Welcome back to The Daily Mastermind. George Wright III here with another educational masterclass. I'm excited to be able to bring this to you. I mentioned this on our last episode, but I've had so many individuals lately that have been learning to invest and trade in the foreign exchange market, digital currency, and even stock markets that I had a good, good friend of mine, Don Pendleton, and I've known him for 20 years. He is the current owner of one of the longest running financial education companies in the country. And these events that they do are with high net worth clients and they teach them proper asset protection, tax strategies, and estate planning. And I've been wanting for some time now to have him do a case study for an investor because if you invest at all and you don't treat your investing as a business, then you're making a major, major mistake. And so what I wanted him to do is to be able to spend about 30 minutes with you and explain how do you structure, how do you properly structure your trading business in order to maximize your benefits, minimize your taxes, and properly protect yourself and protect your assets from any kind of lawsuit or liability that might be out there because many of us have businesses and personal things and possible potential liability. And you want to be able to protect your assets, but you also want to be able to grow them and expand them and build your wealth in a tax-free environment or at least minimize your taxes and maximize your deductions. So this master class he's going to be going through was with a private mastermind that I did with some Forex investors. And so he's going to go through this blueprint. And then if you want to, we'll look for finding a way to get the PowerPoint presentation he had as well. Or you can head over to YouTube or hit me up. I'll give you a copy of the private link over to our YouTube channel so that you can watch this class, even though it was one of our private masterminds. But without any further delay, Don Pendleton, who's the president of Protect Wealth Academy, and I look forward to getting your feedback on this. and I'm super excited to share it with him today. So here is our short interview and masterclass with Don Pendleton. When I was an early entrepreneur, I had very quickly learned how to form an entity and do estate planning and a will and a trust, all these kinds of things. And I did it really crazy ways and it took me a lot of work. But over the years, I've now worked with, it's maybe going on 20 years with Don Pendleton and Kendall. And by the way, those individuals, A lot of you are in their organization because they're Platinum 1000 in the business. They're just a few people away from Platinum 2000. So, great job to them. And they're really committed to pushing some things out in the marketplace. But what I wanted to talk to you guys about tonight is how to structure your trading business. Because we talk about the benefits of trading and making money or the benefits of building a business and making money. but there are so many benefits from a tax standpoint, from a structure asset protection standpoint, and even estate planning that you just never learn. There's no place to get this. That's why I'm really excited to have Don with us tonight because whether you are an advanced investor and you have an entity and you're trading as a business or whether you're very beginning and you don't have an entity and you don't know what to structure, there's a couple important points he's going to cover tonight. And one is that you need to take a holistic approach. It's not as simple as just forming a business. If you want to have a proper estate plan, taxes, and asset protection. And the other thing that I was going to mention is that things change. And the reason I like working with these guys, I've been partnered with them for quite some time, and they run the longest running financial education event in the nation, period. The reason I like working with them is tax laws change all the time. They change last year and the year before, and they'll most certainly change next year. And so things change and you've got to stay on top of it. But what I wanted him to do tonight in about 30 minutes is we're going to talk about how to structure your business to really gain benefits from taxes, estate planning and asset protection. So like I said, their whole business is creating, growing and protecting wealth. They deal with high net worth individuals all over the world and other affiliates that I've had attend their events. But Don Pendleton in particular, I've worked with him, worked with these guys going on 20 years in business, marketing, events, partnered on things, created products. But Don has got an extensive background on this. He's written five textbooks, not books, textbooks with attorneys. And he's managed a hotline for asset protection and taxes for over 22 years. He's the president of Protect Wealth, but he also is the president of National Medical Foundation, APA Investments and Insurance. And he serves on a ton of advisory boards, but he knows at an individual level how to blueprint and build yourself for success. And I used to think you could always change it as you go, but there's a lot of advantages to setting it up right from the get-go. So, what he's going to do tonight is talk about how to structure your business. And we had focus of Forex but you know whether you're a trader in Forex stock options or whatever it is, a lot of these principles will apply. So Don, without any further delay, I'm gonna bring you on and let you jump right into it and do a screen share. And so guys, take some really good notes because we're very, very fortunate to have Don here, man. It's hard for his partners to get him out there so I really appreciate you being here, Don. I'm gonna let you go ahead and take it over. and there you go. Perfect. Thank you very much. And I don't know if you can see the screen or what you can and can't. Okay. So there we go. So let me zip through the introduction slides and we are going to talk tax and legal and I know it's late in the evening, but we'll have a little fun with it and we'll try to make it relevant to what you guys are doing. So before we ever talk tax and legal there's always a disclaimer sorry um i not everything i talk about is going to apply to you um so we always invite you to our summits where you can meet with professionals sit down with them go over your estate let's talk about how relevant we're going to talk general principles but specifics that may get a little you know some states are a little different um state some states are going to treat corporations different than LLCs or vice versa. We're just going to hit some general 40,000 foot view of how to structure a business. Hey, and Don, can I, I apologize, I interrupted you real quick, but I wanted to make sure I let everybody know, don't get overwhelmed because they do a three-day summit that I, everybody that's in the mastermind, we're comping tickets to. So you guys can go to the summit and they go through a lot more details. So don't get overwhelmed. We're going to record this. We've got the presentation, but this three-day summit that they only do five times a year, that's usually their high net worth clients. We're going to make sure you guys can all get free tickets to that. So there's nothing to buy today on this overview, but we definitely have a three-day summit you guys can attend later. So I'll get you that. So don't stress about that. Yeah, we're certainly here. We're only here to train. We're here to talk. Legal structure, nothing to sell. So if you were to start a business, you really have three options. And number one is to do nothing. Run as a sole proprietorship, learn to trade. And that's not always a bad option. The other thing is to qualify as a trader or create a business. And let me talk about both of or all three of those, because doing nothing is sometimes the very best when you're just getting started. I've got a small trading account. I don't want to complicate it. I don't want anyone to get so bogged down with the legal structure that they go, oh, and they never make money We never want to stop you from making money but there are some tremendous advantages for qualifying as a trader or creating a business and let let me kind of run through those if we did nothing there are certain things that you can deduct you can deduct brokerage fees the cost of trading you can most likely you can't deduct educational expenses there's a whole bunch you can't deduct because you're the owner of the account. The IRS says, look, you can deduct the cost of trading and brokerage fees. But when it comes to computers and software and internet and office equipment and home office deductions, meals and entertainment, all of the things you see on the screen medical expenses pension plans your health insurance those things we can't deduct because you're a trader you're you're you're as all you're doing is you're owning a brokerage account or you're owning a trading account and you're trading if you do nothing you're very very limited in what you can deduct now again if you're just starting out it may not be worth having a corporation or an LLC or whatever. And that's okay. Yes, I'm leaving some money on the table, but I'm just learning. But this would be a starting point, but we don't want you to stay at this very long. Once your business starts making money, we want to be able to deduct computers and software and internet and cell phones and meals and entertainment, education, medical expenses, things like that. So doing nothing is a temporary thing, but it may be a starting point for some of our students. Number two is you could qualify as a trader. And once you're classified by the IRS as a trader status or as a professional trader, Excuse me. Then you can deduct all kinds of things. The problem is that the IRS hasn't issued a definitive guidance as to what constitutes a trader. Here's the language that they use. Number one, you must seek to profit daily from market movements. From daily market movements. So it can't be, I'm not in it for the long haul. I'm not in it to buy IBM stock that I think is going to go up or Amazon stock or Zoom stock that I think is going to go up in a month or two or three or four. You need to be active, looking for profits on a daily movement in the market. Number two is your activity must be substantial. But the IRS doesn't define what substantial is. They just say, here, it should be substantial, and you need to carry it on with continuity and regularity. Now, again, they don't really say a lot as to what that means, and they're leaving that very, very vague. Let me give you one example that's kind of the test case that a lot of people look to, and that's the Frank Chen case. So in 2004, Ken made 323 trades. The majority of his trades were held for less than 30 days. So he wasn't looking for daily movement, but sort of. 100% of his trades were made in a six-month period, and 86% of all trades were made within a two-month period. So he really took about six months off. and what the IRS deemed when he counted everything that he could count as a business expense and the IRS denied that and so it went to court and what the court found is although Chen did satisfy the short-term market swing requirement the court found that Chen was not a trader because 94% of his trades occurred over a four-month period and no trading took place in the last six months of the year. Thus, Chen failed to meet the requirements for regular and continuity test. All of his deductions were denied, and he ended up paying taxes and penalties on what he had claimed as business deductions. So if you can't qualify as a trader, and again, the IRS leaves it so vague that I think it scares most traders off. If we can't qualify as a trader and we don't want to do anything, we want the business deductions that the IRS allows, then the option that we have is option number three, and that's to create a business. So when we're talking about a business structure, most people would set up the traditional way that we've always done is a corporation. And we do that with the business purpose to manage investments. Now, when you do that, you don't have to hang a shingle out and manage other people's investments. It can simply be the business purpose is to manage investments, but don't say my investments. Now, that could be pork belly today, and it could be Bitcoin tomorrow, and it could be stock market in three days and real estate. And because that's such a broad term, it gives you the flexibility to change as the market changes. When we set up a business, and again, this could be a corporation. The problem with the corporation is it requires shareholders meetings annually, and you need to keep minutes at it. A board of directors meetings, and you need to keep direction. You need to issue stock and bylaws and corporate. There's so much corporate formalities. Most people are setting up an LLC that doesn't require all that, and then they choose to tax it as a business. I'll come back to that in a minute. So when we're talking about your corporation, we're really most of the time we're talking about an LLC taxed as a corporation. And then what we can do is we can set up the trading account in a separate legal business. We like limited partnerships owned by family members. We lovingly call that a family limited partnership. This could very well be another LLC. And I'll get to the tax structure in just a minute. But the purpose of this is to own the investments. Remember the other, the purpose of the corporation was to manage investments. Charles Schwab and Merrill Lynch are allowed to deduct all kinds of things because they don't actually own the investments, but they can give all kinds of perks to their employees. Again, they don't own the investments, they simply manage them. And that's a very important distinction for the IRS. By using the combination, the limited partnership and the corporation, what we can do is if you personally get sued, I can't come after that limited partnership. It didn't do anything wrong. It's a separate legal entity. And the limited partnership now becomes your asset protection tool. This is what owns your investments. The corporation really doesn't own much, but it manages everything. Now we've got the tax advantages of the corporation and the asset protection, the lawsuit protection that the limited partnership provides. By having both, the corporation will manage the affairs of the partnership for a reasonable fee. Well, what's reasonable in the eyes of the IRS? And the answer is, it depends. What would you pay a third party to come in and manage your money? And most people would say well maybe 1 or 2 of the value of the corporation that going on And others would say well you know I think that you know give somebody like a trade or maybe pay them an hour that they're working on my account, or maybe 10% of the profits. Those would be reasonable types of things. And so let me ask, let me throw this out to you guys. would you ever pay somebody like 40%, 50% of the profits to manage your account? And I'm seeing some heads shaking no. And then I would say, okay, well, what if I were doubling your money four times a year? Then would you pay me 40%? Yeah, of course you would. And so it really depends on what's happening. But that term reasonable, this is the IRS standard, the fee needs to be reasonable. If I need a whole bunch of tax deductions in the corporation, that management fee might be reasonably high if I'm trying to build wealth down in the limited partnership. And I don't need health insurance and I don't need office equipment and I don't need a lot of tax perks. that reasonable management fee could be very reasonably low. What ties the entities together, again, if you were to hire Charles Schwab, Merrill Lynch, Maureen Stanley, any of these guys, there would always be a management agreement. And so not only is it important to have the asset protection entity and the tax entity, but there needs to be a tie in between. And that management agreement would spell out, here's the authority to trade, and here's the fees that would be allowed, and a disclaimer of losses. Who's going to do the bookkeeping? Who's going to perform the regulations, the ordinances, all the tax returns? That would be a normal management agreement. Now, don't get scared by this. It's not something you have to have an attorney do. most of the time in your limited partnership or your LLC operating agreement, we're going to give the general partner or the managing member authority to trade and to do all of these things. But that would be written into the operating agreement of the family limited partnership or the LLC that owns the investments as we're giving authority to trade. But that's an important piece that we can't miss because if we were to hire an outside management company, that's a critical piece. All right. So how do we tax this little bugger? Okay. The limited partnership, I said, that owns the investments. It owns the brokerage accounts. It owns the cash. It owns whatever the investment, whatever you're investing, real estate or whatever. Remember, it can only deduct brokerage fees and the cost of trading. But the corporation, oh, baby, there's hundreds of things. When you come to our summit, one of the first things we give out is here's at least 200 tax deductions you might consider taking for your business. But your computers, your internet, your cell phone. Do you know the IRS came out in 2011? in an IRA. It's not in the tax code, but in the revenue rulings as the court is interpreting the tax code. And they said that any business that requires you to have a cell phone, you can deduct 100% of the cell phone out of the business. Well, I don't know any business, including a trading business that doesn't require a cell phone. So now we take the cell phone, not just the phone itself, but your monthly bills. We deduct it out of the corporation, any software, any office supplies, health insurance. Ooh, we could deduct your health insurance out of a business. And that corporation, it could be taxed as a sole proprietorship, partnership, S-corp, C-corp. I can still deduct my health insurance out of any business. as long as it's structured like an LLC or something, research and training, which would be education. We don't want to call education education because if you're going, let's learning a stock class or you're doing IML training, it doesn't meet the IRS requirements for education. But it could be research and training as I'm learning new skills for my business. We could, even as we get more sophisticated, we could set up pension plans and take $57,000 per year and put that into a separate, your retirement accounts into a SEP IRA or a corporate pension plan. Once the corporation starts making money, oh baby, there's all kinds of things that we can start deducting. See what we're doing with this, We're going to tax the corporation. It could be a C. It could be an S. We really like C corporations as management companies. The limited partnership, most often we would tax as either a disregarded entity or as a partnership. And we can get into specifics if you need to. The structure, what it does is it allows you to deduct expenses that aren't deductible to you as the owner of the business because now I have the corporation. It also allows us to reduce the gains at the personal level, move them up to a corporation, and deduct things that I couldn't otherwise deduct. But it gives you a whole plethora of deductions by having that corporation that I couldn't deduct on the personal level. So what does the corporation and the limited partnership do? The corporation would buy and sell, and it would act as the general partner of the limited partnership or the managing member of the LLC. It deducts legitimate business expenses and then charges a reasonable management fee. What does the limited partnership do? We don't want it to do anything. We want all the money down there to be passive by nature, not subject to self-employment taxes of 15.3%. If anybody can do anything, it will be you wearing your corporation hat, your president of the corporation hat. We never want you to act as the owner or the manager or the general partner of the limited partnership. We don't want you to actively participate in the management. We want all those gains at the limited partnership level to be passive by nature. So what does the limited partnership do? It really doesn't do anything. But at the end of the year, it has to decide whether it's going to retain earnings or whether it can distribute. And it could be monthly. It could be quarterly. It could be when you need money out of that. That's an easy thing to take a draw out of the limited partnership. You could even take a salary out of the corporation. Although that's not a real good idea because then you'd be taxed at your normal income tax rates plus 15.3% self-employment tax. Where does the money flow in this situation? Again, let's look at this as though we're an outside third party. If you were to hire a money management company, how would the management company get paid? they would reach in and grab money out of your account to pay the management fee. The management fees are generally then strategically planned. And let's say at the end of the year, I'm doing some tax planning. I know that in 2021, dang, I've got some medical expenses and I need to buy a new office, computer and gosh I got all these things Let say I plan and go I really need about in my corporation to deduct things that I couldn deduct If it were within reason couldn't your management fee magically be about $40,000? Your corporation zeros out, there's no double taxation on a corporation that didn't make money. Darn. So the corporation, the management fee matches your expenses and all the rest of the money is left down in the limited partnership where it grows. That's what you want it to do. And when it does make money, you're not being taxed at or it's passive by nature. Okay. So the limited partnership then It deducts brokerage fees, bank account fees. What does it own? It owns your brokerage accounts. It owns your bank accounts. It might be precious metals. It might be your cryptocurrency. It might be investments. It simply owns the investments. The corporation owns the depreciating tools needed to run the business. But there's really nothing there. There's nothing that's attractive. If you lost the corporation, yeah, it owns a used computer and a cell phone and some office supplies, some sticky notes and a pen. But there's nothing of value in the corporation. All of your assets of value are kept down in the limited partnership or the LLC. Who owns the limited partnership? Well, it would be by whoever contributed the assets. if if i'm married it's probably me and my my spouse if it's just me now i could make gifts to children and grandchildren down the road but initial it's going to be by whoever owns what whoever contributed the assets the corporation who's going to own that well it could be husband and wife whoever's going to do the management Could it be both? Could both of them be, I own 100% of the corporation and I own 100% of the limited partnership? And the answer is yes, we could structure it that way. But when you're acting as one, you wear the corporation, the management of, you know, the president of the corporation hat. And sometimes you just need to learn to wear multiple hats. Now, upon your death, we want to avoid probate. And everything we teach, we always begin with the end in mind. So when we go to set up that corporation, or again, the LLC that manages it, we want that ownership of the corporation to be tied down to your revocable trust. So when we issue stock certificates, they won't be in your name. They'll be in the name of your trust. Upon your death, the corporation continues to exist, and all of your stocks avoid probate by coming down into the trust. All your interest in that LLC or the limited partnership that owns all of the investments, that's also tied to the trust. And we can do that by a simple little paragraph or a little statement, a little sentence inside of the operating agreement of the LLC that says, upon my death. I want all my rights and interests to go to. Then there's a blank line. It could be your trust. It could be your kids. It could be your spouse. But if you don't do that, that million dollar or whatever's in your limited partnership at the time of your death will go through probate. And it's a simple, simple little fix. Generally, we don't like a little probate because it can tie up your estate for months and years, and it can be expensive. I've known of estates that have been tied up for decades, and in one case, over a century, to probate an estate. So we like the living trust in most cases because it avoids probate, and it's private. It's not a matter of public record. Now, some of you also have real estate holdings, and we can teach you at a more sophisticated level how to protect and isolate each one of those properties from each other. We can separate sometimes safe assets, things that are not going to cause lawsuits from things that do cause lawsuits. Again, everything would be tied down to a revocable trust. The management company almost always we tax as a corporation. The holding companies we tax as partnerships. The little single-member LLCs that separate each property from each other are disregarded entities, and there is no tax return on your revocable living trust. This is some of the things that we teach at our advanced classes. What if I'm using IRA money or qualified? So we're going to teach you how to do that. This is getting a little more sophisticated than I can do in a half an hour. But here's what we didn't. I want to leave lots of time for questions, but we didn't talk about how to protect your personal residence. For some of you, that's your biggest asset. We didn't talk about isolating other businesses or some really good tax tips on saving money on taxes. the best states to incorporate some really good ideas for probate, well, avoiding probate and avoiding estate taxes. We didn't really talk about the sources of lawsuits, but we live in a very litigious world where you don't have to do anything wrong to get sued. We didn't talk about tax-free planning. George, that's kind of where we left off. um no that's uh don listen that's that's great and i and i'm going to add a couple of comments here because i think what's important for everybody on this um private mastermind to understand is that the reason i brought this out is you have to have a holistic approach to growing wealth it doesn't matter if you're just trading or you're a trader or whether you're trying to build a an affiliate or you know marketing business or whether you're just this is topics you can use in your normal life or your business or your income that you currently have. The bottom line is this. I've noticed over time, and I've been around some of the biggest seven, eight, nine figure plus plus mentors and thought leaders out there, and they take advantage of strategies that only the ultra high net worth understand, and they do it, and that's why they're able to grow their wealth. So many of us think about needing to have wealth before we do something, And that's the one lesson I've learned over time is that if you get started early, your wealth will compound, it will grow, you'll keep more of it, and it just makes everything easier. And you can apply all the stuff Don's talking about to everything you're doing. It's really, really important for me, for you guys to understand that this is stuff that I'm trying to bring you these benefits that no one else gets. I mean, we just had a chairman trip last year in the DR, and half the chairman there had tax problems, you know, because you don't learn a lot of these things, right? You make a lot of money, you trade, you get money, you lose money, you're creating losses, and you think it's a loss when you could benefit from that on your tax returns. And so it's very important that, number one, you learn strategies and that you create some blueprint for yourself and everybody, it's different. like Don said, there's only so much we can do in one call, but I wanted to get him to give you a real high level. And most importantly, you just have to change how you think. So obviously, because they're part of our mastermind and everything, they've made it available. You guys can go to the summit. In fact, Kendall, do you have a link or something? I'll have Kendall get a link so that you guys can register if you want to go to any of the summits. They do five of them a year. There's probably two live ones, East Coast, West Coast, you know, Vegas and Florida. there'll be the other ones are live streamed there's a live stream one coming up in february we'll get you all those dates
