INCREDIBLE TAX SAVINGS INVESTOR EXAMPLES

The term non-correlated asset classes covers a whole range of potential investments, including venture capital, real estate, private equity, and commodities, but also alternative investment strategies.

But in today's economy of crashing public equity markets, defaulting hedge funds, and non-existent real estate plays, one company believes investing in film slates, including theatrical distribution, offers a high yield alternative investment that can be leveraged with tax benefits and multiple sources of revenues including theatrical, DVD, video on demand, cable, and the foreign markets.

As a non correlated asset class, films and film finance has outperformed every non correlated asset class in the world if you look at the more than $6 billion dollars poured into motion picture finance deals in the last 3 years, the IRR across the spectrum for both studios and independents are resilient to global economic declines in other industries.

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When defense contractor Honeywell, New York Hedge Fund Elliot Associates, and Dune Capital invested more than a combined total of more than a billion dollars towards several different film funds, many pension funds, private banks, hedge fund managers, private equity groups, and high net worth investors and family offices started to follow suit enter the movie business.

Investors from Wall Street to Silicon Valley to the Middle East to Russia have been parking their money into Hollywood.

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Anil Ambani, Larry Ellison Of Oracle, Paul Allen Of Microsoft, Steven Rales, Fred Smith of Federal Express, Norman Waitt, the Co-Founder of Gateway Computers, Jeff Skoll Of Ebay, Marc Turtletaub of The Money Store, Roger Marino Of EMC Corp, Sidney Kimmel Of Jones Apparel Group, Minnesota Twins owner Bill Pohlad; Real Estate Developers Tom Rosenberg and Bob Yari, and, financiers Sheikh Waleed Al Ibrahim, Michel Litvak, and Philip Anschutz are all behind the finance of a lot of films that range from box office hits to Academy Award winners.

Institutional investors and hedge funds investing in films include Elliot Associate, Stark, Columbus Nova, Bain, Honeywell, and others.

Non-correlated investment strategies can be used by investors to neutralize, or counterbalance, the risk that one, or more, of the investments in a traditional portfolio of stocks and bonds falls in value. In order to do this, investors typically place between 5% and 20% of their total investment portfolio into alternative investments to protect the remainder of the portfolio from downside risk.

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Among the spectrum of asset classes targeted by high net-worth individuals, institutional investors, pension funds or private banks, alternative investments are becoming popular offering more diversification to investors' portfolios. The benefits of such diversification have been demonstrated by Harry Max Markowitz ( 1990, Nobel Prize in Economics ) in the Modern Portfolio Theory. He proved mathematically that an investor can reduce portfolios' risks simply by holding instruments which are not perfectly correlated - a correlation coefficient not equal to one. By holding a diversified portfolio, investors should be able to reduce their exposure to individual asset risk.

If investors are attracted by alternative investments in their quest of alpha, it is because allocating to alternative investments offers advantages compared with traditional asset classes and diversification to a portfolio âEUR" though involving a certain level of risk.

As investors have become more concerned about their risk-adjusted returns, especially in bearish market environments, interest in alternative investment strategies gained momentum.

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By investing in alternative investments, a portfolio manager or a given investor aims at obtaining performance from the relationships between securities. A non-correlated asset class behaves independently from other securities composing a portfolio. Such investment vehicles allow investors to hedge the risk that an asset falls in value and avoid any snowball effects. One of the main benefits of alternative investment strategies lies in the fact they minimize downside risk.

When educated about properly structuring leveraged film finance which may also include U.S. and international tax incentives to minimize the risk many private bankers, sovereign wealth funds, high net worth investors, family offices, and pension plans understand that they are not gambling on one film hoping to win a film festival. When a company is looking to finance 10, 20, 40,50, 75 films there is more than just upside on revenues from each one but a final exit strategy after 5-7 years that can bring 300-400% returns on capital invested.

Film, Entertainment, Media, And Hollywood in general seems to be thriving and immune from economic woes. If you look at the theatrical box office receipts and DVD growth of recent films, including 'Slumdog Millionaire' or "Twilight" which had zero movie stars, the ROI on these and numerous other films exceed the ROI and revenues of auto manufacturers, real estate, stocks, mutual funds, etc. Primarily because a well made film is not a local commodity that is just bough and sold once but a global one that has revenue potential from more than 50 countries and medias including theatrical, cable, tv, satellite, airline, DVD, and the huge explosion of Video on Demand.

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While some private equity outfits may balk at the notion that Hollywood is safe this country was built based on blue chip industries and for the retail investors, Wall Street and Real Estate was the path to go. Well, when retail investors as well as institutional investors are transitioning from brick and mortar investments to the film business, the underlying factor is 'why'?"

Some U.S. investors and C corporations are looking for either a strict 100% deduction of their investment under IRS Section 181 or simply being in a portfolio of non correlates investment opportunities. Overseas investors simply want a high yield non-correlated asset class that has long term appreciation such as our hybrid film slate and 100% control over U.S. theatrical distribution.

And for smaller retail investors, not including affluent families or ultra high net worth investors, the bridge between film finance, film production, distribution, and technology are converging so that investors see their investment bring an immediate return from the monetization of state tax credits as part of the equity stream,  an upside in a number of films vs. investing in a single picture, possible Section 181 benefits, as well as being involved with creating jobs and stimulating the economy since every film production creates 50-100 jobs.

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Yuri Rutman is involved with structuring tax advantaged private equity alternative investments in film for affluent families, wealth managers, swiss private banking, wealth advisers, private client services, hedge funds, portfolio managers, pension funds, ultra high net worth investors, family offices, corporations, tax attorneys, CPA's, private equity funds, tax planners.

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He also consults for filmmakers and producers wishing to raise money using Section 181 benefits, international film finance, co-productions, etc.

He also consults to entrepreneurs needing business plans and private placement memorandums, as well as owning a Chicago search engine marketing and media agency specializing in SEO, web commercials, SEM, branding.

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A. One of the most common problems in audits of construction projects is the moment of sale by investors avoiding fiscal obligations and paying only personal income tax to the amount of 10% of their incomes from sale. Meanwhile, considering this a point of common abuse, the tax administration issued a circular to all local tax offices to register them as active taxpayers. Below is the document of 2003, not still in force but the problem and the solution is the same.

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1. Taxpayers in the category "Investors" in construction will be registered as VAT and profit tax taxpayers. In fact, this taxpayer category will be subject to profit tax since sale of residential buildings is exempt from VAT. It is up to the investors to choose their status, i.e. whether they create a company and register with the commercial registry or register with the court as a private commercial individual. Regardless of their registration form, in fiscal terms they will be taxpayers of VAT (which they are exempted from) and profit tax.

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In case an investor or a group of investors, identified and acknowledged by the Tax Office wants to register, the taxpayer or group of taxpayers should provide the taxpayer with an authorization according to article 12 "Fiscal Representative" of Law "On fiscal procedures in the Republic of Albania". In order to avoid delays and abuse, in every case, the investor or group of investors (contracted parties) will be obliged to register for taxes with the same Local Tax Office as the company declaring them as investors, and their entire activity will be documented with this office.

2. During tax periods there must be a careful follow up of the profit tax amount to be paid by the investors. For this, they should take into consideration the surface area available from contracts and profit earned from apartment sales, i.e. the difference between sales cost and price. Minimum fiscal limits have been already established for these two elements, i.e. average cost and average sales price.

B. Another problem appearing in audits of residential construction activities is the moment of supplying technical services by non-resident specialists. Several contractors have been provided answers regarding this specific case. Below we are presenting the answer to a similar case, in which the foreign specialist is an Italian resident.

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If the "Double taxation agreement" is in force in their countries of residence, the provisions of this agreement will apply in cases of technical services supply performed by non-resident contractors or companies. The first condition to meet in the framework of this agreement is that the company providing the technical service, etc. should be resident in the country with which the agreement has been finalized. In such case, the provisions of the agreement explain each country's taxation rights. Thus, business incomes are taxed in the country of residence, except when the company is doing business in the other country through a permanent office, and only incomes attributed to this office/branch can be subject to tax in Albania.

For the concrete case and in view of the agreement in force with Italy, we hereby explain:

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In order to avoid taxation of Italian companies providing project services to the benefit of your company (Albanian resident), you should provide evidence and documents to confirm that the companies providing such services to you are Italian residents (e.g. certificates issued by Italian tax authorities). You should provide evidence that the service is entirely performed in Italy, i.e. that the Italian companies have had no permanent office/branch in Albania as specified by the Agreement and the Law "On income tax" and consequently have not been obliged to be taxed in Albania for incomes attributed to this office.

Based on the domestic law and the Agreement, for fiscal purposes the Albanian tax administration has the right to make corrections to these payments when they are made between related persons and when they have been artificially increased in order to avoid taxes from your part. This means that in case of transactions between related persons, the tax administration has the right to not fully or partially acknowledge as deductible costs the payments your company has made to the benefit of Italian companies.

Another frequent problem is the treatment of some cases in terms of obligations in the construction phase and profit tax in construction of residential buildings and business premises therein for personal reasons by investors or landowners at the moment of sale.

1. At the moment of construction, the landowner or investor should meet the following criteria:

- If the landowner or investor has signed a contract with a contractor for the construction of a residential building for personal purposes, the constructing company in the role of only the contractor performs the work till completion. According to the instruction from the General Tax Directorate, a minimum VAT per 1m2 of construction surface area at the value of respective period in the final inventory applies to every residential construction project. This minimum VAT should be paid by the holder of the construction and afterwards utilization permit. This VAT in construction is in conformity with the tables for zones, available in the Tax Office

- In case taxpayers have failed to meet the VAT and profit tax parameters for a given construction moment, Tax Offices should require the respective company to pay the difference between the minimum applicable VAT/m2 and the VAT declared so far as well as the respective profit tax, according to the instructions issued by the General Tax Directorate. If the landowner declares that the final part of construction work is performed by him/her or a third party, while the construction company has not declared any work performed, the landowners should pay as withheld tax to the Tax Office, the difference between the minimum applicable VAT/m2 and the VAT declared so far. If another contractor takes over the work, that contractor should pay the difference of VAT and profit tax for the ongoing construction period, according to parameters for construction zones.

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The following procedures apply with regard to tax on the moment of sale:

2. At the moment the building is sold by the investor or landowner it is required that:

- In case investors are registered with the Tax Office as such, it is your legal right to request the corresponding payment for profit tax on sale for the residential building or business premises therein. However, investors' obligation to register for residential buildings and business premises therein arises only when they exercise economic activity for residential buildings sale.

- In case the investors have a contract with contractors for constructing their personal residential buildings, the contracting company in the sole role of contractor should pay respective VAT and profit tax obligations in the construction stage.

- If the construction and utilization permit are in the name of landowners who are also investors, they are responsible for obligations arising (profit tax) after the construction project is completed and ready to be registered with the Real Estate Registration Office.

Annuities

Below we are providing some cases related to the investors' or landowners' position at the moment a residential building should be registered in the Real Estate Registration Office.

Case 1: When investors (or group of investors) or landowners are not selling any m² of the building or business premises therein:

- With regard to profit tax on sale, the tax office will require the investors and landowners to produce a certified document confirming that the residential building is not for sale, but, instead, it will be used for personal purposes.

- For the purpose of building registration with the Real Estate Registration Office, the tax office will issue a certificate, which requires the latter to block any transferal of this property to third parties.

Case 2: When investors (or group of investors) or landowners are selling part of surface areas m² of the building or business premises therein and are not registered:

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Based on the Law "On income tax", in every case, real incomes generated from sale of surface area will be taken into consideration when calculating profit tax for investors or landowners, constructing and/or selling surface areas designated for residence, trade, production or service. Sold surface areas imply areas stated in sales contracts with clients (surface areas transferred as compensation to landowners or common surface areas, when the latter are not specified in the contract).

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Taxable sales profit on partial surface areas will be the difference between incomes from sales and costs incurred for partial sales. In such case, the salesperson should register as investor or group of investors with the tax office. Profit on sold part will be minimally equal to the sold surface area multiplied with the difference between minimum price for the respective zone and minimum cost foreseen in the Agreement. In such case, individuals trying to register their buildings as residential buildings are not obliged to register with tax authorities, since they do not exercise economic activity.

If the residential buildings were constructed for sale and consequently profit, individuals will be required to pay respective tax obligations for their activity for buildings constructed during these years and pending for registration with the Real Estate Registration Office in the year 2005.

Case 3: When individuals or groups of individuals claim financing for part of the residential building and business premises therein are registered as corporate with tax authorities:

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With regard to profit tax, procedures will respect instructions issued by the General Tax Directorate for local tax offices, which relate to profit tax at the moment of sale of residential building and business premises therein. In such cases, the Real Estate Registration Office can register the corresponding part in the name of the corporate (legal entity). The Real Estate Registration Office will calculate the "tax on property transferal" for every m2 transferred by the company (investor or group of investors establishing the company). In each of the above cases, when the Real Estate Registration Office is notified that any of the investors, some of them or all of them want to transfer all or part of the property they own, the Tax Office will calculate all missing tax obligations in the profit tax, together with penalties, and authorize transferal of this property only after all tax obligations have been settled.

I was lucky as a kid to have my father as a business mentor. When the time came and I entered the business world, I could not lean on him as he passed away young. The Rich Dad / Poor dad books were my saving grace when it came to financial education. Several of the concepts I knew about because of my father but the advanced strategies and the "how to" really came from the Rich Dad books. Tom is a Rich Dad advisor.

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Why is this important to me?

I am not doing this summary to waste your time. It is my vision to provide concise action steps that you can adopt right now to enhance your financial life and career. If you want to continuously improve, you have to be committed to continuous learning. Lever the continuous learning with the right associations and you will succeed in your career.

The Cash flow quadrant really sums up the essence of financial success. If you focus on the left side of the quadrant then you can make an OK income but if you focus on the right side then you can become rich. Robert Kiyosaki points out in Rich Dad / Poor Dad that the left sides of the quadrant people make money, pay tax and then spend it. On the right side of the quadrant people make money, spend it and then pay their taxes. This is a huge difference and can be the biggest success lever in your financial arsenal.

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Tax-Free Wealth points out 24 Tax Strategies you can use on your way to Tax-Free Wealth. For the sake of time I will point out a few along with some commentary about each.

1. Rule # 1 - It is your money, not the governments. People tend to run scared when it comes to taxes. Remember that you are the one creating the value and making the business work, be smart and utilize tax strategies to minimize tax and maximize your investment. The key here is tax avoidance NOT tax evasion. Every concept in this book is totally legal and encouraged by the IRS.

2. Rule # 2 - The Tax Law is written to permanently lower your taxes. All financial plans need a solid foundation. This is why you simply can NOT focus on rate of return only. You can make a huge rate of return but if you can lose it because of a law suit or 50% gets eaten up in taxes then you will lose in the long run. 99% of the tax code is written as incentives to encourage people to start business. The reason the government does this is because businesses create jobs and that is the single biggest economic driver.

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3. Rule # 3 - The fastest way to put money in your pocket is to reduce your taxes. Businesses require investment. That investment is a business expense along with R&D, Travel and other business related expenses. You can combine vacation and work legitimately and write it off as a business expense. If you travel and sell items then go on sales calls in the vacation area. If you are a real-estate investor then travel where you may invest.

4. 4. Rule # 24 - Build massive passive income through your tax savings. This is the strongest wealth builder in the book because you lever up compound interest, velocity of money and leverage. Utilizing these three vehicles along with investment stacking and you will be rich. The goal is to build your business and make the money there and turn it into passive income and then park the added money into cash flow investments like real estate. You want your money working harder than you do. You do not want to trade hours for dollars. Let me give you an example.

In our software company there are two ways to build wealth and that is through intellectual property and maintenance agreements. These two things used together will build a company that can be sold for 2-4X revenues. Now to foster that investment with leverage, I use the "Infinite Banking Concept" to lend money to the business through "my own bank." Now the money the business pays me comes back as investment income which means lower taxes. The new revenue the additional maintenance contracts bring foster new contracts. The next step is to use "good debt" to leverage our coverage and purchase more maintenance contract revenue with our software platform.

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In summary, you make money in your business and hold it in passive income generating assets using good leverage, velocity of money and compound interest.

Tax-Free Wealth is a great resource that I encourage you to read. If you immerse yourself in these concepts, financial security and true wealth can be yours.

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I hope you have found this short summary useful. The key to any new idea is to work it into your daily routine until it becomes habit. Habits form in as little as 21 days. One thing you can take away from this book is lever your financial education. If you take control of your education and schedule 30 minutes per day dedicated to this then you will reap results. You cannot put your financial future in the hands of somebody else. Take on the responsibility and good things will happen.