by Neil Jesani
WIN
THE
WAR
FOR
MONEY &
SUCCESS
BY
NEIL JESANI
Cataloging in Publication (Library of Congress)
Jesani, Neil, author
Win the War for Money & Success
Issued in print and electronic formats.
ISBN 978-1-7339303-9-0 (Paperback) ISBN 978-1-7339303-2-1 (eBook)
ISBN 978-1-7339303-5-2 (Audio Book)
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Copyright© 2019 by BeamaLife Corporation. All rights reserved.
Limit of Liability & Disclaimer: While the publisher and author have used their best efforts in preparing this book, they make no representation or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any express or implied warranties or fitness for a particular purpose, situation or individual. No warranty may be created by the sales and promotion efforts either online, offline or in-person.
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Neil Jesani, CFP
BeamaLife Corporation
100 Commons Way, Suite 250
Holmdel, NJ 07733
Phone: (732) 508-7415
www.BeamaLife.com
To the love of my life, my wife and super-woman Shalima, and two stars of my eyes – my daughter, Raniya, and son, Xavier. Thank you for putting up with me so far.
Contents
Preface
Introduction
Chapter 1 Taxes, Taxes & Taxes
Chapter 2 Taxation Of Various Business Structures
Chapter 3 Retirement Plans – A Big Tax Reduction Vehicle
Chapter 4 Understanding The Intricate Nature Of Money
Chapter 5 Factors Affecting Investment Return
Chapter 6 Know The Real Return On Stocks
Chapter 7 The Bond Market
Chapter 8 The Complex World Of Commodities
Chapter 9 The Seductive World Of Real Estate Investing
Chapter 10 The Dull Investment Of Life Insurance
Chapter 11 Estate Planning For All
Chapter 12 Irs Section 7702 Individual Private Pension Plan
Chapter 13 College Savings For An Expensive Education
Chapter 14 Doubling Retirement Income
Preface
I
grew up in a small town in India, in a lower-middle class family. It was a happy-go-lucky family with only one bill to pay every month and that was the electricity bill – that was it. No other bills or taxes to pay every month. There was not much in savings. I had never heard of insurance and the only investments we ever made were in the goods for our small business. I learned some basics of business and finance from the small family business but it was my formal education, as well as meeting the right people along the way and the habit of reading, that changed my life and helped me to become a successful financial planner. Certainly, God has been very kind throughout!
Over my last twenty years in the world of finance, I’ve realized that most people can’t comprehend the complicated nature of investments, insurance, banking and other financial concepts. It’s not their fault, of course. There are so many things to understand, process, and finally to make sense of. In fact, most financial professionals I’ve met don’t understand them either.
Ironically, the financial services industry has contributed lots of information (and misinformation) in order to advance its own agenda. Also, the current model of distributing financial products and services is paradoxical. The most powerful financial people in the world design the most complicated financial concepts and products. These are ultimately delivered by mostly commission-based, generally less clever individuals. The folks at the top convince these financial sales people (you can call them brokers, agents, financial advisors, financial planners, financial consultants, personal bankers or any other name you like) to sell or distribute whatever the folks at the top are designing or producing.
Historically, the media has played and continues to play a vital role in any society. Various business or industry lobbyists have used the media to their own strategic advantage – some by being in the news all the time and others by staying under the radar. Today, it is very easy to find lots of information about any financial topic you can think of. But the hardest part is knowing what is the right choice for one’s particular situation, what is the wrong choice, and what is the best information available that can help you.
Economically, I divide our society into four segments: 1) Lower-income people who live near the poverty line, 2) Middle-income earners, 3) Higher-income earners and 4) the Ultra-wealthy who deal in billions of dollars. Unfortunately, the lower-income segment does not have any means to implement financial strategies and they tend to pay lower or no taxes. They also tend to be the primary recipients of government entitlement programs, as they have the most need. The ultra-wealthy on the other hand will never run out of money, and they can very well influence the system in their favor to lower their tax burden, and create additional wealth building opportunities.
It’s the folks in-between, the middle- and higher-income earners, who are in the greatest danger of paying more than their fair share of taxes, running out of money, or leaving their family in despair because of bad financial decisions and general misinformation. They are at war against higher taxes and unfair financial disadvantages, at war against a system that is designed to take their money, penalizing them for the results of their success. They studied well and worked hard to become as successful as they can be. Taxes, inflation, market fluctuations, rising expenses, lawsuits and mediocre financial products, and advice are eroding their wealth and eating away at anything they might pass down as an inheritance to their family. If you are in the middle – paying more than your fair share of taxes and expenses, and having less and less to show for it – this book is for you.
I’ve always been shy and rather intimidated about sharing publicly the financial strategies I’ve learned over the last twenty years. During my career, I have helped more than 4,000 doctors, 3,000 successful small business owners, and many other senior professionals with the knowledge contained in this book. My clients and I typically talked in private settings, and they were receptive to my guidance and advice, and I’m pleased to say they were more successful reaching their goals as a result. My faith teaches me that if I am fortunate enough to get a higher education or become the beneficiary of great wisdom, then I’m called to share that knowledge with others, serving the community at large and continuing to discover God’s creation, rather than only accumulati
ng wealth for personal gain. These teachings finally convinced me to share my strategies and learnings with a larger audience, even though this might not be the typical approach of financial strategists.
And so this book was born.
While it will certainly benefit higher-income earners and high-net-worth individuals, it will also provide a solid pathway for people who aren’t there yet, and aspire to improve their financial situation.
I always believe in discussions based on empirical evidence rather than someone’s opinion. That is why I have tried to limit my opinions in this book. Instead, I provide as many facts and sources as possible. I hope this book is a good starting point in your financial strategies research and journey to lowering your taxes, enhancing your investment return, doubling your retirement income and potentially creating a legacy for generations to come. Ultimately, I hope it helps you win the war for money and success.
Introduction
W
elcome to Win the War For Money and Success. This self-help financial book will help you understand some of the most important financial concepts and strategies to reduce taxes, create a better investment portfolio, potentially double your retirement income and, finally, to create a substantial inheritance for your loved ones or favorite charity.
The first three chapters of this book talk about taxes in general and some tax reduction strategies. The second and third chapters are primarily designed for the self-employed or aspiring self-employed, professionals, and small business owners. I am assuming most of you will have an accountant to help you with your taxes, so we’ll look at the tax strategies generally beyond an accountant’s scope.
Chapter 4 to Chapter 10 focus on understanding the real world of investments and money principles. It will be a good read for anyone, and I believe it will surprise you with some little-known facts and insights. It will provide you the basic framework for any investment decision going forward in your life. Investment decisions might seem small today, but they can have a far-reaching impact later on in your life. I want to help you be on the right path from the beginning.
The final four chapters provide you with practical strategies to implement some of the most common financial planning concepts. Chapter 11 covers estate planning, and even though the financial threshold for estate tax is fairly high, we’ll cover some basic estate planning documents required in most situations.
Chapter 12 talks about individual private pension plans, which should be of great interest to both the self-employed and W2 employees alike. The information will help you implement a solid tax-reduction strategy and create guaranteed retirement income. Ultimately, the purpose of any long-term savings and investment is to create retirement income, liquidity and an inheritance for the family.
Chapter 13 will be primarily useful to parents and grandparents interested in saving for future college costs. Finally, Chapter 14 is geared towards people who are near or at retirement. However, it will include useful information for everyone who wants to be able to enjoy the golden years, have a higher retirement income and leave an inheritance.
Even though the book is arranged in chapters, it’s designed for the reader to be able to skip around to any chapter, depending on the information they need most right now. I hope you’ll keep coming back to this book again and again as your life needs change.
CHAPTER 1
Taxes, Taxes & Taxes
“The hardest thing to understand in the world is the income tax.”
Albert Einstein
B
efore 1862, a worker in the United States could keep every dime they earned without worrying about paying a certain amount of those earnings to the government in taxes. Sounds wonderful, doesn’t it? It didn’t matter if you cleaned the stables or owned a large company. Your income was yours.
The Civil War changed this worker’s paradise. Congress enacted the country’s first income tax to pay for the war effort. Even back then, the government established it along the same lines as we know today. Two of its central principles were that the government based the first income tax on progressive or graduated taxation, and that the money would be withheld at the source of the income. Progressive means that the more you make, the greater the percentage of your income you have to give to the government.
As much as this was a shocking blow to the average citizen in 1862, we would take those tax rates today. The initial tax table had people who earned $600 to $10,000 a year contributing at a tax rate of 3%. People who made over $10,000 (in today’s dollars, that’s about $237,000) paid at a higher rate. This particular act that initiated the federal income tax also brought everyone’s favorite agency into existence, the Commissioner of Internal Revenue. The early mandate of that government department was pretty much the same as it is now: to assess, levy, and collect all federal taxes. Even back then, they could enforce the tax laws by prosecuting somebody who owed the government, and seizing property and income.
This incarnation of the federal income tax ended in 1872 as Congress sought different income streams to fund the government. It had a brief reincarnation in 1894 and 1895 until the United States Supreme Court declared it unconstitutional. In order to get around this technicality, the 16th Amendment to the Constitution made the income tax a permanent component of the U.S. tax system. The amendment passed in 1913 and it gave Congress the legal authority to tax the income of both individuals and corporations.
Another war brought the last pieces of the puzzle together. Employment increased tremendously during World War II, as did the need for more tax dollars to pay for that mammoth endeavor. Congress introduced a withholding tax on wages in 1943. It exponentially increased the number of taxpayers and the amount of revenue generated. Not one to put a halt to a good thing, the United States has basically kept this system in place ever since.
While no individual is exempt from the federal income tax, the highest tax rate has been all over the charts. After World War II, the top marginal rate for people with high incomes was 90%! It stayed that way for years and dropped down to 70% in the 1960’s. It was then lowered to 50% in the 1980’s and came down to a low of 28% in 1988. Today, in 2019, it is 37%.
The bottom line is that if you have a significant income resulting from your profession or business, you are likely being taxed at the higher end of this scale. You are paying the United States government a fair amount of the money you earn. While You may not be learning anything new here, it is good to have a basic understanding of how the income tax came about, how it works, and why it is not ever going to go away.
But wait…there’s more!
Not only do all workers pay taxes to the federal government based on their income, most also pay another income tax to the state they live in. Unless you are one of the lucky individuals who lives in Alaska, Florida, Nevada, South Dakota, Texas, New Hampshire, Washington, or Wyoming, you are paying a state income tax. Rates and filing complexity vary among the other 42 states where you pay more of your income to state taxes. You add this to what you send to the federal government, and the resulting figure goes even higher.
The 10 highest income tax states for 2019 are:
1. California 13.3%
2. Hawaii 11%
3. Oregon 9.9%
4. Minnesota 9.85%
5. Iowa 8.98%
6. New Jersey 8.97%
7. Vermont 8.95%
8. District of Columbia 8.95%
9. New York 8.82%
10. Wisconsin 7.65%
But wait…there’s still more!
Many cities and towns also modified their tax laws so that residents and/ or people who work within their borders have to fork over some of their income. Using the 2019 New York City tax schedule as an example, the tax rates in the five boroughs of the city range from 3.078% to 3.876% of a person’s income. It isn’t just major cities that do this either. As tax dollars get harder and harder to come by, this method is a great way for local municipalities to supplement their income through local property and bu
siness taxes. For many Americans, it is quite possible to have three different government entities with their hands out, taking a piece of your hard-earned earnings.
And we’re not done yet!
Another tax that we pay to the federal government is also based on our income. This one started with the Social Security Act of 1935. The stock market crash of 1929, and the resulting depression showed how people could be completely wiped out of any savings they might have built up over a lifetime. President Franklin D. Roosevelt championed the cause of a government-sponsored plan that would guarantee older Americans some sort of income if they became disabled or their working days were behind them. Social Security was born. The funding the plan came from a percentage of workers’ wages and salaries.
The original 14-page document that launched the Social Security Administration has greatly evolved since 1935. For one thing, it now includes paying for Medicare, which is hospital and medical care for the elderly and disabled. Paying for Social Security and Medicare comes under the banner of FICA. This stands for the Federal Insurance Contributions Act. Unlike the graduated method of the federal income tax, the FICA tax is a regressive tax on income. This means that everybody pays the same rate no matter your income. There is no standard deduction or personal exemption deduction.
The other major difference with FICA is that two entities pay into the tax. The employee and the employer pay an equal amount of money into FICA. If you are self-employed, that means that you are responsible for each half of the tax. If you are a salaried or hourly employee, part of your business expense is paying the employer version of the FICA tax.
The majority of FICA goes to Social Security. The only good news is that the Social Security portion of the tax is capped to a certain income level. Once you reach that level of income for the year, you no longer have to pay the Social Security piece of FICA, though the Medicare part continues.
