales.

The mentored investor will also review and understand the assumptions made within the pro-forma to calculate risk as well as manage the current and future success of their investment by actively updating those assumptions.

TAX SAVING STRATEGY #3

The inefficiencies to valuation of the underlying investment allow for further tax advantages for the investor’s legacy planning by providing the opportunity to transfer their interests into their Family Foundation or Trust at a discounted value.

TTax planning is essential at every stage of the investment’s life cycle. The method discussed above was proven in the 1993 case of the Estate of Elizabeth M Lee vs Commissioner, the court approved discounts for the minority held securities. The IRS then acquiesced and issued Rev Ruling 93-12. Every case is different and there is no hard and fast rule regarding discounts.

Discounts for minority interest have Discounts for minority interest have ranged from 15% - 60%. Discounts for lack of marketability have ranged from 10% to 50%. The composite range lack of liquidity has ranged from 25% to 75%. Investors should confer with their tax advisors regarding the position they should be taking.

Legacy planning through a Legacy planning through a Family Foundation while generously supporting the investor’s top charities through perpetual giving completes the third and final tier of this tax planning brief.

15%-60%Discounts for minority interest

10%-50%Discounts for lack of marketability

25%-75%Composite range from lack of liquidity

ABOUT

Please contact your billionaire code specialist to schedule one-on-one time with Rich Davis.

Disclaimer: These tips are made available by the mentor and publisher for educational purposes only as well as to give you general information and a general understanding of these strategies as they are interpreted, n to provide specific tax or legal advice. By using these tips you understand that there is no accountant or attorney client relationship or privilege between you and the mentor. These tips should n be used as a substitute for competent accounting, tax or legal advice from a licensed professional CPA or attorney in your state.

Trusted adviser to ultra-wealthy individuals for well-over 15 years, Rich Davis is an emerging fund manager, overseeing highly profitable real asset holdings located all across North America. Rich is also a dynamic mentor, trainer, speaker, and author who considers it a personal mission to help millions of Americans more successfully grow and protect their investments by learning how to “think like a billionaire.”

Visit BESTFQ.com for the latest communication from Rich Davis.

RICH DAVIS, Financial Intelligence Expert & Mentor

three tax tips to save 99% by rich davis

Economy & Finance