Episode 116:
The Win-Win Wealth Strategy

Announcer:
This is The WealthAbility® Show with Tom Wheelwright. Way more money, way less taxes.

            Welcome to The WealthAbility Show, where we're always discovering how to make way more money and pay way less taxes. Hi, this is Tom Wheelwright, your host, founder, and CEO of WealthAbility. One of the biggest topics in the media and with politicians over the last few years has been why don't the rich pay taxes. Why don't they? Are they cheating like the IRS commissioners suggests that they're cheating and maybe there's a trillion dollars available, or are they simply doing things differently, and if they do things differently, is there a way for you, or me, for the average person to do things differently?

            That is actually the subject in my new book, The Win-Win Wealth Strategy: 7 Investments The government Will Pay You to Make. Today, you're going to discover why the rich don't pay taxes, and how you can also win the tax game. We think about the rich, we go, “Well, they've got all sorts of resources. They have high paid tax advisors,” like me, “They have a lot of things they can do with their money, they have a lot of money, so they can afford to do really complicated tax strategies, right?”

            Well, the reality is that the rich people are really doing only those things that you can do as well. Rich people just have better tax advice. Rich people just sometimes understand a lot better. Like him or hate him, Donald Trump really said it in his debate with Hillary Clinton in 2016 when she accused him not paying taxes and he said, “That's because I'm smart.” Well, he's smart to hire good tax advisors. He's certainly smart to do business the way he does it in such a way that he pays very little or no tax. Actually, The New York Times suggested that 10 out of 15 years, he paid zero tax, and two years, he only paid $750 of tax. How did Donald Trump not pay any tax? How do the rich get away with not paying any tax? Is this a game you can win?

            Really, that's the key. The key is this is a game. We're all partners with the government. Anybody who has ever opened a paycheck and seen F-I-C-A/FICA and withholding, they're going, “Wait a minute. Why is the government taking all this money out of my paycheck? I'm not getting everything that I earned.” Well, it's because we're partners with the government, like it or not, no matter what country you're in. We surveyed 15 countries, their tax laws, in putting together The Win-Win Wealth Strategy, and in those 15 countries, we've found a lot of similarities in how tax laws actually work.

            One of the things we discovered is that while everybody's a partner with the government, some people are passive partners and some people are active partners. Those who are active partners tend to pay a lot less tax than those who are passive. What do I mean by that? Well, let me start with a story. A number of years ago, Robert Kiyosaki and Andy Tanner, Garrett Sutton, and I, some of the advisors, we were down in Santiago, Chile, and we were doing an event. We had about 600 people in the room. At this event, the promoter was a car dealer, not just any car dealer, he was the Bentley Lamborghini dealer, and on one side of the stage, there was a Bentley, and on the other side of the stage was a Lamborghini, so Robert, in his wisdom, gets up the very first day and he says, “Tom, we're going to show him how to deduct a Bentley for tax purposes.” He asked me to do that. I get up, I explain the rules, what it takes to deduct your automobile expense, at least what I know from the US.

            Lunchtime rolls around and a tax attorney from Chile comes up to me and he says, “Just want you to know, really great presentation, love what you guys are doing, you can't do that here. You literally cannot deduct automobile expense in Chile,” so I said, “Well, thank you,” and went on my way. I, of course, had the event the rest of the afternoon. That evening, we were sitting down to dinner, Robert and I and the other advisors who were there, those who were participating, and I was telling the story about this tax attorney and Robert goes, “Hmm, interesting.” That's all he said. The next morning, it was a two-day event, next morning, he gets up, we get up, we get to stage. Right before we go on stage says, “Tom, today, you're going to show them how to legally deduct Bentley in Chile,” and we're going, “Great. Okay, I have no idea how we're going to do this, but we're going to figure this out.”

            What happened that day changed my life. It changed my view of the tax law. It changed my view of how tax laws has actually worked. I'd already been doing tax law for 30 years before I ever had this experience, so I was pretty well aware of tax laws, but this one experience changed my life 'cause what happened was is we got up on stage, Robert and I, and we started to explain a different way of looking at how to deduct a Bentley, and presented a whole different point of view that I'd never looked at before. Robert and I came up with this right on the moment. We showed them how to legally deduct the cost of a Bentley in Chile.

            After the event, the same tax attorney came up to me, big smile on his face, and he said, “Tom, that would work here. I would never have thought of doing it that way, but would absolutely work.” Well, I love this story so much that I actually made it part of my new book, The Win-Win Wealth Strategy. I actually made it the last chapter. The chapter is entitled How to Get the Government to Pay for Your Ferrari. It talks about not just how to deduct the Ferrari, but how to actually deduct other expenses so that you can actually get the government to pay for your Ferrari. That's the last chapter of the book, The Win-Win Wealth Strategy. It's a true story. I actually used a client of mine, Brad Sumrok, who's told this story many, many times, and how he was able to get the government to pay for his Ferrari, so you're going, “Wow. Okay, he's rich. He can do that.”

            Well, let me tell you the other part of the Brad Sumrok story. Brad, when he came to me, he had a few goals in mind for his lifetime because he grew up poor. He goes, “The first thing I want to do is I want to make a million dollars in a year. I just want to make a million dollars.” The same thing is he goes, “I want to have a million dollars in the bank.” The third thing he said was, “I want to pay a million dollars in taxes,” and I said, “Time out. Why would you want to pay a million dollars in taxes?” He says, “Well, because I've always been told, if you make a lot of money, you have to pay a lot of taxes.” I said, “Brad, what if you could actually use that money some other way, even donate it?” I knew Brad had a huge charity down in Central America where they donated wheelchairs to the poor in Central and South America. I said, “What if you could take that million dollars and instead of giving it to the government, you could give it to your charity.” He goes, “Well, that would be amazing.” I said, “Well, let's work on that.”

            The first year, it was towards the end of the year, it's a little hard to do something towards the end of the year, we were able save about $150,000. For the second year, we got to zero. Now, here's a very important point. We got him to zero, A, without cheating, and B, while we got him to zero, we were able to increase his cash flow by $300,000 a year, and increase his wealth by over a million dollars, and doing that reduced taxes.

            This is really the key to the tax game. The key to the tax scheme is understand, first of all, the government makes the rules. We don't get to make the rules. Second of all, understand that the government will always win. They don't set up any part of the tax law that they don't win at. I think that's a mistake that people make when they say, “Well, the rich don't pay taxes. They must be cheating.” I actually have worked with a lot of rich people over the years that all of my clients would be considered rich. They're all in the top 0.1%. None of them cheat, to my knowledge, and I'm pretty careful about it. I know other CPAs and they say, “No, the rich don't cheat.”

            Now, are there people that cheat? Absolutely. The people who cheat don't understand the rules, and so they go, “Well, either the government's going to win, or I'm going to win, and I'm going to make sure I win, and the government loses.” What's wrong with that way of looking at things is that's assuming that this is a zero-sum game. In other words, that's assuming that in order for you to win, the government has to lose. That is not the case. The tax law is a series of incentives, it's of a series of incentives to encourage people to do what the government wants done.

            In my book, The Win-Win Wealth Strategy, I talk about seven investments the government will literally pay you to make, literally pay you to make these investments. Once you understand that the government actually, there are certain investments they want you to make, and there are certain investments they don't care if you make, once you understand that part of the game and understand the second rule of the game, the second rule of the game is that people, you pay tax on any income that you save, or you spend. If you save it, or you spend it, you pay tax on it. It's really that simple. If you save it, you spend it, or you spend it, you pay tax on it.

            What are the rich doing differently? Well, the rich, they're not spending much of their wealth are they, they spend a very small fraction of it, which is why taxing the rich actually is never going to reduce inflation, right, because they're not spending that money that you tax anyway. If they're not spending the money, what are they doing with the money? Well, they're reinvesting it, but most of the time, they're not reinvesting it in the stock market. That's not where they put their money. I did a podcast a while back with an economist who is a data engineer and he's actually examined the data. He said, “Look, if you look at data, the top five to 10%, you can get there with a job. The 0.1%, you can't get there with a job. You get there with doing what the government wants you to do, and that's, again, these are the seven investments.

            Let me give you an example. One of the things the government really wants to do is to create jobs. I think that's pretty clear. Everybody understands that the government wants more jobs created. What does the government get out of that? Well, first of all, people who have jobs pay tax, so don't think that the government's not getting tax on the money that the big companies earn because the big companies, most of that money goes to the employees who pay tax, right? If Amazon makes a billion dollars in gross revenue, they're paying a whole lot of that to employees, and those employees are paying tax, so understand that first of all, they do get tax, but they're getting it from the employees, not Amazon.

            What kind of incentives does the government give to business? Well, business, actually, this is the first chapter in The Win-Win Wealth Strategy is about business because business actually has the most tax benefits. The reason is because business does a lot of things for the government. One, it creates jobs, but second of all, it increases the economy, it produces goods and services. There's all sorts of positives from a government standpoint that it produces. On top of that, even though Amazon, for example, is reinvesting its money back into Amazon, and it did for years, that's why it never paid tax, or Tesla is reinvesting its money back into Tesla, so it didn't pay taxes, right, even though it's not paying taxes then, eventually, the companies pay tax, and so eventually, they get that money back. It's an investment on the front end by the government, and on the back end, they get rewarded. Well, that's no different than any other investor, is it? The government's simply saying, “Look, we're happy to be your partner. You go do the investment. You go do the work.”

            Let me give you a parallel here. Let's say that you were wanting to invest in real estate, but you don't know anything about real estate, so what you do is you go out and you find a developer who they know how to invest in real estate, they know how to develop or redevelop the property, they know how to acquire it, they know how to finance it. What they don't have is they don't have all the money, and so they say, “Well, look, you invest some of your money into this project, and we'll do all the work, and we'll give you some of the return.”

            Well, the government's just doing the same thing. The government is saying, “Wait a minute, we'll put our money in there, ‘kay, because we're giving you a tax benefit, right? You would've paid taxes otherwise. We'll put that money back into that investment with you, so we'll actually help you fund that investment. We'll be the silent partner in this case. You do all the work. We're going to take some of that benefit back when it starts making a profit in the form of taxes. You're going to get the rest of it.”

            Now, if you keep reinvesting the money, you may not pack, pay tax for the next several years, or frankly, you can not pay tax forever because the government, what they care about is they care about the investment back into those seven areas, where they want people to invest the money because they get a benefit. They get a benefit, either a societal benefit, they get a benefit, let's say, for clean energy, a climate benefit, they get a benefit for jobs. There are all sorts of benefits that the government's looking for.

            Once you understand the game and understand that it's not a zero-sum game, the government is always going to win, we know that, but you can always also win. It's a little like the old question that they ask the accountant is, I'm an accountant, so this is the oldest joke in the book, “What's two plus two?”, and the accountant says, “What do you want it to be?” Well, in this case, two plus two can equal five, six, seven, or eight. In fact, I can actually show you where two plus two can equal 16. Two plus two equals 16 because of two things, debt and taxes. Debt and taxes make you rich. Debt actually gives you more tax benefits, gives you more, obviously, you get leverage from that, but you also get more tax benefits. I talk about debt and how debt works in The Win-Win Wealth Strategy.

            What we want to do is we want to A, understand the rules of the tax game. B, we need to recognize the game is fair. Now, what that means is that two people in the identical situation will pay the identical amount of tax. Two people in the identical situation will pay the identical amount of tax. Now, in the US, that's actually a constitutional requirement, equal protection under the law. You cannot write a law that benefits one person without benefiting anybody else who does what that one person does. Other countries may or may not have that.

            But here's what I did find as I researched this book, I found that in the 15 countries, most of them provide very similar tax incentives because governments all want the same thing, they all want jobs, they all want jobs, they all want housing, and five other things that they want, so what I would encourage you to do is learn the rules. In The Win-Win Wealth Strategy, I actually give you seven investments that government will pay you to make, plus show you how to get the government pay for your Ferrari if you want a Ferrari. If you want a Tesla, go buy a Tesla. If you want a house on the beach, go buy a house on the beach. Doesn't matter. The government's really not interested in what you use the money for when they give you those tax benefits, what they want is they want to encourage you to invest the way they want you to invest.

            Now, you can choose instead to be a passive partner with the government. 95+% of the population is a passive partner with the government. The goal of The Win-Win Wealth Strategy, frankly, is to help you understand the rules, is to help you understand that you don't have to be passive. You can be an active partner with the government and you can actually get your taxes to zero. That was my first book. First book is Tax-Free Wealth. This actually shows you which investments you use to get your taxes to zero and how to invest in order to get your taxes to zero. Tax-Free Wealth gave you a foundation for it. Now, I'm giving you very specifics, “You invest here, you get these tax benefits. You invest there, you get these tax benefits.”

            These are the tax benefits that are there on purpose. Understand these are not loopholes. These are not mistakes. These are not just heavily lobbied tax benefits for the rich. These are actually tax benefits that the government chooses to give in order to encourage certain activities. It's no different than you have a child. You want them to take out the garbage. You might give them an allowance if they take out the garbage you want them to get. I had friends when I was growing up that they got a dollar, I'm old so a dollar was a lot of money back then, they got a dollar for every A on their report card. They were incentivized by their parents to study.

            We all get tax incentives, by the way. Anybody whoever has purchased a house knows that they get a tax incentive because they get to deduct their mortgage interest. Anybody who's ever sent a child to college knows that they get tax incentives for sending children to college. Anybody, like me, who's adopted a child, knows that there are tax benefits for adopting children, so whatever the government wants done, they're going to give you a tax incentive.

            All we're talking about, the reason this book is so important is let's change the conversation, okay? Instead of having this conversation about, “Oh, the rich people are cheating and this is horrible,” why don't we look at what's really going on here? This book actually uncovers what's really happening and really lays out this is not a US phenomenon. This is a phenomenon in the UK, in Australia, in France, in Asia. It is a phenomenon all over the world. It's a phenomenon all over the world, Japan, Korea, all these places, very similar tax benefits. While the details are different, the concepts are the same.

            I just want to know, just how closely are they aligned? So, I looked at 15 different countries. You'll find out when you read The Win-Win Wealth Strategy that these seven investments, most countries have some version of tax benefits for all of these investments, and some countries are way more than the US, ‘kay? Singapore has some tax benefits, way more from the US, in one of these areas. South Africa has tax benefits higher in one of these areas than the US, okay? All of these tax benefits are there and they're not there by accident. These are the rules of the game that not the IRS, but Congress, the government is laying out.

            As long as we follow the rules, as long as we first understand the rules, we follow the rules, understand that the government's always going to win on their side, so we don't worry about, “Is the government going to get their money?” They're going to get their money. But that doesn't mean it has to come from us. It can come from all those people, the 98 percenters, who want to be passive investors and passive partners with the government, but those of us willing to be active partners with the government, those of us that really are the ones that are doing what the government wants done, those of us who are willing to invest our money into those things that produce the most benefit to society, we're the ones that don't have to pay tax because when we do what the government wants done, when we understand the rules, and when we play the game the way that government wants it to be played, what's going to happen is we're always going to make way more money, and pay way less taxes. We'll see you next time.

Announcer:

You've been listening to the WealthAbility Show with Tom Wheelwright. Way more money. Way less taxes. To learn more, go to wealthability.com.