Hello, my friends. And welcome to another episode of Passive Real Estate Investing. I’m your host Marco Santarelli. I have a returning guest today. Great guy, very intelligent and extremely helpful in the category of making more money through saving in taxes. So Tom Wheelwright was on the show a couple of years ago. Really good guy. I’ve talked to him on many occasions at different places, and I really enjoy having conversations with him because I always like to pick his brain and find out how can I pay less in tax legally, ethically, and morally. So he just released a new book it’s called The Win-Win Wealth Strategy: 7 Investments the Government Will Pay You to Make, quite literally. So that is the topic for today. And I just picked up the book, started it. I haven’t finished it. There’s a lot of great content in there and he has great examples in every chapter.
So it’s very easy to understand and follow along. So, you know, taxes is one of those areas that make people cringe or stick their head in the sand and avoid the topic because they feel that they don’t have much if any control over it, but the opposite is true. And when you understand the game of taxation, it’s really just a rule book put out by the IRS that is essentially giving you direction through tax incentives on what they would like you to do to help them in producing the types of results that they want to get in terms of the economy and, and employment and whatnot, infrastructure, so energy, whatever it may be. So this is kind of a fascinating way to look at things. And the more, you know, the more you will grow. And, you know, I like to say, the more you learn, the more you earn, and this is one of those things, the more you learn, the more you save in taxes, which means it’s the more cash goes into your pocket. So it’s like earning more, but that is it. So let us get to our guest and I hope you enjoy today’s episode.
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It’s my honor, to welcome back to the show, Mr. Tom Wheelwright, Tom is a CPA and tax and wealth expert. He’s the CEO of WealthAbility, a Rich Dad advisor, entrepreneur international speaker, the bestselling author of tax free wealth. And he just released his latest new book titled The Win-Win Wealth Strategy: 7 Investments the Government Will Pay You to Make. Tom is the CPA for Robert Kiyosaki, which most of you know is the author of Rich Dad, Poor Dad. And he has spoken on stage on every continent to literally over a hundred thousand entrepreneurs, small business owners and investors. Man, this guy does a lot all around the world and his goal. I love it’s to help people achieve their financial dreams faster by permanently and legally reducing their taxes. How amazing is that, Tom, welcome back to the show.
Thanks. Always, always, always good to be with you, Marco. Always
Good. Oh, I appreciate that. Yeah. We had a great conversation almost two years ago. It’s been that long since you were on the show and I actually apologized to you already for not having you on last year that I take full responsibility for that. But Tom, you know, it’s always great listening to you and talking with you. We have so many friends in common and I got thinking here this morning, it’s been a while since we spoke, how has the tax landscape changed? If anything, over the last two years since you’ve been on the show, because I was wondering that this morning.
Yeah. So interesting enough. Not as much as we thought it might change, actually. We can thank my Senator Kirsten Sinema in Arizona for preventing massive changes. She and Joe Manchin, of course in West Virginia were the two roadblocks to that awful build back, better plan. We may still see something before the midterms who knows, but their windows getting smaller and smaller. I think what’s really changed is the attitude. I think it’s the attitude of this whole tax, the rich theme, this whole, you know, the rich don’t pay their fair share. The rich are cheating on taxes. The IRS came out last year and said, we think we could raise a trillion dollars from rich people who are cheating, which is personally offensive to me and my profession because all those rich people have CPAs. And so we’re either complicit in this or we’re ignorant. Okay. So I take exception to that. And the reason I wrote this new book was really to take exception to it, really to say, look, that’s not how the tax law works. That’s not what’s going on. And just because you pay little tax, it may mean you’re actually more patriotic than the person pays high taxes. And that’s tough to get your head around. But once you start reading the win-win world strategy, you quickly realize that the more you do for other people, the less tax you pay.
Yeah. Very, very true. I’ve learned that a long time ago. And I think a lot of listeners to the show and there’s about 68,000 that I’ve clocked, which is large audience, I think realizes that, but there’s still new people coming in all the time. So, you know, you’re kind of going off on a bit of a tangent, which I love. So let me ask you a question about that. Why do some people think that tax incentives, which is really what you’re talking about are labeled and I’ll say immoral loopholes. Why would they say that?
It’s ignorance. I think, okay. It’s ignorance of what’s happened over the last 60 years. So prior to the 1960s, we didn’t have the same type of incentives. Okay. Employees weren’t taxed real high prior to the 1960s, we didn’t get these big tax incentives like the tax credits and so forth. And for some reason, there’s this whole thought that, wow, if you’re not paying taxes, you must be bad because I’m paying taxes. Well, it may just be that you don’t understand how the tax law works and they do. I mean, love him or hate him. Donald Trump may be right. He may be smart. You know, he may not be paying taxes just because he’s following the rules and he knows the game better than other people know the game. And you know, the way I look at it, Marco is the, government’s our partner. Whether we like it or not, right. We all play this game. The problem is the government makes the rules. The government enforces the rules, the government judges, the rules, and the government can change the rules at any time. Okay. So it’s up to us to decide, are we gonna learn the rules and are we gonna play to win? Are we gonna not learn the rules? And is this gonna be a win lose where the government wins and we lose.
Yeah. Interesting. That’s actually one thing you talk about early in your book, which I love you refer to taxes as a game. And when I read that, I thought that’s really cool because I actually refer to money as a game. In fact, I own all the domain names for money as a game.com and all that. And I’m gonna turn that into a brand, which we already have going called Money Is, but you know, you refer to taxes as a game. And the object you say of the game is to build wealth that will never be taxed. And that’s a very strong statement, I think, for some people to hear or read. So can you just at a high level, talk about what the rules of this game are if taxes are a game.
Yeah. So here’s the rule. The primary rule is you’re either a silent partner or an active partner. Okay. You get to choose, you get to choose whether you’re silent or active. So if you’re silent, that means that, you know, you’re looking at your paycheck every, every time you get it and you’re going, oh my heavens, how come they’re taking so much money outta my paycheck and you’re complaining. And then, you know, you’re excited for a refund because you overpaid your taxes, right? So that’s how the average person plays a game. The active partner with the government says, what does the government want done? What is it that the government really wants done? And if I contribute and now I do those things, the government wants done, what are the tax benefits for me doing that? And how does it affect my wealth building? Okay. So that’s the high level of the game is I’m gonna be actively understanding what the government wants to do, no matter what country I’m in.
And I’m going to understand the rules enough that I can find a tax advisor who can work on these rules with me because there’s detailed stuff that we need the tax advisor to do. We don’t wanna have to learn that stuff, but I need to understand the general principles so that I can decide, okay, if I’m gonna be an active partner, how am I gonna be an active partner? And I, I chose seven investments where you could be an active partner. You don’t have to do all seven. You can do 1, 2, 3. It doesn’t matter. But once you’ve decided it’s this mind shift, once you’ve decided I’m gonna do what the government wants me to do, okay? I’m not gonna fight the government. I’m gonna go with the government. That’s the primary concept of how to play that game.
I think that’s the paradigm shift for a lot of people. They think government is the enemy that, you know, everything they want to do or achieve or wherever they want to go financially. Otherwise the government is roadblock in their way. But if you kind of turn that upside down and look at the government as your partner, which is a foreign concept for so many people, all of a sudden, they become an ally. And if you play by their rules, then you know how to play the game of chess and you can get ahead financially and otherwise.
Right? And, and the other thing to realize is that, you know, unlike chess, where there’s a winner and a loser there doesn’t have to be a winner and a loser. Right? The government is always gonna win and understand that the government’s always gonna win. Right. They are always gonna be a winner. What we did in win-win wealth strategy was point out that you can also be a winner. So it doesn’t have to be win, lose. It can be win-win. Yeah, you have to make it win-win okay. You have to take the active approach to it. You’ve got to embrace the tax law and you’ve gotta embrace taxes as your friend. And that is such a difficult concept for us to get our head around. Yeah. That, you know, most people just fight it and say, well, taxes are bad or no, the rich don’t pay taxes and they’re evil, right.
Instead of maybe looking at, well, why here’s a question I grew up asking, why is this the way it is? Well, you know, why does this happen? Why does you know, why does the sunshine, why does the earth turn? Why, you know, I was that kid that always asked questions that drove the teacher crazy. Right, so the question I asked was why do the rich not pay tax? Why is that the case? Well, okay. They’re doing things differently than the average person. Well, so the nice thing in our country and most countries is that laws don’t just apply to the rich, they applied to everybody. So you don’t have to be rich to take advantage of these. You just have to understand the rules. The challenge is that nobody’s out there explaining the rules, they’re protecting the rules. They wanna win. They, they don’t care if anybody else wins. And you know, my job, frankly, my calling in life is to explain the rules.
Yeah. Gotcha. So, I mean, it’s the perfect title for their book, The Win-Win Wealth Strategy. There’s no loser, everybody’s a winner. If you understand the rules and know how to place. So what you’re saying is the government really wants your help. And they’re willing to pay you to essentially partner with them, which is a foreign concept for some people. And you’ve kind of answered this question, but the question I think you’re trying to answer is why would you partner with the government? So can you close the loop on that? Why do you wanna partner with the government?
You’re already partnered with the government you don’t get to choose that.
Yeah. You don’t have a choice, but some people don’t see that way.
So the question is, what kind of partner do you wanna be? Right. Got it. And what kind of partners do you want them to be? You know, you can have a good partner. Anybody who’s had a partner knows you can have a good partner or a bad partner, right? I’ve had both personally, I’ve had good partners and bad partners. You know, I have a great wife now. I had a tough wife first time. I’ve had business partners. I’ve had a, a phenomenal partners. Now I’ve had bad partners in the past. And the question is also is it’s not just, how do you make the government a good partner, but how do you be a good partner with the government? I mean, you want the government to be investing in your wealth. You want the government to invest in your success. Okay. Well, the government will invest in those things.
They wanna invest in just like any other investor, Marco, you’re a professional investor. You don’t invest in everything. You don’t invest in every investment that comes along. No, you choose who you want to invest with. Well, guess what? The government chooses. They won’t choose who, but they will choose what they want to invest in. So if they wanna invest in solar energy, okay. Which is one of the things they do want you to invest in, they will choose to give you incentives and they’ll actually pay their share. And frankly, more than their share in the cases of renewable energy. And so if they don’t want you to do it, then they’ll probably penalize you for it. For example, they don’t want you to bribe government officials. Okay? You don’t get any tax benefit for bribing government officials. They actually don’t want you to do illegal drugs. You don’t get tax benefits for selling illegal drugs. Okay. I mean, there are things they don’t want you to do, and they penalize you accordingly. There are things they do want you to do, and they embrace that and they go, okay, if you do the type of investing, we want you to do, we’ll contribute to that. But you do not get to choose whether you have the government as a partner.
Yeah. So essentially the government’s telling you what they want and what they don’t want by structuring the tax benefits and tax code to drive people’s energy, sweat, equity, capital, and whatnot in that direction. Essentially that’s what it is.
Absolutely. It started with JFK in, in the early 1960s when he first incentivized manufacturers. And it’s just blossomed since then.
Yeah. Interesting. Okay. So in your book, you’ve broken it down into basically seven investment categories. And I like to look at them as industries, but they’re not actually industries. And so you’ve got business technology, energy, real estate, insurance, agriculture, and retirement accounts. And I’ve plucked out three of those because I think they’re the three that are probably most interesting to my audience, but also they’re the three that I live in rather heavily. And the first category is business. Explain why business is at the top of your list, cuz you listed it as number one, as far as chapter order.
And, and it is number one and worldwide it’s number one. So the other thing we did in this book is we actually looked at 15 different countries. And so business is number one because the number one thing that government wants is they want to create jobs. Mm-Hmm <affirmative>, that is their number one goal. From an economy standpoint, they know that if people have jobs, they don’t cause trouble. <Laugh> people without jobs cause trouble. It, it is a very much a how do we have a peaceful yeah. Citizenry. That’s really what they’re looking for. You look at any types of government incentives, whether they’re tax or otherwise jobs is number one, jobs is always number one, look at what are they talking about? They always talk about unemployment. You know, what’s the unemployment number. They’re always bragging. Unemployment’s low right now. Right? That they’re always worried about how much employment there is.
So it’s because that is the primary reason is the business creates jobs. Now business also creates lots of other things, right? Can you imagine what life would’ve been like the last two and a half years without Amazon. Right. Okay. I mean, Amazon delivers goods when everybody else, you know, when every other store was closed, so you could get it from Amazon. And so, you know, that’s something that the government encouraged, Amazon didn’t pay taxes for years and years and years and years. Why not? Well because the government encouraged them to do what they’re doing. And they, they did it through tax benefits.
Sure. So a lot of people listening are either self-employed or small business owners. Some of them, you know, are involved in larger businesses, but many people don’t have a business. And one thing I say on the show from time to time is if you want more down payment capital to buy more real estate, you know, create yourself a job, a small business, a side hustle, but you know, create a small business where you have those tax incentives and you have no cap on how much you can make. So explain why owning a business is so powerful. It’s the number one thing.
Well, let’s look at again. Let’s go back the, the pandemic years here. Okay. Everybody worked from home. Yeah. Right. If you were an employee, you’d got no deduction, no tax benefits for working from home. If you had a business, you got to deduct your office, your maintenance, your utilities, your internet, you gotta deduct all those things. Okay. So all the government’s saying is we prefer business owners to employees. That is whether you like it or not. This is not political statement. You may hate that whether you like it or not, that’s what the government wants. And so the government, I actually go through an example in win-win wealth to show that the government will actually pay for you to start a business. You wanna start an online business. It’s not that expensive, right? It’s never been easier to start a business. And so not only is it easy, it literally, the government will literally pay for all of the cost of starting the business.
Because you think about things that you’re already paying for your car, your house, you know, you’re already paying for these things. If you all of a sudden got a tax benefit for it, that’s basically free money. That’s money. You wouldn’t otherwise have had. Well, that money can be used to start the business. In fact, the fact of starting the business is what gets you the money. So it really is this partnership with the government and the government is just saying, boy, number one, tax benefit. We’re gonna give you is business. There’s a large portion of the book devoted to business just because it is that foundation for really every other tax benefit. So business like, you know, you say, well, you’re involved in three of ’em. That is common. I found as I’ve been talking to people, they go, well, let’s see, I do business. And then I do this and then I do this and going yes, but business is almost always one of the common grounds. And that’s where you start because there’s so many tax benefits there.
So for clarification, you said the government will pay you to start the business. I assume. And I don’t know the answer to this. I assume that what they’re providing you are credits towards the startup capital for your business, but only after you start generating revenue.
No, no, not at all that <laugh> you actually get the deduction right up front. So presumably you start a business, you’ve got other income, right? I mean, otherwise, how are you starting the business, right. Well, if you don’t have to pay taxes on that other income, that’s the government giving you money, right. That’s money that you have that you wouldn’t otherwise have, okay. That you would otherwise pay the government. Now the government’s saying you don’t have to pay us. Well, you literally can do that the year you start up. So you can get that money back the very, the very year you start. So I would absolutely read that chapter of the book and look at well, because what I ran numbers and I was surprised, Marco, I was surprised. I knew that the government contributed, I didn’t know, the government would fully pay for.
And in this case, the government fully pays for you to start your business. The tax reduction is greater than the cost of starting the business.
Wow. That’s huge. Wow. Okay. So for those people who don’t have a business yet, or a side hustle, maybe this is you know, one of the best times to actually get going and start something. Yeah. I, I mean, I wanna get my daughter starting a business here as soon as possible, and I’m excited for her and I just know where it can go. Even if it doesn’t go anywhere, she’ll get a great education from it. And I think anybody listening to this that starts a business and fails, they’ll have some deductions, they’ll have experience and they’ll understand better how to do it right. The next time.
Well, and, and if they do it right, then it may not be any risk anyway, because it may be that the government’s paying for all that money to begin with. Yeah. So the fact that you don’t make money doesn’t mean that it costs you any money.
Yeah. I want to talk about the next category, which is real estate. But before I leave, you know, the area of business, it’s such a big, broad and important topic. Is there anything else that you want to add to that category of business?
Well, just know that, I mean, I walked through some very specific examples of things that you can do. Yeah. The general rule is any money you put into your business is not gonna be taxable. So any money that you earn, whether you earn it as an employee for your other job, or whether you earn it through your business, anything you put back into your business will not be taxable. So the general rule is if you spend it on personal items or you save it, you’re taxed on it. But if you reinvest it back into your business, there’s no tax.
And that’s true for any tax category, whether you’re W2, 1099 or …
Does it doesn’t matter if you take that money, you put it into your business. It’s not gonna be taxable.
Interesting. Okay, cool. So one of my favorites is the category of real estate, obviously. I mean, I’m deeply involved in real estate. I have been, since I was 18, let’s start off with kind of a general question. Why does real estate have such big tax incentives and there’s many of them?
Well, interestingly enough, it started with Ronald Reagan. So a lot of people right now are comparing where we are in the world right now to when we were in the early Reagan years. Right. We have high inflation. Yeah. And we’re in a bit of a recession here. We are in more of a recession in the Reagan years and much higher inflation. So what happened? How did we get out of that? Two things happened. And one thing everybody knows about and talks about the other thing, nobody talks about. The one thing that happened was Paul Volcker raised interest rates really high at the federal reserve. But one he did that he could have crashed the economy. What Reagan did was in ni beginning 1981 is he enacted tax incentives, particularly for real estate that were actually accelerating the economy. So tax incentives accelerate the economy where high interest rates, decelerate the economy.
So what Reagan realized and Volcker realized, and his whole team realized, and this was Dr. Art Laffer was one of these. And I’m pleased to say that Dr. Art Laffer has endorsed the win-win wealth strategy. Nice. And we have personal endorsement from Dr. Laffer. What they realized was if you’re going to slow down the economy to reduce interest rates, you have by increasing interest rates, you have to, at the same time, accelerate the economy and give some stimulus to the economy. And that was through real estate. So the, the big real estate tax incentives started really in 1981, Reagan enacted major tax laws in 1981, 1982, 1984, 1986. And then we got another major tax law in 1993, which gave more real estate tax benefits. But then of course, and by the way, 1993, those tax benefits, one of the primary people lobbying that was Mr. Donald Trump and not well known, but he was one of the primary drivers of that come 2016, Donald Trump gets elected president.
And what do you know, in 2017, we get huge tax benefits for what real estate. I don’t think that’s a, I, I, I, I don’t think that should be a surprise to anybody that the major tax reform included major real estate tax benefits, given that Donald Trump was the president at the time. So we have right now some major tax benefits like we’ve never had ever before. And frankly they’re greater in the US than they are in any other country. They start phasing out beginning next year. So we do have a window of opportunity right now that we need to take advantage of.
Yeah. And it makes sense that real estate would be the target for those tax incentives, because it makes up such a large percentage of our, you know, gross domestic product. And it’s a massive employer. So it touches pretty much everybody in one way or another. So I mean, as, as far as levers go, that’s probably one of the best levers to pull, to help drive the economy. And it’s a good time too right now because the fundamentals are strong. Demand is very strong and supply is still lagging behind that total demand, organic and otherwise. So the timing for that is really perfect. So we keep talking about tax benefits related to real estate for the sake of, you know, completeness. Can you just list them off? I mean, obviously, you know, interest deduction is probably the first thing that comes to most people’s mind.
Yeah. I mean, you’ve got certainly deductions. And, and the thing is, is when, when you’re a real estate investor, you get all the business benefits, right? You start again, it goes back, you start with the business benefits, then you get specific real estate benefits. And the two big real estate benefits are the depreciation and debt. Those are the two big real estate benefits. And I, I spent some time on debt because the government, another odd concept, the government wants you to borrow money. And the reason is that money is debt and debt is money. So the more you borrow, the more money there is in the world, cuz when the bank lends money, they’re not lending their depositor’s money. They’re lending new money, right? This is new money that they’re lending. So there is an incentive to use debt. Depreciation is simply a deduction for the wear and tear on the building and the contents and the landscaping, et cetera.
What happened in 2017 is we got this bonus depreciation, which basically said anything that is a part of the contents of the building or the land improvements, like the landscaping, outdoor lighting, et cetera. You’re gonna deduct that, not over a number of years, but in year one, that’s called bonus depreciation, which sometimes could be as much as 20 to 30% of the purchase price of the project. Okay, well now let’s add in debt, right? Which I think is the number two most important tax benefit for real estate. If I have a hundred thousand dollars and I go buy a hundred thousand dollars property and I get a 20% immediate deduction, that means I get a $20,000 deduction. But if I take a hundred thousand dollars, go borrow $400,000 from the bank and buy a $500,000 property. Now I get a hundred thousand dollars deduction. So that way I could literally take a hundred thousand dollars from my W2 job. I could actually put that into real estate, combine it with my $400,000 of debt from the bank and not pay tax on the a hundred thousand dollars of income from my W2 job. So to me, that’s a little piece of magic and it’s really, it’s that combination of debt and depreciation that makes real estate such a huge tax incentive.
That’s an incredible example for those people that really caught that. I mean, it almost doesn’t get any better than that. It really is very powerful in your book. You talk about how real estate can help completely eliminate taxes. Is that the example that you give as far as eliminating taxes or is it something that comes down the road years later?
No, literally I’ve had clients and they’ll talk about it publicly. I’ve had clients, that’ll go from a million dollars of tax one year to zero the next, and that’s not common. It is very possible. What’s interesting is you have to continue building wealth in order to continue not paying tax, right? Because otherwise you’re gonna start paying tax, right? The government basically is saying, we’re gonna give you a tax benefit now because we expect to have a return on the investment in the future. From your standpoint, though, you can continue investing. If you continue reinvesting, you never have tax, right? So what all the government’s saying is the minute you stop investing, we’re gonna get our money back. As long as you continue investing. We’re okay. We’ll take the long view. We’ll wait to get our money or we’re actually okay. If we never get our money, cuz there, you know, I in tax free wealth, I talk about buy, borrow, die, where you literally can go your whole life and never pay tax.
And then the tax gets eliminated at death. Right? The government’s okay with that. They’re saying look, as long as it’s not you we’re okay. If you’re wealthy, we just don’t want you to be too wealthy. That’s basically what they’re saying is is that, you know, you, you build wealth to $12 million, 13 million, that’s fine. You build wealth to a hundred million dollars. We’re gonna take a part of it. Okay. And it’s gonna be a large part of it. So the government just is telling you what to do and all you have to do is follow their lead.
Yeah. It’s the rules of the game for my understanding and everybody else’s, if you can completely eliminate taxes on your real estate investing, is that coming through depreciation and bonus depreciation only? Or are you adding other things in there? Like for example, cost segregation.
Well, cost segregation is what allows you to take the bonus depreciation. Right? Okay. You can’t do bonus depreciation without cost segregation. So cost. Segregation’s just the tool that you use in order to show the government that I should get this bonus depreciation. It is primarily depreciation. But remember again, you’ve got all the business categories. So you get to deduct your interest expense. You get to deduct your property taxes. You get to deduct your, your utilities. You get to deduct really all the money that is not coming out to you. And then depreciation is a non-cash expense, right? It’s you’re not paying any cash for that depreciation deduction. Mm-Hmm <affirmative> so that you, the money you actually do get out is non-taxable on top of that. The money you put in is non-taxable. So you actually got money. You put in on taxable and money. You take out non-taxable I don’t know, a better way to put it than what is better than not paying tax on the money I put in not paying money on the money I paying tax on the money I take out.
Yeah. Curiosity question. As far as what’s driving the incentives for real estate investing, is it predominantly because the government wants to keep employment high unemployment low and create housing or does it have something to do with the fact that they just suck at creating housing?
Well, they do suck at creating housing. There is nobody on earth, if they got to choose between private housing, government housing would choose government housing, right? There is not a soul on this planet that would choose government housing. Right? And the government does suck out. So, but it’s not just that. But remember if the government creates housing, if they’re building a hundred thousand house, which will probably cost them 200,000 to build, right, let’s start there. Okay. Cuz they’re very inefficient, but let’s say that they only have to pay a hundred thousand, but they’re a hundred thousand dollars outta pocket. Instead, what they can do is they can say, well, look, we’ll give you a deduction. And even if it’s a hundred thousand dollars deduction, we’ll give you deduction. We’ll give a deduction, you’re own a 40% tax bracket. So a hundred thousand dollars deduction, it’s worth $40,000 to you. So we only have to put in 40,000 instead of a hundred thousand, that’s a good deal for the government because the government is leveraging your money to make that investment and to create that housing, industrial park, commercial office space, whatever that real estate is, the government is just saying, look, we’ll invest with you. We just don’t wanna invest directly. We want, we want you to invest your money. You take the risk, you do all the work. We’ll put some of the money in, we’ll get some of the money back.
So again, they’re your partner, they’re a silent partner. I mean, that’s the way to look at it
Effectively. That’s exactly right.
Yeah. Okay. Last category we will touch on before we run outta time here today, this is a big category. I think this really impacts directly and indirectly, everybody listening and everybody that will ever listen to this and that’s retirement savings. Talk to me about that. There’s two types of retirement programs. Let’s start there and then you can kind of break that down cuz I know we’ve got, you know, different types of qualified plans and whatnot.
Yeah. We have qualified plans and non-qualified plans and all retirement is in one of those two categories. I mean a hundred percent. There’s not another category qualified means that it’s a government regulated category. So it’s like a 401k IRA, pension plan, profit sharing plan. SEP all of those are government regulated. You know the pension plans in the UK, they’re RSPs in Canada. They’re superannuation in Australia. I mean every government does it. And that’s a qualified plan typically with a qualified plan except for a Roth in a qualified plan, you get a deduction up front and the money accrue tax deferred. And then when you take the money out, you pay tax on it. Okay. That’s how a qualified plan works. And the government restricts what you can invest in. Okay. They’re very restrictive in a non-qualified plan. You’re basically doing your own retirement. Whether it’s real estate, let’s say you do real estate investing.
Let’s say you use a, you set up a family limited partnership and all you do is real estate investing. Okay? Well the government’s not telling you how much money to put in. They’re not telling you when you can take it out. You can take it out anytime you want. There are tax rules around it, but there are very flexible tax rules around it. And so you have a lot more control over it in a non-qualified plan. And it doesn’t, you don’t get a deduction going in. We just talked about, you put a hundred thousand dollars in that real estate. You got a deduction going in. So just because it’s not qualified, doesn’t mean you don’t get a deduction. What it does mean though, is that when you take it out, you may not have to pay tax on it. Whereas with a qualified plan, you must pay tax.
When you take it out and you have to take it out, by the way, you don’t get to choose whether to take it out in a non-qualified plan. Not only do you not have to pay tax when you take it out because you might take it out because you might borrow it out. Right? Right. So you don’t wanna pay tax when you take it out and you can leave it to your descendants. You can leave it to your children, your grandchildren again, without paying tax. So, you know, while I do show in the book that qualified plan will work. I mean, it does actually produce tax savings. It, you know, especially if you wanna invest in stock market, it’s a good way to invest in stock market. If you wanna invest in real estate, it’s a terrible way to invest in real estate because real estate has so many tax benefits. Why would you give up all those tax benefits to be in a qualified plan where you’re restricted, right? And you’d restrict it on how much money you can borrow. So I do show that a qualified plan does work for people, but a non-qualified. I also show though the non-qualified plan works a lot better. Mm-Hmm <affirmative> than a qualified plan.
So what’s an example of a non-qualified plan. What would people, what label would it have that people could see and understand?
I would go back to that family limited partnership. So basically what you do is you set up an entity, it can be a limited liability company or a limited partnership. You can involve your kids in it. You can involve your grandkids in it. You can have trusts, you can do what pretty much, whatever you want. I love partnerships. That’s my favorite area of tax law. And you’re just investing. That’s all you’re doing. You’re investing. You don’t have to use it for retirement, but you can use it for retirement. You can use it for your kids’ education. You could use it for family vacation. You can, you know, you can use it for anything you want at any time you want. It’s simply just a way to build wealth in a tax advantaged way and have control over that wealth. That’s all we’re talking about. We don’t typically think of ’em as retirement plans. We think, think of ’em as, you know, investment plans or wealth strategies. The reality is is that they’re the best retirement plans on earth.
Yeah. And you say that non-qualified plants can actually escape taxation indefinitely, which means that you never pay for that tax. Correct. So does, does that function kind of like a trust where you have beneficiaries, if you pass away, it really just defaults to the beneficiaries?
Right? So typically you do, you, you have owners of the family limited partnership and those owners can include trusts and those trusts can be trust for your kids. They can be trust for your spouse. They can be trust for other people. And so that when you pass away, it automatically passes onto them. And then they can, frankly, you can build a dynasty, you’re gonna pass it on for generation. How do you think the Rockefellers have such a long lived dynasty? How do you think the Italians have family dynasties that have lasted five or 600, 700 years? It’s because they use these same mechanisms. All I’m doing is exposing what the rich already know to the average person.
Yeah, no, it’s fascinating. It’s interesting that everything we’re talking about and the more you learn about taxation, the more ways you come to know on how you can save defer, eliminate taxes. And that’s always been, my goal is how do I reduce defer and eliminate taxes? That’s really what I wanna do. And it is a game.
Well, yeah. It’s your biggest single expense. Why wouldn’t you?
A hundred percent. I mean, if that’s not a compelling argument, you know what is, so you kind of answered this question, but you know, what do the so-called rich quote unquote know that others don’t. It really is just lack of ignorance because they’re educating themselves and they surround themselves with a team and of professionals that can provide ’em the information that you’re talking about.
Yeah. The big difference is the rich hire. People like me, right? They, they hire the tax advisors and they pay them hundreds of thousands of dollars to do this for them. The average person can’t afford to do that. Now the average person, frankly, the average person can’t afford somebody like me. They can’t.
Okay. So that begs the question. I’m gonna throw this at you, Tom. You know how deep should someone go towards understanding taxes? I mean, they could buy your books. You’ve got great books, but how far should they go? Where do you draw the line?
You know, I think they need to understand the concepts. I, I actually think the books are probably sufficient. Okay. For most of them what we do. So we have a network wealth ability. My company has a network of 60 CPA firms. We train the CPA firms. Okay, you’re gonna need a CPA. Okay. Do not do this on your own. Right? This is, that’s a bad idea. <Laugh> you don’t wanna do this by yourself. The CPA knows the details. They know the intricacies. They know how to report it on the tax returns. They know all these things. Your CPA though, should be delivering more than just tax reduction. They should be delivering information to you. You should be getting educated by your CPA. If your CPA’s not asking you questions, if they’re not educating you, I would seriously consider a new CPA. Because what they’re doing is they’re saying either, I don’t know it, or I’m not willing to share it. And the more you understand, the more you can get from your CPA, the lower your taxes will be. Because just remember this, I cannot lower your taxes. I can tell you what you need to do to lower your taxes, but I can’t do it. I literally cannot do it for you. Great. Cause I don’t manage your money.
Yeah. That’s a great question. That’s literally the takeaway that people should be taking away right now. The question you should be asking yourself is what is my CPA doing for me or not doing for me to help reduce, defer and eliminate my taxes. I mean, that’s really what it comes down to. Well, Tom, let’s wrap this up, tell our listeners how they can find you follow you, get more information, find your books.
So easiest way to find the books is on Amazon. <Laugh> it is right now available. Just go to Amazon. They actually have it discounted slightly. I can’t get it as cheap as Amazon does. So I would go to amazon.com and just type in The Win-Win Wealth Strategy and it’ll come up or type in my name. It’ll come up. And that’s really the easiest way to do that. If you are looking for a CPA or if you want your CPA to get trained, then go to wealthability.com and we’re happy to talk to you and we’re happy to talk to your CPA. So whichever works for you.
Great. And I’ll put all that in the show notes, Tom, I know you have to run at this point, but thank you for taking the time, keep up the great work and I look forward to finishing your book.
Awesome. Thanks for having me, Marco. It’s great to be with you.
Thank you, Tom. Take care.
I hope you enjoyed that episode with Tom Wheelwright. You know, taxes can be confusing and a very deep subject, lots to learn, but I’m glad Tom actually said that you don’t need to know everything. In fact, if you read his two books, Tax-Free Wealth and his new book, Win-Win Wealth Strategies, I think you’re gonna have enough to understand what you need to know in order to work intelligently and competently with a tax professional that can help you reduce your taxes and defer them or even eliminate them. So I hope you got some takeaways from this. There was really a lot of content that we could have talked about, but I had to respect his 45 minutes with me and let him go. Otherwise, I would’ve kept him on for about four hours just picking his brain. So anyway, I hope you enjoyed the episode, pick up his book, learn as much as you can.
I think that’s the best way to help you save on taxes. Other than that, as always, you know, I mention it from time to time, you know, we have a great free download on our website. It’s The Ultimate Guide to Passive Real Estate Investing. It’s just a primer, but a good primer at 30 pages, download that at your convenience at noradarealestate.com. If you are interested in exploring real estate investing and growing your portfolio or getting someone started contact my team of investment counselors for a free strategy session, we’re here to help you. And we will answer your questions and just point you in the right direction, like a compass. And at that point you just decide what your next step is, but it’s well worth having that conversation to identify your goals and your investment criteria. Talk about different markets that will meet those goals and the types of inventory that are out there at a wide range of price points ranging from as little as $80,000 for a single-family detached home.
Yes. Believe it or not. These are in some of the smaller, secondary and tertiary markets in different states, all the way up to new construction homes that are in the two to $300,000 price range in higher growth areas and markets. If you have a question about real estate investing, just send it over to me from our website, passiverealestateinvesting.com, click on the Ask Marco link and just submit your question and I’m now batching those. So I hope to get those released soon. If you haven’t already remember to subscribe to the show, just click the link or the button. And it only takes you a few seconds, but that way you never miss a weekly episode, sometimes more. That is, it help us spread the word, you know, visit us on iTunes or whatever you listen to and leave us a rating and review. If you don’t mind, I appreciate it. And I do look at them and read them and all the feedback has been wonderful. That is it for today. Thank you for listening and we will see you all on our next episode.
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