Tax Strategies and Investment Concepts (Video Notes)

Vocabulary flashcards covering enterprise zones, tax strategies, oil & gas investments, audits, records, and wealth-building principles mentioned in the notes.

Enterprise zone

A government-designated area that offers tax incentives to attract business, including tax credits for leasing or buying property and for hiring workers.

Enterprise zone tax credit for leasing

A tax credit awarded for leasing or buying a building in an enterprise zone.

Enterprise zone employment tax credit

A tax credit awarded for hiring people to work in an enterprise zone.

Startup costs deduction

Deducting startup expenses in the first year to maximize early tax relief; delaying this deduction can forfeit some benefits.

1031 exchange

A like-kind exchange that defers capital gains taxes when selling real estate if the proceeds are reinvested in similar property.

Rental real estate as a tax shelter

Investing in rental real estate is described as a powerful tax shelter in many countries.

Passive investment

An investment approach where you are not actively managing the asset; real estate losses may offset other income when treated as passive.

Audit defense plan

An annual service offered by some tax preparers to reduce out-of-pocket costs and worry during audits.

Corporate books

A binder containing all corporate records, including Articles of Incorporation, Operating/Partnership Agreement, By-Laws, and Minutes.

Articles of Incorporation/Organization

The legal document that creates a corporation or organization.

Operating Agreement

A document outlining management and ownership terms for a LLC or partnership.

By-Laws

Rules governing the internal management and procedures of a corporation.

Minutes

Official written notes from corporate or organizational meetings.

Deductions

Tax-reducing expenses such as travel, meals, auto expenses, medical expenses, depreciation, and salaries.

Depreciation

A tax deduction recognizing the wear and tear or obsolescence of property over time.

Intangible drilling costs (IDC)

Deductions for intangible costs associated with oil and gas drilling, typically in the first year.

Depletion

A tax deduction of about 15% of the gross income from an oil or gas well each year.

Oil and gas investment: stock in a company

Purchase of stock in an oil and gas company—usually provides no specific tax benefits.

Oil and gas investment: royalties

Acquiring an interest in royalties from producing wells—typically no direct tax benefits.

Oil and gas investment: exploratory (wildcat) drilling

Investment in exploratory drilling; typically offers tax benefits.

Oil and gas investment: development operations

Investment in development drilling operations; typically offers tax benefits.

Tax benefits for oil and gas investments

Includes deduction of IDC and annual depletion (15% of gross income) for oil and gas investments.

Entity choice risk in oil & gas

Choosing the wrong entity can destroy tax benefits and affect asset protection.

Agricultural tax benefits

Tax benefits for farming: deductions for farm expenses, depreciation for equipment, potential estate tax advantages, and crop-specific breaks.

Mutual funds and taxes (Rule 17)

Mutual funds can generate taxable income even when you have losses.

Tax complexity (Rule 18)

More favorable tax benefits usually imply more complex rules to follow.

Self-directed IRA/pension trading

Trading stocks and options inside a self-directed IRA or pension can offer substantial tax benefits, but requires knowledgeable advisors.

Stock trader qualification rules (3 criteria)

To qualify as a stock trader: (1) significant trading volume, (2) substantial time spent trading, (3) substantial income from trading.

Interest in oil & gas tax advantages

Oil and gas investments can avoid certain passive loss rules under specific structures.

Foundations of wealth (Rule 23)

The three foundations are compound interest, leverage, and velocity.

Leverage

Using borrowed money or other people’s money to amplify investment returns; debt can accelerate wealth or ruin if misused.

Debt caution

Debt is leverage and dangerous for the uneducated; education and planning are essential before using debt to build wealth.

Wealth tip: growth asset then passive income

Start with earned income, invest in growth assets to build capital, then shift to assets generating passive income.

Velocity

The speed at which money circulates and is reinvested, a key factor in wealth-building.

Audit readiness (Rule 19)

Be prepared for audits to reduce fear and improve outcomes; maintaining organized records helps.

Notable tax advisor qualities

A good tax advisor is fully educated, passionate about reducing taxes, creative, permanent-savings focused, and has a broad network of experts.