Tax Treatment of Premiums ***

Go over this until you understand it. There is a difference between premiums and cash values.

MR. WATSON: What does "tax deductible" mean?

WOMAN: You can write it off on your taxes?

MR. WATSON: Yes. What does that mean? It reduces your taxable income.

MR. WATSON: Ex; If I made $100,000 this year but could show the IRS, legally, that I only made $90,000, I would pay less in income taxes. If I could buy something for $10,000 and tax-deduct it, instead of paying taxes on a salary of $100,000, I would pay taxes on $90,000. So if I was in a 20 percent tax bracket, what is 20 percent of $100,000? 20 grand. But, if I pay 20 percent of $90,000, that's 18 grand. So if I were to buy something for $10,000 and I was able to tax-deduct it, that would lower my taxable income. I am not paying taxes on the $10,000 I was able to deduct. I'm saving how much in taxes? $2,000.

MR. WATSON: There are only three ways to tax-deduct life insurance premiums.

MR. WATSON: C, B, G.

• Charitable organizations
• Business creditors- a bank could be a business creditor
• Group Life up to $50,000

MR. WATSON:"B," business creditors. What's a business creditor? It's like a bank.

MR. WATSON: "C" is charitable organizations. Churches or other 501c3 organizations.

MR. WATSON: And the "G" is Group insurance up to $50,000.