Dear ETR Reader,

Are you "loaning" money to Uncle Sam? Here's how to know for sure … and stop.

- Judith Strauss
ETR Senior Editor

Monday, March 20, 2006
Message #1681

WEALTHY: 2 ways to beat the tax game (Tom Phelan)
HEALTHY: What's stealing your masculinity?

WISE: Judge Learned Hand on taxes

ALSO IN THIS ISSUE:

Feeling your way to sales (Clayton Makepeace)

The truth behind "marital bliss" (Michael Masterson)

Captain Elliott sets the record straight

Add the word "meretricious" to your vocabulary

* Highly Recommended *

The Billionaire Way

I would recommend "The Billionaire Way" program to anyone who is contemplating a new enterprise or business start-up, or is already in business for themselves. It enabled me to look at my life, attributes, and habits in a refreshing new way. I was delighted to discover that I too have a number of the traits and qualities that many who are successful in business possess, which I hadn't realized. I am very excited to apply the principles that were presented in the program to my new business ventures.

A tremendous benefit was to be able to talk with the author of the program, Bob Cox, about my own business strategies and ideas. Bob spent an hour on the phone with me after I finished the program, and his personal insights and suggestions were very helpful and inspiring.

I know that I will often refer back to the information provided in "The Billionaire Way" to enhance my chances for success!

- Catherine McNeil, Monte Vista, Colorado

 "In America there are two tax systems; one for the informed and one for the uniformed. Both systems are legal."

– Justice Learned Hand

Tax Relief

By Tom Phelan

Take a look at that quote at the top of this article. Wow! What a powerful statement – made many decades ago by one of America's greatest judges, Learned Hand. And he was referencing the benefits of the 1031 Exchange that President Harding had signed into law.

Today, one could understandably apply that same statement to the IRA as well, because – although it has been around since 1970 when President Gerald Ford signed ERISA (Employees Retirement Income Security Act) into law – most Americans still know little about it.

Without a doubt, the 1031 Exchange and the IRA (specifically, the Self-Directed IRA) are the two most-misunderstood and underutilized tax-relief tools available today.

And tax relief is what many of us will be looking for as April 15th rolls around. The fact is, none of us wants Uncle Sam as our silent partner … especially when he is already guaranteed a hefty slice out of your profit pie and rarely drops a crumb your way when you suffer a loss.

The 1031 Exchange

If you sold investment real estate in the year 2005, hopefully you considered the 1031 Exchange. This unique IRS regulation allows you to borrow money from Uncle Sam, interest free. (Because you don't pay taxes, you don't incur interest on the unpaid taxes.)

Here's how a 1031 Exchange works:

When an investment property is sold, a gain is realized and the seller/taxpayer must cough up a 15% capital gains tax on the profits.

But … using a 1031 Exchange (the typical cost is around $750) allows the same seller/taxpayer to defer any taxes due on the profits to an undefined future date from the sale of investment property. (You don't have to make payments or set a deadline for when you will repay the deferred taxes.)

In essence, the taxpayer is given the ability to borrow interest-free money from Uncle Sam. The tax that a taxpayer would normally owe is the "borrowing" – and the fact that there is zero interest due on those deferred dollars is the "interest-free" part. And it gets even better: You never have to pay back those "deferred tax dollars" to Uncle Sam when you die. When a taxpayer dies, his/her heirs receive real estate on a stepped-up basis (the fair market value of the real estate at the time of death). Ergo, you won't pay any taxes either. (Though estate taxes could be due, depending on the size of your estate.)

The 1031 Exchange has long been employed as a tax-relief tool for the "informed." Another key tax-relief tool, as I mentioned earlier, is the individual retirement account (IRA).

The Self-Directed IRA

Today in America, there are 45,000,000 IRAs – which, combined, represent trillions and trillions of dollars. Unfortunately, most American IRA holders do not utilize the full potential of this incredible tax tool. They have no clue about the versatility and greater profit potential of a Self-Directed IRA.

First, a bit about traditional IRAs …

In 2006, the traditional IRA allows a taxpayer to place up to $4,000 pretax dollars into it each year; $5,000 if the taxpayer is 50 or older. In 2008, those limits will go up to $5,000 and $6,000.

The tax-relief benefits of an IRA are twofold:

1. The dollars you place into it are tax-deferred.
2. Any earnings on those pre-tax dollars are also tax-deferred.

For example if your retirement objective is to place $4,000 into a savings account and your combined state and federal tax rate is 33%, you would need about $6,000 to net $4,000 after paying taxes on the $6,000. (33% tax rate x $6,000 = $1,999 in taxes)

If your marginal tax bracket is 25% and you only have $4,000 to invest, without the IRA you'd only be able to invest $3,000 … because you'd first have to fork over $1,000 to Uncle Sam. With the IRA, you get to invest the full $4,000. Compound the difference of investing $3,000 a year at, say, 10%, versus $4,000 a year at 10%, and the difference over the long term is huge. After 25 years, it's a difference of $108,182!

The Roth

With a Roth IRA, you use after-tax income to fund your IRA. Your investment and the earnings still grow tax-deferred. The advantage here is that your earnings and capital gains are also tax-FREE when you start withdrawing them in retirement.

Plus, with a Roth, you can access your capital contributions before retirement, after you've had the account for five years, without tax or penalty. That applies to your capital contributions, not your gains. You wouldn't necessarily want to do that. You should let your retirement funds grow. But it's nice flexibility to have in case you're in a pinch for cash at some point.

The SEP

If you are self-employed, you can choose a Simplified Employee Pension (SEP) that allows you to sock away up to 25% of your annual income, with a cap of $41,000. The SEP can represent major "tax relief." And the beauty is that you don't have to put 25% of your income into it each year. You can save as little as $1.00 … but if you have a great income-earning year, you can quickly build up a tidy nest egg for retirement.

The Self-Directed IRA

With a Self-Directed IRA, you can control your own traditional IRA funds, Roth funds, or SEP funds and get far greater investment liability than you could ever get by having your funds parked at a Wall Street brokerage and restricted to stocks and bonds.

With a Self-Directed IRA, you can buy all the stocks and bonds you like, but you can also buy real estate, government-guaranteed tax liens, and collateralized notes – to name just a few of the more secure, often more profitable, investments that are available to you with this amazing vehicle.

[Ed. Note: Thomas Phelan is a financial author, an active real estate investor, and the author of a new program - the "Instant Tax Relief Kit" - to help you take advantage of the tax-relief tools at your disposal.]

Today's Action Plan

Tom Phelan's lesson today is clear: If you want major TAX RELIEF, you need to become one of the few Americans who are informed about the benefits of the 1031 Exchange and the Self-Directed IRA.

To learn what you need to know, order Tom's "Instant Tax Relief Kit" here.]

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Men: Are Your Estrogen Levels Creeping Up?

As a man ages, his body's production of testosterone naturally decreases. As I discussed in Message #1673, this can increase your risk of chronic disease. It can also rob you of your strength and muscularity, your virility … even your drive and ambition. But declining testosterone isn't the only culprit behind these problems.

Dr. Al Sears and I recently discussed the "double whammy" that men face as they age. Not only do we have to contend with naturally declining testosterone levels, we are also affected by "environmental estrogens" that feminize our bodies.

Dr. Sears explained:

"Hundreds of the chemicals that we come into contact with every day have a molecular structure that closely resembles the female hormone estrogen. When these hormone look-a-likes get in, they bind to estrogen receptors throughout the body. And once they gain access, they send out confusing messages, which the body has no choice but to carry out.

"Because estrogen is a female hormone, the male body starts to become more feminine. A man's chest muscles begin to sag and look more like breasts. He gains fat around the middle and gets that 'dough boy' appearance. His sex life can fall apart and his risk of prostate cancer skyrockets."

It's not just testosterone, guys. Your estrogen level also plays a role in determining how much "manpower" you have. The higher your testosterone and the lower your estrogen, the more drive, ambition, muscularity, and sexual energy you will have.

Here's an effective way to lower your estrogen: A plant extract called DIM is found naturally in vegetables like broccoli, cauliflower, and asparagus. It works to break down estrogen into safer compounds that your body can easily eliminate. You can purchase it as a dietary supplement. Dr. Sears recommends starting with 200 mg daily.

Dr. Sears' new e-book, 12 Secrets to Virility, is packed with easy-to-follow advice on how to lower your estrogen, boost your sex drive, and get in the best shape of your life.

- Jon Herring

Eliminating the Salesman/Prospect Dynamic

Recognizing how we all feel when confronted by a salesperson – uncomfortable, skeptical, and guarded – is the basis of a powerful "dominant emotion" technique that most always increases sales.

By not presenting your sales message as one that will sell the reader anything … and, instead by putting the message on the same emotional level that your prospect currently feels … you can position your company as a powerful friend that is on the prospect's side.

For instance, instead of touting your financial sales message as simply selling retirement securities, try putting the message in a way that helps your prospects understand that they must fight for their retirement. Then gently lead them to a way where you can help them have a comfortable, financially secure future of their own.

When you become positioned as a powerful friend and champion who is unapologetically on the prospect's side, you have conquered the first step in making your company and the prospect fast friends … and you're on your way to bigger sales!

- Clayton Makepeace

[Ed. Note: Clayton Makepeace offers help in reaping maximum profits through the Internet, direct mail, and print advertising every week in his e-zine The Total Package. Learn 177 of his surprising secrets that have doubled his clients' profits in a year and quadrupled them in 36 months in his newly published e-book "Double Your Profits in 12 Months or Less!" Learn More]

Notes From Michael Masterson's Journal: 3 Reasons to Get Married

Married people are much more likely than their single counterparts to rate themselves "very happy." According to Princeton Survey Research Associates, 43% of the married people polled claimed to be very happy while only 24% of the unmarried people did.

I was surprised to read that statistic. Married people, I know from reading other studies, are better off financially. But happier too?

It doesn't seem fair. Where's the balance? Maybe married people are less healthy. That would even things out a bit. I asked ETR's health editor, Jon Herring, whether this might be true. This is what he said:

"In my experience, single people tend to want to stay in better shape to attract a mate … but once they get married, they sometimes let themselves go. That said, it is well established that people who are married live longer, healthier lives than those who are single."

Three for three. Three good reasons to get married. But if you are not married, don't be alarmed. You can still be among the 24% who rate themselves as "very happy." In fact, if you develop the right frame of mind, there's no reason you can't be among that teensy percentage who think of themselves as ecstatically happy. Why not?

My neighbor Bob (the cigar-smoking, speech-making expert I told you about on Friday) just came by. He had just finished a Dr. Al Sears-inspired interval-training run. He said he was feeling stronger and was enjoying "that buzz" much longer into the day. (Bob and I are always talking about the buzz. The buzz you get from smoking a good cigar, from savoring a fine wine, from getting a good workout, etc.) He asked me what I was working on for ETR, and I told him: Three Reasons to Get Married. He said, "It's always the married people who seem to think that being single is better. My single friends – most of them want to be married."

- Michael Masterson

[Ed. Note: Michael Masterson has a lot more to say on the subject of happiness. Tune in tomorrow for his advice about the relationship between happiness and work.]

It's Good to Know: Free Headsets on AirTran

Thank you to one of our loyal readers for pointing out an error in Message #1673.

"Dear Mr. Masterson,

"My name is Tim Elliott and I am a student of AWAI's Accelerated Program for Six-Figure Copywriting. I look forward every day to receiving the latest edition of your e-letter Early to Rise. In my regular job, I am a captain with AirTran Airways.

"In your recent brief about 'Add-On Costs for Air Travelers,' I noticed that the author mentioned that we (AirTran) are charging our passengers for the XM Satellite Radio headsets. It is with all due respect that I point out that, at this time, we are not charging for the headsets. This is obviously subject to change, but, for the time being in any case, the headsets are still complimentary.

"I thought you would like to know."

Timothy W. Elliott
Orange Park, FL

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Word to the Wise: Meretricious

Something that is "meretricious" (mer-uh-TRISH-us) is plausible but false or insincere – as a "meretricious argument." The word (which is derived from the Latin for "prostitute") can also refer to something that attracts attention in a vulgar manner.

Example (as used by Erik Larson in The Devil in the White City): "Let us be thought over-much plain and simple, even bare, rather than gaudy, flashy, cheap, and meretricious."

Michael
Masterson
Copyright ETR, LLC, 2006

Have a Question for Michael Masterson?

Want to know the secrets to his success? Have a perplexing business problem? ETR welcomes your thoughts. Post them online at  http://speakoutforum.com/forum/

or send questions directly to Support@EarlyToRise.Com

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This entry was posted on Monday, March 20th, 2006 at 1:59 pm and is filed under Daily Issues .