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In this episode of the Wealth Strategy Secrets of the Ultra Wealthy Podcast, I had the pleasure of sitting down with Tom Wheelwright, a true authority in the realm of wealth and tax strategy. Tom is a CPA, the Founder and CEO of WealthAbility based in Tempe, Arizona, and the best-selling author of “Tax-Free Wealth”.
With a unique talent for making taxes fun, easy, and understandable, Tom has carved out a niche as one of the leading wealth and tax experts globally. Tom’s approach is both practical and strategic, offering listeners actionable steps they can implement to optimize their tax situation and accelerate their wealth-building journey.
Throughout our conversation, Tom shared invaluable insights on how entrepreneurs and investors can build wealth by strategically and permanently reducing their tax liabilities. His work has been featured in prominent media outlets such as The Wall Street Journal, Washington Post, Forbes, FOX & Friends, and NPR, to name just a few.
As a Rich Dad Advisor to Robert Kiyosaki, author of “Rich Dad Poor Dad”, Tom brings a wealth of knowledge and experience, frequently speaking at conferences worldwide on these critical topics. Whether you’re an entrepreneur looking to maximize your financial potential or an investor aiming to protect and grow your assets, this episode is packed with essential information that can help you achieve your financial goals. Tune in to learn from one of the best in the business.
In This Episode
- Strategies for achieving long-term wealth through effective tax planning
- Preparing for potential tax law changes and how to stay ahead
- Ensuring your wealth is protected and grows through smart tax planning
- Practical methods for permanently lowering your tax liabilities
Tom, welcome to the show.
I’ll always be with you, Dave.
Absolutely, Tom, this is such a privilege to have you on the show. I know the listeners are going to get so much value out of this. You know, we’ve been able to share with our audience, so much of your work and your thought leadership around how you view taxes, and really how to partner with the government, right, which I think is just such a paradigm shift. And really, you know, most of the industry isn’t talking about it that way.
But what we thought would be really relevant to kind of take it to the next level and be very consistent with the times right now is to really get some of your views on understanding the current tax landscape as it coincides with the 2024 presidential election. So wanted to really start the discussion and if you could just give us kind of your broad overview of the current tax landscape and what are some of the key issues at play for voters and policymakers that we should be aware of.
Well, the first thing to remember is kind of how the tax law actually works, which is, and you’d mentioned it, that we are all partners with the government, whether we like it or not, we are all partners with the government. I mean, the first time we get a paycheck as a teenager and we look at this FICA and we say, “who the heck is this FICA person that’s taking all my money?” That’s when we first realized, “hey, there’s somebody else involved in our personal economics, and that’s the government”.
Over the years, really since the 1960s, President Kennedy really started this movement towards using taxes as an incentive for particular types of investing. Not just personal investing, but actually business investing. He was the one who first put out the investment tax credit, for example, the 10% investment tax credit.
Then of course, Ronald Reagan followed up very heavily with using the tax law as an incentive for real estate by reducing the life for any real estate assets. Actually at one point had it way down to 18 years for a building. It’s now back up to 39. So Reagan actually used it heavily in real estate. It’s been used over the years recently.
2022, of course, we had the Biden administration using it to encourage renewable energy with big credits for solar energy, wind, even nuclear. So that’s the landscape that we’re in, and that landscape is not likely to change. What changes is what are the new incentives and what old incentives go away to pay for those new incentives?
So it’s really just a shifting, it’s a balance of power. That’s especially relevant in this upcoming election because the difference between the Republican position and the Democrat position is about $7 trillion. So the Democrats want to raise $5 trillion. A half a trillion of that is designated to reduce the deficit.
The other four and a half has additional four and a half trillion of spent. So they’re gonna tax certain things, they’re gonna take away certain benefits to give other benefits. The Republican position is, look, the 2017 Tax Act worked, let’s continue it. So that ends up being about a $2 trillion reduction in taxes, and to my knowledge, none of that is aimed at reducing the deficit.
So there’s not a lot of deficit reduction going on here. So that’s one thing to recognize is it doesn’t matter which party you’re talking about. Deficit reduction is not a big focus of either party. So I don’t think that’s gonna be a real issue. I think the issue is who gets taxed and how are they gonna get taxed? Because in 2025, you recall 2017, the 2017 tax law, largely expires in 2025.
Now, a few things carry over to 2026, like the opportunity zone, the bonus depreciation phase out goes through 2026. But most things actually terminate in 2025, including the personal tax rate reduction, including the standard deduction, including the non -deductibility of state income taxes. So a lot of those things expire. And if nothing’s done, you have an automatic increase in taxes if nothing’s done compared to what we have today. It’s very clear that something will be done. The question is, what will be done? And that largely depends on the way Washington works, of course, is if one party has full power.
Years ago, the Congress decided that it could pass a revenue related bill with only 51 votes in the Senate. It did not need the 60 votes that every other bill needs because it’s called a reconciliation. All they’re doing is they’re saying, well, we have the budget, but we’re going to reconcile it. And so we’re in just little minor tweaks like, you know, a $5 trillion tax bill.
So it only requires 51 votes, that means that if one party has the house the presidency and 51 votes in the Senate or 50 votes in the Senate plus of course the presidency which The vice president of course is the tiebreaker. Then what happens is is that their policies are much more likely to be enacted if if there’s a mix in other words, let’s say the house goes to one party, the Senate goes to another party, then what happens is you get a negotiated result. And negotiated results typically are better overall, unless you’re on one side or the other, right?
So negotiated results go towards the middle, whereas any other result goes right or left, one way or the other. we have to kind of keep that in mind too, Dave, as we’re looking at the election because it’s not just we think it’s a presidential election, but it’s also election for the Senate and for the House. And that has since all taxes are supposed to come through legislation. They don’t always, but they’re all they’re supposed to come through legislation. Therefore, how the voting goes for the House and the Senate are going to be equally important. Then what we get to is, OK, so what are those big differences?
Well, we know pretty much what Republicans want to do because they just want to continue what’s already been done. So I would expect if the Republicans had their way, you’d end up with 100 % bonus depreciation. You’d end up with the research and development expenses being fully deductible. They’re not going to make that mistake a second time. They made it in 2017. They made it as a revenue raiser because they thought that it would just, you know, they’d fix it, but they never fixed it.
And so that’s really hurt technology industries, especially anybody who does a lot of research and development. There are some companies that I’m familiar with that have paid effectively an 80 % tax rate because so much of their expense is research and development and they’re not getting deduction for it. So it actually raises their tax rate as high as 80%. mean, that’s actually the biggest tax. technical issue we have right now is that R &D expensing. On the other side, you have a lot of new taxes. for example, of course, they want to raise the rates, but they also want to raise capital gains rates. Now, this is a big one for anybody who’s investing for a long -term asset. And this could be such, for example, it could be real estate, but it could also be your business.
Remember, if you’re an employee, when you retire, you’re going to take money out every year and you’re going to get the advantage of the graduated tax brackets. So you’re to get some many taxes, 0%, some many tax at 10, 12, 22, et cetera. If you’re a business owner under the Biden proposals, which is that’s what we’ve got to go with right now is in his budget this year, that’s where that $5 trillion comes from.
So we have to assume because we don’t have anything else that that is what Harris would do, is what Biden’s proposed. Will she or won’t she? We don’t know. But let’s assume that she does. So that capital gains provision is actually really significant because it means that any time that your net income was over a million dollars.
Your capital gains would be taxed at ordinary income rates, which would now be 40% instead of 37%. Well, that means that your capital gains rates going from 20% to 40%. So it’s doubling. Well, think about if you sell real estate or you sell a business, you’re going to, you have big capital gains. Take your typical business owner. And we’re both business owners. So, you know, we look at this all the time. We hang out with other business owners, right?
So what is it? How does a business owner retire? They sell their business. That’s how they retire. But they’re not going to sell it over their lifetime. They’re not going to get an annuity. They’re going to sell it in one year. So let’s say that you have two different people and you have an employee who’s put away money into their 401k or their pension plan over the years and they take out. We’ll make it a big number.
$500,000 a year, right? And for 10 years, so you got $5 million that they’re taking out over 10 years. Or you have a business owner who sells their business for $5 million and it’s all taxed in one year. Well, historically, the business owner has gotten the advantage because the tax is only 20%. Now the business owner is not gonna have the advantage of those graduated rates because they go away. once you get up to six, 700 ,000. And actually that’s gonna come back down because that’s another thing that changes if the 2017 act goes away.
But what happens is that now all of a sudden they’re taxed at a flat 40% rate on their retirement income. And so that is actually a major, I think that’s one of the big major differences is the effect on the businesses. One other thing that the Biden administration has proposed on business is actually an elimination of the 20% qualified small business deduction.
That’s been proposed by the Biden administration in the past. That’s a big revenue raiser. So if you look at the, I was just looking at this this morning as it turns out, if you look at the 2017 law, what raised all the revenue?, and what cost all the revenue? Well, remember, we had a one point five trillion dollar net cost. In other words, revenue lost versus revenue raised was one point five trillion dollars.
That can actually all be attributable to two things. The decrease in the corporate tax rate, which, by the way, does not expire. In 2020, in 2025, that was the only thing made permanent in that bill.
Even if the Democrats were in charge and they said, we just want it to expire and do nothing else, they’d still be stuck with the 21% corporate tax rate. That was over a trillion dollars of that 1.5 trillion. The rest of it was the 20% small business deduction. So the business tax benefits actually were all of the deficit, 100% of it. Everything else was just a balancing act, you had, for example, the elimination of the state income tax deduction.
Well, that was offset by now you have a higher standard deduction and now you don’t have an alternative minimum tax. So if you take those three things together, it’s about a wash. I mean, in fact, most people actually did not get hurt despite what you hear in the media.
Most people did not get hurt by the elimination of that state income tax deduction. The reason is because those that were in a high enough bracket to actually take a lot of it, they were getting hit with the alternative minimum tax anyway. Well, that went away. So that’s almost a wash. Now, little lower rate, 28% versus the 39%. But other than that, that pretty much was a wash. For those in the middle, their increased standard deduction offset the elimination of that decrease or that increase in taxes, if you will, that decrease in deduction.
Their deductions really didn’t change much because the standard deduction went up so much. It almost more than doubled. The standard deduction more than doubled. As a result, most people weren’t paying more than that in state taxes.
There’s probably some people that were significantly hurt by that state tax deduction, but they’re probably the upper middle income is who is. They weren’t so much that they were in the alternative tax, but they were high enough that they would have gotten the deduction even with more than the standard deduction. So it’s not as simple as people think it is. People go, well, wait a minute, we can raise money by eliminating the state. Tax deduction. Well, okay in a vacuum it does but no tax laws happen in a vacuum and they’re not going to happen in a vacuum in 2025.
Yeah, what do you think in terms of the percentage of issues, right, from a tax perspective, right? I mean, we’re kind of hearing that this race is more going to be about inflation is kind of at the core of one of the big debates in terms of the, you know, what people are rallying for. But where do you think really, you know, tax, economic growth? I mean, where does that, you know, rank in terms of major issues?
Well, I’m a little prejudice. I think it ranks really high. Now it depends on who you are. So if you look at, for example, let’s take the corporate tax rate and the tax foundation, which I follow them very heavily. They’re a really good watchdog on taxes. They say that the most beneficial of the changes in 2017 was the reduction of the corporate tax rate, and the worst change would be an increase in the corporate tax rate.
And people go, “wait a minute, that just benefits the wealthy”. Well, but it doesn’t because everybody’s 401k pension plan, profit sharing plan, IRA, it’s all invested in the stock market. So if there’s more taxes, that’s an additional expense to the corporation, which means it lowers the amount of value of that stock.
So an increase in the corporate tax rate would have a large effect on the average, on the middle -class person with a 401k or a pension plan. Because what would happen is that a 28% rate, which is what’s been proposed by President Biden, a 28% rate, remember that’s a 7% net increase.
We’re at 21%. So it’s a 33% from a percentage standpoint, you’re increasing the tax rate by 33%. We were prior to 2017, the US was one of the highest corporate tax rates in the world. And it was very much a disincentive, and once it came down 21%, now we’re about in the middle of the pack. Okay, we’re not at the bottom, we’re in the middle of the pack.
28% would put it back up because remember, corporations don’t just pay federal income tax, but they also pay state income tax, and typically higher than individuals pay. So it’s state income tax for an individual might be four or 5%, but for a corporation, it’s probably eight or 9%. So in total, that actually makes the corporate tax rate. That’s one of the things that I think people think, “well, wait a minute, all of these tax increases”, remember, Biden and Harris both have promised that if you make less than $400,000, you are not going to get an increase in tax.
All right, so for the average person, because the average person does not make $400,000 for the average person, absolutely. They’re thinking, well, taxes is not an important part of this election. In fact, a lot of the average person is going to think, well, let’s stick it to the rich people.
They need to pay more tax and I’ve been promised that I’m not going to pay more tax. So therefore I’m good. I’m good with this. And I think that’s going to be a lot of the messaging. I were on the, you know, advising the democratic ticket, that would be the messaging is that look, you’re under 400 ,000. You’re not going to get hurt. That’s where the votes are going to come from to elect them.
Yeah, yeah.
It’s not going to come from the people over 400,000. There’s not enough of them. so, you know, one of the kind of one of the rules in politics is always tax people who don’t vote for you. That’s a general. So for example, in a lot of states, you see a lot of taxes on hotel rooms. You see taxes on taxis. You see taxes on rental cars. Well, why is that? Because those people don’t vote in your state election. They’re voting somebody else’s state election because they’re coming into your state.
That’s why you see that’s called exporting your tax, right? One of the things that, another thing by the way that I think should be part of the tax discussion is that former President Trump, he absolutely wants to increase tariffs. He wants a 10% tariff across the board is what he said, and a 60% tariff in China. I think that’s more likely to be part of that inflation conversation because If you impose those tariffs, of course, that’s got to be passed on the consumer.
So I actually think that’s going to be part of the inflation. The Democrats, think if they’re smart and I think they are, they’re going to promote this as, well, wait a minute. Yeah, we may be increasing taxes, but we’re not increasing taxes on the common person. You’re increasing tariffs and that hits the common person the most. Tariffs actually in some ways are regressive. Now, Let’s take the other side of this because all I want to do is explain it. I’m not partisan. On the other side of this, remember that inflation doesn’t really affect rich people. It doesn’t because they’re making enough money on the increase in the stock market and the increase in their investments and so forth to absorb that. Inflation is a very regressive tax. It is a tax.
To be very clear, inflation is a tax and it’s a very regressive tax. So when you say what part will taxes play? Because inflation will play a part in this conversation, inflation is the worst and most regressive tax we have. If you think of somebody who is a fixed income person, say they’re retired, these are the people that actually get hurt the most with inflation. Well, let’s say that they can invest their money in the bank at 3%, but inflation is 5%.
They’re losing money on their money, that’s actually not only do they not get the 3%, but they’re actually losing another 2%. So their purchasing power is going down, and that’s not going to affect the wealthy. The wealthy don’t feel that. So inflation actually is a really heavy tax, and very regressive tax.
There’s the capital gains tax and these other taxes on investment. That’s a really interesting policy question because what happens is the average person does not invest. They put money into 401k, but typically they’re buying stock from somebody else. So they’re not actually investing into the economy. They’re really just putting their money. They’re basically savers. There’s what they would be what I would call savers.
The investors tend to be, and you would know this better than anybody, they tend to be higher income people. That because they have excess money to invest. Now that’s not saying it wouldn’t be great if we teach, I would love to be teaching the average person how to invest because it is doable, but that education is not typically promoted by schools or Wall Street, frankly. Wall Street would prefer people not invest.
They would prefer that they just put the money into Wall Street because that’s where how Wall Street makes its money. So instead, what we have is if we one of the challenges with taxing the rich and is that the rich do put their money into investments and they invest in business, they invest in real estate, they build the real estate, they invest in renewable energy, all those renewable energy.
One of the challenges with taxing the rich is that the rich do put their money into investments—they invest in business, real estate, and renewable energy, which can significantly impact the overall economy.
So it’s interesting. There’s a lot of discussion about, we want to tax the rich and yet we want to give renewable energy credits to the rich because it’s only the rich that are going to get them because they’re the ones who invest. I think one of the discussions has to be how does taxing investment, how does it affect the overall economy.
Remember, let’s go back to John F. Kennedy. His investment tax credit was meant to stimulate manufacturing, actually building manufacturing plants in the US. It worked. actually, that’s the first real example of tax incentives working to stimulate the economy was in the 1960s with JFK.
That was to stimulate investment in heavy equipment. Well, this again, not the person making less than $400,000 making these investments. These were wealthy people, so while from a social standpoint, I totally get the idea of the rich, they have a lot, they can contribute more, they ought to contribute more. I totally get that, and especially if you see, personally, I see the people that are making their money in Wall Street.
Or they just have, you know, big CEO jobs or CFO jobs or whatever, they’re C-suite people. “I’m going, okay, I kind of get that. I kind of get wanting to tax those people more.” We have to look at where are they putting their money? So while on one side, you know, there may be social programs or other things that you want to take care of. That’s fine. I have no issue with that.
I would love to see if we don’t get to spend any more money until we reduce the deficit. So if there’s any tax increases, I would like to see them first go to reduce the deficit and before we actually get to spend more money. That’s not the way the tax law works. The tax law works, they’re gonna come up with, okay, we want these additional services, we’re gonna pay for them by raising taxes, and if there’s any money left over, then it can reduce the deficit.
That’s pretty much the landscape right now. Neither party is focused on the deficit. Neither party thinks it’s important. They think that we can we can borrow forever. And of course, that’s the great debate among economists. Can it go on forever? People look at Japan say, well, maybe it can. Right. Because they’ve certainly had, you know, more than 200 percent of GDP in their national debt for many, many, many years. And they have not collapsed.
So, you know, that’s that would be that argument on the other argument is, well, wait a minute. Can this really go on forever? So I do think that, you know, when we talk about taxes in the election, first of all, we have to include that taxes affect investment. That would be Art Laffer, right? Art Laffer, who actually I was very fortunate that he wrote me a positive endorsement of my Wynne Wynne Welts strategy book, Art Laffer, of course, came up with the Laffer curve during the Reagan administration. He said, “look, this is supply side economics. If you reduce taxes, you’re going to grow the economy”.
There is some evidence that the economy grew significantly as a result of the 2017 tax cuts. Not enough to offset the cost. So the cost was actually more than the 1.5 trillion, according to, you know, all the economists that have been able to do the math. They’ve come up with significantly more than the 1.5 trillion. So the question is, does that have a negative impact? Does it increase inflation? What typically increases inflation is, frankly, either a supply side issue, which we had as a result of COVID for a while, less so now, but also by increased money supply.
So right, too much money chasing too few goods is the definition of inflation. That’s what causes inflation. Well, you can either have too few goods or too much money. And if the government continues to put money into the economy, how will they monitor inflation? It seems to be the government’s job to cause inflation, the Fed’s job to reduce inflation, which I find curious. But that is that you know, the fed’s job is full employment and low inflation. That is their that’s what they’ve stated their job to be the government’s job is. Well, I’m not sure anymore. But I’ll let I’ll let I’ll let you address that one.
Yeah, we won’t go there, but you’re right by the definition anyway. Tom, in your first book, Tax -Free Wealth, one of the quotes you had was really instrumental, I think, in changing the way people think about taxes, which was that the tax code is actually a roadmap of incentives for business owners, and investors. And now if you take that forward into your latest book, The Win-Win Wealth Strategy, you identify seven key investments where the way you phrase it, which is great, because I don’t think people think about it this way, it’s that the government will pay you to partner with them. So keeping in line with that.
You’ve identified seven asset classes, good investments to do that. So given the current, you know, upcoming geopolitical environment that we’re in, do you have any, you know, comments or additions to those asset classes where you think investors should be paying attention to that could be immune to the geopolitical events or you know, areas that they want to go after?
Well, certainly let’s start with the ones they want to go after. So definitely on the Democrat side of the aisle, they want to go after business and business income and business taxation where the Republicans want to reduce business taxation. So that’s the first one. And that is the first asset class that I mentioned. That is the, in every country, we looked at 15 countries when we wrote the Win-Win wealth strategy.
In every single one, creates the biggest tax incentives, has the biggest tax incentives, no matter what country you’re in. That is the one thing that’s consistent throughout every country, is that business has the most tax incentives. Just think, if you’re an employee, you pay tax on your total income. If you’re a business, you pay tax on your net income. That by itself tells you that there’s a big difference.
That one definitely is going to be impacted. Another one is technology. So research and development. I actually think that both the Republicans and the Democrats, I think that is one that is going to be solved because I think everybody wants to solve that. I think that’s one that we are actually behind the rest of the world when it comes to tax incentives for research and development. France, South Africa, Singapore.
I mean, most countries have better tax incentives for research and development than the US. So I think we’re behind on that. I don’t think that’s gonna be impacted by the election. I think that’s gonna go, that’s gonna get pushed forward no matter what. Real estate, very clearly. Donald Trump, very pro real estate. So you saw very heavy real estate tax incentives in 2017. Okay, now there’s has not been.
Interestingly enough, there’s not been much pushback against those incentives by the Democrats. So real estate actually might be fairly safe from a tax incentive standpoint. I suspect no matter who wins, we may very much get back to a 100 % bonus depreciation, which is a huge incentive for real estate, of course. Now, the big one that gets affected is energy, because of course now you have a huge divide.
You have renewable energy, which the Democrats have pushed very heavily. They passed huge tax incentives, trillions of dollars of tax incentives. Whereas the Republicans have historically pushed fossil fuels. The Democrats want to get rid of fossil fuel tax benefits. The Republicans want to get rid of renewable energy tax benefits.
So if that’s a hot button in your investing, I would pay particularly close attention to the election when it comes to energy investing. while we’ve not had, even President Obama first proposed to eliminate the fossil fuel tax benefits, Biden has proposed to eliminate the fossil fuel tax benefits, that hasn’t happened. And will it happen? My guess is probably not, because there’s still enough need for fossil fuels.
That it’s probably not gonna happen, probably not while I’m still practicing as a CPA. On the renewable energy, that’s absolutely, if the Republicans take control of all three houses, they absolutely want to eliminate those renewable incentives. The Democrats want to enhance them. So that’s a big one. Agriculture is another one. Agriculture, I’ve not seen a lot of changes over the years.
It is the biggest, by the way, in total percentage of tax incentives for the person actually investing in agriculture, they have the best tax incentives. And there’s good reason for it. I mean, remember, the government wants to make sure that food is produced. It’s a very risky business. You want to encourage that kind of risk taking. And so what’s happened is the way I look at it is, let’s take an example.
Let’s say that you invest $100,000 in your farm. You’re gonna probably get $100,000 deduction. All right, you’re gonna get 100% deduction for that investment. Well, if you would otherwise be in a 40% tax bracket, what that really means is the government’s putting in $40,000 of the investment and you’re putting in 60,000. So they’re sharing the investment. Now, when you make a profit, the government also shares.
So it’s both ways for the government. Actually, one of the things that I looked at, which was really interesting to me, is how much the government benefits fiscally from tax incentives. I mean, you think about this, you’re professional investor. If you could invest in if you could force everybody to be your partner, every business owner, every every real estate person, everybody, every employee to be your partner.
That’d be a pretty sweet deal. And that’s exactly what the government does, is that they just automatically are your partner. Now the question is, what kind of partner are you with the government? Are you a silent partner, which would be a typical employee? Or are you an active partner doing those things, the seven investments the government wants you to do? Now one place, there are a couple where employees do get to be involved. One is life insurance, huge tax incentives in life insurance.
Good public policy for that, and the other is retirement plans. Now, the one interesting thing I found with retirement plans when I ran the numbers is yes, it does work to defer your taxes, is true. That’s not just Wall Street making that up. It actually does work because of our graduated tax system. But two, the government actually breaks even. That’s the best they can hope for is to break even. They don’t actually make money on that investment.
They break even. Now you might say, they make money otherwise because they don’t have welfare payments and other things. So absolutely, you take that into account. But if you’re looking just at what the government gets back in taxes versus what they give up, it’s about a wash for the government. The taxpayer wins, the government, it’s about a wash, Wall Street wins. So it’s a win-win, but really not for the government.
The government just gets a public policy goal taken care of, but these are things that I absolutely think that it’s valuable to take a look at incentives. I do believe that with this next administration, whoever it is, we are gonna see massive tax changes.
I would encourage everybody stay up to speed, make sure your tax advisor is up to speed, make sure, I mean, especially if taxes are raised significantly, that, of course, that’s the Accountant Full Employment Act, right, when they raise taxes, because everybody needs us more, because they don’t wanna pay the increase in taxes. So. But it is something to absolutely pay attention to. I really appreciate you having me on so that we can talk about this because I do think it’s going to impact investors one way or another in 2025.
Yeah, 100%. That’s exactly where I was tracking to is, you know, how can we be proactive as business owners and investors? You know, we’ve been following some of these strategies in terms of the investments, partnering with the government, things like that, staying abreast of what’s what’s happening, right? But are there any other things that we can do? And really to, you know, most of our audience, we’re trying to create legacies, you know, we’re investing for 25 years.
There’s going to be multiple, you know, election cycles kind of down the road, right? So we’re trying to make really smart decisions, right, as we go. So are there any other pieces of advice you could advise to how people think about tax strategy in the big picture?
Yeah, yeah, for sure. here’s, I’ll tell you a couple of things. So if the Democrats do win in November, you might want to be selling assets in December so that your capital gains rates are lower. That would be one thing I’d be looking at. Actually paying tax early, okay, because you don’t want to pay the higher 40% rate.
The other thing I’d be looking at right this minute, and this is I’m encouraging every one of our clients to do this, is do your estate planning right now. Because one of the big changes, one of those areas that reverts in 2025 is the estate tax exclusion. Okay, well if you’re under $12 million, it’s not gonna matter, because the estate tax exclusion likely will just go back to where it was.
Which is effectively $12 million for a married couple, $6 million for a single. That’s half of what it is now, so the challenge is people are waiting. Where are you going to find the estate planning attorney who’s going to have time to take you on? So I’m encouraging all of our clients, let’s do the estate planning now. We don’t have to sign the documents, but we have to have the documents in place.
Then if we think, this is gonna happen, let’s sign those documents in December of 2024. You know, again, if we think that if the Democrats get control and you wanna reduce your estate tax, then you need to do something before the end of 2024. Now, it’s not just simple as signing the document. You actually have to transfer the assets, and actually do that.
So you really can’t wait till December 31st, but you probably could wait until after the election to sign the documents. I don’t think you can wait till after the election to start the planning because estate planning is usually a three to six month process and it takes attorneys a long time to put those documents together and every estate plan attorney is gonna be swamped. So unless you’re at the top of their client list,
You’re probably not gonna get their attention and there just aren’t that many estate planning attorneys. The other thing to consider is that you don’t ever wanna do estate planning without doing income tax planning at the same time because your estate planning impacts your income tax planning. Another thing to be looking at when you talk about legacy is charitable giving. So people typically think about, well, I’m gonna give my assets away when I die, but there are a lot of ways to give your assets away when you die, but do it now.
For example, like a charitable remainder trust, by doing that, what happens is you get a tax, income tax deduction now, and then you get an estate tax deduction when you die. So you actually get two deductions. So this type of long-term planning, I think what we call a wealth and tax strategy at TFW Advisors is that kind of long-term planning.
I think is gonna be more important between now and the end of the year than it’s ever been. And whatever it costs to get it done, get it done because the downside is so high. The risk is so high that let’s say you don’t use it, you’ve spent a few thousand dollars, call it insurance.
Yeah, wow. Really sage wisdom there, Tom. Really appreciate that. And I guess finally, if you could give just one piece of advice to the audience about how they could accelerate their own wealth trajectory, what would it be?
Always takes taxes into account, but never let taxes wag, never let the tax tail wag the dog. So always look at your returns on an after tax basis. Always. So when you’re comparing returns, you can’t compare a stock market return of 10% to a real estate return of 10% before tax because they’re not the same. Real estate has far more tax benefits than the stock market, or renewable energy. You can’t compare pre-tax. Don’t ever compare pre-tax, compare after tax.
Always locate your returns on an after tax basis.. Real Estate has far more tax benefits that stock markets, you can’t compare pre-tax but don’t ever do something for purpose only.
Don’t ever do something for tax purposes only, because remember, even if the Democrats get everything they want, your tax rate’s not going to be over 60%. So you’re still on the hook for 40%. Okay, so never do something just for tax purposes. That’s part of it, but that’s kind of the offset to always take taxes into account.
Yeah, no really great advice and perspective. And again, just to share with the audience, if you haven’t followed Tom’s work yet, I can’t recommend this more, right? And start with the foundational thinking of tax free wealth. Such a phenomenal book to just really change how you think about taxes and what’s really possible.
And you need to actually take an active role in tax planning. I started working with Tom, it’s almost a decade ago now. And he has been able to do some amazing work with us. But at the same time, I’ve taken upon myself to constantly learn as well, and be an active part in that.
So anytime we’re buying assets, we’re making a move in our business, we’re exiting something, right? All of that strategy kinds. comes together and that’s how you get the ideal result.
Yeah, absolutely. We like to say, if you want to change your tax, you have to change your facts. And I can’t change your facts. I can tell you what facts to change, but you actually have to change the facts. I do encourage people, don’t just partner with the government, partner with your tax advisor.
Yeah. Fantastic. Tom, it’s always a pleasure to get together. I constantly learn something from you to really take my game to the next level. If people would like to learn more about your firm, your latest things, where’s the best place that they can connect with you?
Well, first of all, if you’re looking for a tax advisor, we actually have an easy button now. Tfwadvisors.us have a franchise of tax advisors. We’re the first CPA based tax advisory franchise. And we actually have, you can actually see who the advisors are and find out about them. That is available at tfwadvisors.us. If you want more education, I would suggest either the Wealthability Show, which is my podcast, or go to wealthability.com for educational, lots of good educational tools.
Outstanding. Thanks again, Tom. Really appreciate it.
Thank you.