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Today’s episode is packed with powerful insights as we welcome a distinguished panel of guests, including Stephen Hall, Sharon Lechter, Ani Manian, and Aaron Hofrichter, alongside your host, Dave Wolcott. Together, they bring a wealth of experience in tax strategy, wealth acceleration, financial education, and the mindset required for lasting prosperity.
We kick things off with Stephen Hall, a second-generation tax expert from Robert Hall and Associates, who breaks down the crucial differences between tax planning and tax preparation, and shares actionable tips for structuring your investments to minimize your tax burden. Next, Sharon Lechter, renowned co-author of “Rich Dad Poor Dad”, takes us on her personal journey—from her childhood lessons around the dinner table to fundamentally changing the landscape of financial education across the globe.
We’re also joined by Ani Manian, who explores the deeper meaning of wealth—beyond just financial figures—and explains why cultivating abundance begins with your mindset. Wrapping up, Aaron Hofrichter combines his experience as a CPA and real estate investor to share practical strategies for maximizing returns and steering clear of common tax pitfalls.
This episode is simple, educational, and focused on empowering you to take control of your financial future, whether you’re an entrepreneur, investor, or someone looking to start your journey towards wealth.
In This Episode
- The difference between tax planning and tax preparation
- Strategies for tax-efficient investing and avoiding IRS “dirty dozen” pitfalls
- The importance of financial education for adults and children
- The mindset shifts needed to achieve true wealth and abundance
Dave Wolcott
Stephen, welcome to the show.
Stephen Hall
Thank you, Dave. I’m excited to be here.
Dave Wolcott
Yeah, always good to connect and really looking forward to the discussion. And you know, as we were chatting, it’s interesting because, you know, I was thinking about it, right, in terms of some of the topics that I love to bring to our investors. And tax is definitely up there in the top three easily, because the way I see tax is it’s literally one of your biggest opportunities. Right. It’s as big as the actual investment yield itself, but people just don’t think of it that way. For those folks who aren’t familiar with you or your firm, please just give us a little bit of background in terms of your origin story and how you got into, you know, tax and investing.
Stephen Hall
Well, thank you, Dave. I’m honored to be here. So my background is I’m an enrolled agent and I started in Los Angeles, geographically, where it’s one of the top five cities in terms of net high net worths that reside in the region. And I grew up in the business. I’m a second generation owner of a firm called Robert hall and Associates out of Glendale, California. And as a result of being in Southern California with the skyrocketing real estate prices as well as the entertainment industry, where you have hundreds of thousands of folks that make over have over a $1 million net worth, it was easy for us to to understand the problems they would incur with the high tax rates.
For example, in California, your tax rate could be as high as 13% at the state level, plus in today’s rate, you could be as high as 37%. So it was daily we were challenged with the opportunity and the challenges to find ways to reduce those tax liabilities for all of the different entrepreneurs that came through our doors for the past five decades as a firm.
Sharon Lechter
Yeah.
Dave Wolcott
And so can you help the audience really understand this? I think this is such a really critical part of understanding tax. And it took me a lot of battle wounds, you know, working with different CPA providers out there. But talk to us about the difference between tax planning versus tax preparation.
Stephen Hal
Definitely. So when you do tax planning, tax planning is where you’re putting on your strategic hat and you’re trying to forecast what your revenue is going to look like and what you want to do in terms of an ROI and what vehicles you can go into to reduce your tax liability. Whereas tax preparation, it’s just a redundant compliance process on a checklist to where you take the data you’re given and you put it on the appropriate forms based on what was executed during the calendar year.
The way I always say it is, tax preparation is reactive. Tax planning is proactive. So you always want to be proactive on the planning side. So that way, when you get to the reactive phase of preparing the filing, you were proactive enough to prepare the tax liability you’re planning for versus being reactive to the forms you receive at the end of the year to find out what you owe to the government.
Dave Wolcott
Now, I heard something the other day. Tell me if this is valid. But even if you’re, let’s say, a California resident, and then you do transition to Florida, but you still have some, let’s say you keep your house in California for three months out of the year, but you’re in Florida for nine months, is the state still looking for revenue from you?
Stephen Hall
So that’s a great question. California is one of the most aggressive tax agencies that try to enforce taxation. Even if you’ve left the state. As of right now, if you’re a non resident of California and you still own property, however you spend less than 180 days in that state, you’re a non taxable resident in the state of California.
However, the Franchise Tax Board, which is the administrative arm of California, will occasionally attempt to make the argument that you still are a de facto California resident, which is not the case. Then if you do have that issue, it’s important to have a California tax attorney that’s very familiar with the Franchise Tax Board administrative law process to make that argument that you’re not a California resident.
Got it.
Dave Wolcott
Interesting. Tell us about some of the biggest misconceptions that people have about taxes.
Stephen Hall
Great question. So the biggest misconception people have about taxes is that, is that when you have a gain, you just have to pay the tax. That’s the biggest myth that’s out there. You can plan if you’re proactive. You can and you have. What I mean by the word proactive. If you’re to have a large gain or you’re to have a significant event, it’s important to plan at least 24 months in advance.
Dave Wolcott
Are there any dirty Dozen or things right now that you would advise investors not to do? And let me give you some examples. Things like conservation easements, or let’s say captives or things of that nature.
Stephen Hall
Great question. The first thing that comes to my mind is cryptocurrency. Cryptocurrency is a great alternative investment. In fact, we just saw the presidential administration is supporting the currency and proposing to put it into the reserve portal within the treasury.
But you do have folks that say, hey, I want to store my crypto in a cold wallet. And then I’ll sell my crypto and put it back into a cold wallet. And then folks think that they can get queued and get away with it. But the reality is that’s being monitored because once you sell it online somewhere, there are nets out there that will, that will track that ID number so you are not anonymous.
Stephen Hall
You will get caught eventually with that cold wallet if you don’t report it to the Treasury Department. And I’ll give you an example. When the Swiss swore to secrecy on all those account holders for U.S. taxpayers about a decade ago, the U.S. treasury Department went to Switzerland and said, we want you to divulge all of your account holders that are Americans. And the Swiss for two years fought it.
But at the end, when the United States threatened Switzerland with economic embargoes, Switzerland caved in. And as a result, every account holder that was in the database in Switzerland was exposed for every US Taxpayer that was hiding money in Switzerland.
Stephen Hall
And the problem is you may have inherited an account from a long lost cousin for $100,000 and kept it in that account in Switzerland. And you may have only earned $10,000 on that account over the years. Well now the US Treasury Department, the IRS wanted to penalize that account 50% of the account value at that moment in time.
So you would have been a lot cheaper to pay the tax on the interest you earned on the account rather than paying a 50% penalty on the total value of that account. So the moral of the story is if you have cryptocurrency and you have it stored in a cold wallet and you think you’re not going to get caught, think again. Because the statute of limitations unlimited in that example.
So with AI and the progression of all these servers, I would not take a chance to try to hide from a regulator with your cryptocurrency in terms of selling it, because you will get caught. And the reason why I’m bringing that up is because when you bring up the conservation easements and the listed captive insurance programs, in the beginning those two programs were great programs.
Stephen Hall
The problem is the Treasury Department and the IRS said wait a second, some people are abusing the program as a result of that abuse. They went the other extreme to over enforce those areas. So then those areas became listed transactions.
And that’s what could happen depending upon a promoter that’s promoting a special crypto and promoting saying, hey, you put it on, on the cold wallet. Don’t tell you don’t tell the government anything. Well, guess what? That’s that kind of language patterning. It’s going to be exactly what the US treasury is going to look for and make it a list of transactions or look into it and find out who, who are the registered account holders of those accounts.
So when we talk about conservation easements, first topic here, conservation easements are great.
Stephen Hall
It’s just you have to make sure the appraisal is in fact real on the underlying value of the asset.
Dave Wolcott
Any other strategies that you like or investments, vehicles that you like that are tax efficient, that you could share?
Stephen Hall
Absolutely. So if you’re, if you’re married and your spouse is, you know, an empty nester with where the kids are in college, it’s a great opportunity to look into potentially making your spouse a real estate professional where you could buy assets, real estate buildings like storage facilities, mobile home parks, apartment buildings, industrial buildings, you name it.
And your spouse could be the professional managing that ecosystem. Because if your spouse spends over half of her time or his time in real estate and over 750 hours in real estate, we could take the losses of all of those assets and offset it against the other source of income you may have.
But now when we talk about the word losses, there are two types of losses. There’s operational cash flow losses and then there’s losses on the actual building itself. Because through the building itself, the government requires you to depreciate it over a 20, 30 year period, depending upon if it’s a residential property or commercial property.
Well, guess what, you can actually accelerate a portion of that 20, 30 year depreciation schedule of that building in a shorter period of 5 years.
Stephen Hall
And based on the State of the Union address that was that was voiced this past week, there’s an opportunity that Congress will bring back that 100% bonus depreciation. And if this current administration brings back the bonus depreciation retroactive to January 1st of 2025, there’ll be an even greater opportunity to accelerate depreciation and show a larger loss in 2025 to offset against your other source of income.
Dave Wolcott
As a real estate professional, Stephen, as an investor yourself, any particular investments or tax efficient investments you like in terms of your favorites?
Stephen Hall
So my favorite is look, when you have a down market in the stock market like we’ve had, for example, when Deepsea came out and the market corrected about 20% one day, that’s a great time to convert to Roth. One of my favorite vehicles is when you see a short term drop in the market, it’s to potentially do a Roth conversion. Because then the next day, if you want to redeploy your capital, you can just either go back in the market or you could transfer your money into a vehicle called a self directed IRA and redeploy that capital into alternative investments. And I’m a big fan of that.
So that way, if you’re growing your capital pretty quickly, you can grow it tax free through the Roth vehicle that’s available to everyone here. Give you a great use case. Peter Thiel. Peter Thiel, one of the founders of PayPal, capitalized Facebook for Zuckerberg’s venture.
Well, he capitalized that half a million dollar investment through a Roth IRA. Today, he’s got a couple of billion dollars in that Roth IRA that will never be taxed.
Sharon Lechter
Yeah.
Dave Wolcott
Nice.
Stephen Hall
Awesome.
Dave Wolcott
Stephen, if you could give just one piece of advice to the listeners about how they could accelerate their wealth trajectory, what would it be?
Stephen Hall
The advice I would say is the taxes. When you look at tax, tax could be your largest creditor. So if you don’t plan, you’re going to lose 30 to 50% of your money if you don’t plan ahead. So what I always say is by planning, you could potentially reduce that exposure to zero.
And if you’re already taking risk in an investment vehicle out there, why take additional, why create additional costs in your overhead when you exit that successful venture and pay the government again? But if you can prevent that, you just doubled your money or close to double it, doubling your money with the right tax vehicle in place.
So that way your hard earned money continues to grow because you’re already taking risk when you’re deploying that capital. So why take on an additional creditor if you could prevent it? So that’s my biggest advice is if after all that risk you’ve taken to deploy that capital and all that diligence you’ve done, it does pay to take that extra time to due diligence ahead of time on your tax structure.
So that way, when you do take that risk on whatever investment you’re going into, you can keep majority of those funds in your pocket.
Dave Wolcott
Sharon, welcome to the show.
Sharon Lechter
Well, thank you, Dave. I’m delighted to be with you.
Dave Wolcott
It’s such a pleasure to have you on the show, Sharon. And as we were talking, you know, this is just such a fantastic opportunity to really have you in person here to really share with the audience, you know, your mission, which so much aligns with ours and I believe is the true systemic issue of one of the largest issues, quite frankly, within this country really around financial education and, you know, getting smarter.
And it all starts in the schools, which is completely lacking in today’s schools. And, you know, whether you’re a doctor, a lawyer, an engineer, an entrepreneur, or someone of trade, we’re just not taught financial education anywhere. And so the work that you’ve done with Robert has literally changed millions of lives.
I can’t tell you how many people I’ve run into that have read the Purple Pill and, you know, taken it and, you know, it’s really changed the trajectory of their lives, including myself. So with that as a backdrop, I’d love for you to help share the original story with, you know, how. How did you meet, you know, Robert and really kind of come up, you know, with the idea around Rich Dad Poor Dad and really putting that together.
Sharon Lechter
Well, thank you, Dave. I appreciate. It actually starts at my dining room table. When I was a kid, at 10, I used to have to scrub out bathrooms between tenants and real estate properties my dad owned. And we would talk about assets, we talk about cash flow, we would talk about liabilities at the dinner table.
I didn’t realize what a unique upbringing I had until I got out into the real world. He owned orange groves. He said, the orange gives me oranges, give me cash flow. The orange groves are going to give me appreciation. And some of those orange groves are part of SeaWorld in Florida right now.
And so I learned kind of from the inside out the importance of the word assets. It happens to be my favorite word on earth. Assets are sexy. Another one of my taglines. And I realized when I got out into the real world, I got my degree in accounting, and I was fast track and public accounting, how few people understood money.
And they’re taught to go chase money, exchange your time for money. And as a CPA in public accounting, I learned how many businesses succeeded. But probably more important, I learned how many businesses failed. And vast majority of them failed because they didn’t understand money. They didn’t understand time value of money.
And it was something that I just said, this is. This is something people need to learn. And I realized how. What a great benefit I had having the parents I did.
So fast forward a few years, I started a company called Sight and Sound. It was talking children’s book because successful businesses solve a problem or serve a need or kids didn’t like to read. And in that company, it was a new technology.
At that time, back in 1987, kids didn’t have screens, they didn’t have electronics. It’s dinosaur day. I know, you can’t imagine a time when kids didn’t have screens. But we said, how can we get parents to trust us because we have this new gadget?
Well, we did deals with Disney, Warner Brothers, Sesame Street, and that helped us expand that goal to do the first children’s talking book around the world. And so I learned a lot about publishing, a lot about licensing, a lot about international trade.
Sold that company in 91, and we relocated to Arizona. And our oldest son went off to college and came home in credit card debt. He left in September, came home in December, and he got to the college campuses, and there were tables, free pizza, free money, free T shirt, free money.
And he had a really good time his first semester in college until the bills came due and came home December of 1992 and asked us to bail him out, which we did not do. But that was that. That was when I dedicated the rest of my career to financial education. December of 92.
Fast forward a few years.
I got a call from Mike in 96. He said, I met this guy that has an idea for a board game that I think you might want to see. And so I met Robert at the very first beta test for the game Cash Flow. It was drawn out on a piece of butcher block paper. The different caliber bullets were playing pieces.
So it was kind of an interesting first impression, but I was the only one that got the rat race at that beta test. But I loved it because it was so consistent with what I was doing with schools at the time to try and get our children to learn about money from a standpoint of assets, not paychecks.
And so I just volunteered as a friend to Robert to help him commercialize it, because I had all the connections, I had all the resources to help do that.
And in the process, he told me he wanted to charge 200 for the board game. And this is 1996. I said, that’s kind of pricey for a board game. Maybe you should write a brochure to explain the philosophy that would encourage people to invest in it.
And that’s when he asked me to be his partner, and I helped him write that brochure. And that brochure was actually Rich Dad Poor Dad. We never expected it to take on.
Stephen Hall
A life of its own.
Sharon Lechter
We never expected to write 15 books. We said, oh, people wanted more. Well, let’s do a trilogy. Rich Dad Poor Dad, Cash Flow Quadrant, Rich Dad’s Guide to Investing.
Oh no, they wanted more. So over our 10 years that we were equal partners, I was CEO of the company. I was able to expand it around the world to build the largest personal finance brand in the world. But we wrote 15 books together.
I launched the Rich Dad Advisor series, and we had multiple audio and other products. And it was really an opportunity to educate people on how to think about money in a different way. So how to move from a scarcity mindset to an abundance mindset.
But that we actually met through my husband Mike. Mike’s a well known international intellectual property and licensing attorney. So that’s how we originally met.
Abundance begins with how you think, not how much you have.
Dave Wolcott
From your perspective, tell us about, you know, where, where are we in the state of, you know, financial education today as a country, as a society? What’s holding us back?
Sharon Lechter
Well, just five years ago, there were only five or six states out of the 50 states that required a personal finance class for high school graduation. Today, we’re up to 26, but it’s still not enough.
We need all 50 states because we talk. I have people at an interview last week that says, you know, how do you bridge the gap between the haves and the have nots? It’s education.
And if we make sure every child is armed with financial education in school, that levels the playing field. If you think about some of our world’s billionaires, they started from very meager beginnings, but they learned how to buy, build, and create assets.
You know, if you look at, let’s talk about the Wall Street casino a little bit. Forty years ago, the Fortune 500 companies, their value was 85% bricks and mortar, 15% intangibles.
Today, that’s more than flipped over. Ninety percent of the valuation of Fortune 500 companies is intangible. It’s, you know, through systems, it’s their branding.
Think about Airbnb, largest hotel, they own no hotels, right? The hospitality industry. Uber, they own no physical vehicles. It’s all in the software. Amazon.
And so it allows us to compete a little bit better.
Because today assets come from your brain, right? Intellectual property. And we talk about asset categories.
When a financial planner talks to you about diversifying your assets, they’re talking about stocks, bonds, mutual funds. You know, when I talk, or I think probably when you talk about diversifying assets, is against asset categories.
Businesses, real estate, paper assets, intellectual property, commodities, all of those things. Digital currencies.
And so when you can diversify across asset categories, you give yourself the best way to stay solid and continue moving no matter what happens in the market. And when we talk about asset valuation, it’s about momentum of your money.
Dave Wolcott
So there is a lot of psychological hurdles to take place to shift to that abundant mindset and try to change that. But we also now have a responsibility to really change that for our children and future generations, which I know you’ve been such an instrumental part in that.
So what type of advice would you provide for us to educate our kids going off into the future?
Sharon Lechter
Absolutely. I do always recommend couples, when they get together, to have what I call a money date. Go out to dinner and talk about what your respective parents philosophies were about money, because it will reveal a lot of things that may happen between you as a couple when it comes to money.
So it’s very important because we are. You know the phrase, the rich get richer, the poor get poorer, is because we learn about money at home.
And as it relates to your children, be a mentor, not an enabler. That’s a powerful statement because too many of our parents today are enablers, and the kids don’t have to work for anything, and they just expect it. They get a handout.
And all of us are guilty of having said, I can’t afford it.
If you think about that, I can’t afford it, that’s a negative statement. You want to turn off the lights and get under the cover, right? It’s negative. It feeds into scarcity.
So I say, stop yourself and say, how can I afford it? You feel the difference. It opens your mind, it triggers your subconscious entrepreneurial spirit, and it goes to work coming up with ideas. You can afford what you want.
Same thing with your children. Johnny, Mary, we can’t afford it. Well, that’s the end of it. It’s depressing. They go cry somewhere.
Instead say, Johnny, Mary, what can you do to afford it? And those little kids get very creative, and they go to work and find things that they can do to earn the money to get what they want.
Let them earn it. As long as it’s legal, let them earn it, let them buy it, and then celebrate with them. Because the greatest reward you have is not that they’ve earned it and made this, but you see their self confidence grow.
Once a child knows that they can earn money on their own and they can achieve what they want and achieve their goals, there’s no stopping them. But what we’re doing in the real world is handing them money.
Dave Wolcott
If you could give just one piece of advice to the audience about how they could change their wealth trajectory, what would it be?
Sharon Lechter
Focus on buying, building, and creating income-producing assets. You are financially free when the income from your assets exceeds your monthly expenses. I’ll repeat that: you’re financially free when the income from your assets exceeds your monthly expenses. Assets work for you 24/7. They don’t have personality problems. They’re just working for you.
We hear terms like mailbox money and passive income, but that’s not really the point. Focus on the income. Focus on the asset. And how many assets can you have? As many as you can get. When you’re working for money, there are only so many hours in the day—that’s the left side of the quadrant. Move to the right side. And as I’ve said before, assets are sexy, and the older you get, the sexier they become.
Dave Wolcott
Ani, welcome to the show.
Ani Manian
Dave, thank you so much. You are one of my favorite human beings on this planet because every time I talk to you, it feels like an explosion of energy.
Dave Wolcott
What was it that got you helping other people really transform their lives? What was it along your journey—and frankly, what was your biggest learning lesson—that got you to where you are today?
Ani Manian
I’ll start with how I think about wealth, and then I’ll connect it to how I got there. Most people think about wealth purely in financial terms—money, numbers, economics. But that’s really just an external representation of an internal feeling.
I’ve worked with people who make hundreds of thousands of dollars a year, all the way up to hundreds of millions, and even a couple of billionaires. I’ve never met someone whose idea of “enough” matched what was already in their bank account. For most people, wealth doesn’t exist in the present moment. It exists somewhere out in the future. So they’re separated from wealth by both space and time.
That’s the Newtonian model. In Newtonian physics, if you want to move an object from one point in space and time to another, you have to apply force. That force is proportional to the mass of the object. So if I want to become wealthier, the gap between my current net worth and my future net worth determines how much effort I believe I need to expend and how long it will take.
But there’s another layer to this. You are a vessel—a conduit—for a deeper gift. When you’re in contact with that, you feel alive, energized, refreshed, and resourced. It’s magnetic. When people experience you in that state, they experience your highest version. When you experience yourself in that state, you feel absolutely amazing.
We want two things at the same time: to feel fully at ease and fully alive. Fully present. Fully embodied. In our bodies, not in our heads. Not worrying, not anxious, not bracing or contracting. And at the same time, fully engaged—engaged in being who we came here to be and fulfilling the purpose we came here to fulfill.
That, to me, is wealth. It’s far more than a number. The number is just a mental projection of how we think we’ll feel someday. But we don’t need to wait for a bank balance to feel this way. It’s actually our birthright to access this state in any moment, regardless of who we are, where we live, how much money we have, or what trauma we’ve experienced.
When we experience wealth internally and express ourselves from that place, it becomes the key to building wealth externally. That’s what channels our authenticity, energy, and purpose and turns them into currency. Currency is a current—it’s a flow of energy. The current inside creates currency on the outside.
When the way we generate money aligns with who we’re being, there’s no ceiling on how much we can generate. That’s how we become infinitely wealthy—both internally and externally. And that’s a completely different paradigm, not just for money, but for how we live our lives, because we’re winning in every moment.
Money is a reflection of energy – how you show up determines what you create.
Dave Wolcott
Whatever your goal is—becoming a decamillionaire, a centimillionaire, a billionaire—the time gap to achieving that is fascinating. It affects how present and mindful you are today, while still holding a big ambition for the future.
Ani Manian
Money and time is a fascinating conversation. Money is inflationary—it’s a currency, not an asset. Time, on the other hand, is deflationary. As more money is printed, each dollar becomes worth less. But as we age, the total amount of time available to us shrinks, which makes each unit of time more valuable.
Those curves are inverted. As we get older, time becomes more valuable than money. Yet most people trade an inflationary currency for a deflationary asset. We need to invert that trade to live an extraordinary life.
That’s why your work is so powerful. You help people see this clearly. I became obsessed with time because I had to retrain my brain to stop thinking in money and start thinking in time. Most people measure everything in dollars, but everything changes when you measure in time.
Take passive income. We can think of it as money, or we can think of it as time returned. With taxes, for example, if someone earns a million dollars and pays 40% in taxes, that’s $400,000—but it’s also five months of time.
Dave Wolcott
To make this really actionable, what’s one step people can take to move closer to this true definition of wealth?
Ani Manian
The most profound step is realizing that we’re already wealthy—and allowing ourselves to receive that wealth in each moment. We do that by coming fully at ease right now, opening our hearts, and feeling deep gratitude for what we already have.
Think about the people, experiences, and blessings in your life right now. Feel genuine gratitude for them. When we do that, we pass through a kind of quantum tunnel into the state of wealth. Wealth isn’t something we get in the future—it’s something we claim in real time.
When this becomes a practice, we don’t depend on circumstances, the economy, or outcomes. We become wealth itself. And paradoxically, wealth grows far more easily from that state. Creating wealth from lack requires force and effort. Creating from presence allows everything good to emerge naturally.
Dave Wolcott
Aaron, welcome to the show.
Aaron Hofrichter
Thanks, Dave. I really appreciate it and I’m looking forward to the conversation.
Dave Wolcott
What’s fascinating about your journey is that you’re a CPA who truly understands entrepreneurs, business owners, and tax strategies—but you also walk the walk as a real estate investor. Let’s start with your origin story. Did you begin with tax, or did real estate come first?
Aaron Hofrichter
Like most things, it was a journey. When I graduated from college, I started at a large international CPA firm in the tax department. That was the first time I realized that the traditional 9-to-5 path wasn’t really for me.
I worked there for about three or four years, then left to start my own real estate development company—buying properties, fixing them up, and flipping them. This was long before HGTV made it popular. If I had been smarter, maybe I would’ve started a TV show too.
That led right into the 2007–2008 period with no-doc loans, which turned out to be too good to be true. After that collapsed, I tried being a real estate agent and a financial advisor, but neither really stuck. Eventually, I found my way back into public accounting, working with regional CPA firms.
Later on, I made another move and joined a real estate developer as their controller and CFO, where I stayed for about seven years.
Dave Wolcott
To me, on the surface, it seems like, you know, 99% of the industry are actually tax preparers.
Aaron Hofrichter
Yeah, no, I would completely agree with that. And that’s probably the one thing that I realized when I started really diving in and really getting deep into the tax advisory, tax strategy world was that everybody that was coming in for—because our process really does start with strategy, right? I mean, we don’t really do, hey, we’ll just do your tax return, you know, because it’s, it’s—I don’t enjoy it as much. I think that’s why I was in and out of public accounting so much, because the traditional firms that I worked for were very much that, like, we just prepare the tax return, we give you back, you know, whatever information you need. Call us if you have any questions.
Sharon Lechter
Right.
Aaron Hofrichter
And I think that’s, like you said, 99% of the industry. What I realized that, you know, going forward is that the most impact can be made by starting not only with a tax strategy, but also by developing the wealth strategy first. And so by having that wealth strategy first, you understand and know what you’re invested in, how do you earn your money, what kind of opportunities you have that are out there. Because from that we can take that information and then develop the tax strategy associated with that. Because how you earn money is the number one thing that we can mitigate from a tax perspective, and knowing how we can match those different things together and, you know, really develop the game plan. But in order to be able to develop the game plan, have to have a really good focus and understanding of, you know, how are you going to build your wealth during that time.
Dave Wolcott
You know, I think this is just really such a huge takeaway for folks out there, right? Because if you look, I don’t, I don’t have the numbers off the top of my head, but the amount of money in the U.S. market alone, right, that’s in qualified plans and that is subjected to this is massive. So talk to us a little bit about, you know, the numbers as a CPA, right, just kind of modeling out really some, let’s say, real estate and alternative investments, tax-efficient type investments, you know, in that kind of scenario over, over the lifetime of a, you know, say a career, you know, versus this traditional approach that’s maybe modeled to the S&P that has, you know, the higher taxes, fees, and inflation.
Aaron Hofrichter
Yeah, absolutely. So I think I’m thinking about one client, you know, and specifically if they have, you know, high income, right? So high tax bracket, had acquired a bunch of rental properties over time, didn’t understand, didn’t know, didn’t know about cost segregation, that that was even an opportunity, right? So all, you know, came in, we developed a plan, developed a strategy, went in and decided, you know, did cost segregation studies, and we were able to offset the majority of their income that they had earned during the year. So, I mean, I think it was over seven figures of income that we could offset in that first year to be able to—so if you talk about seven figures of income and paying zero tax during the year, if you took that $230,000, $300,000 of tax that would have been put, you know, paid to the government from a, you know, in taxes, and just use that to buy another rental property that produces more cash flow, that then that new property then can have a cost seg study, which then we can offset income.
So you almost get this repeating, building cycle upon itself that just perpetually grows and grows and grows, as long as you’re doing the right activities that are inside of there.
Dave Wolcott
And what about things to, you know, watch out for? Actually, I’ve heard about real estate professional being even kind of cracked down on more these days. Are there any kind of items like that that, you know, we should be aware of?
Aaron Hofrichter
Yeah, I would say captive micro insurance might be another one, in addition to the conservation easements. I have seen some kind of done conservation easements; it’s come back to bite them. It was before we were working together. It has come back to bite them. So that’s definitely—and I think the prior administration, like the, I guess the IRS, you know, they created this Dirty Dozen list, right?
Of all these different things that they were definitely going to crack down and watch out for more often. I think, you know, micro-captive insurance, conservation units are probably the two of the biggest ones that I’ve seen that really fit for a lot of clients from a pure technical standpoint. They actually make sense and how they’re—if they’re done correctly, the way that the rules are written, there’s nothing wrong with them. It’s that you have a lot of times bad actors, maybe is a good way to put it. You know, people that are out there and they get this great idea and they start promoting it a little bit more, and, you know, they turn it a little bit more into a, you know, a planning sales pitch, I guess, maybe, as opposed to anything else.
Stephen Hall
Yeah.
Aaron Hofrichter
And I think from a real estate professional status, it’s definitely something that I’ve heard that they were looking at a little bit more. But I think that goes back to the documentation aspect of things, right? So whenever you take a tax position, you always want to be comfortable in that position, and you want to be comfortable from that planning aspect that we can, you know, we have the support, the documents, the data, you know, to be able to actually take this position and be comfortable with it. So I think you can do anything that the tax law says, but you just have to make sure that you have the right facts in place and the right documentation and the right pieces aligned to be able to take that position and be comfortable with that position.
Dave Wolcott
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?
Aaron Hofrichter
Yeah, I would say probably the biggest thing is, is bet on yourself, right? I mean, to take control of your own future. You know, we talked a little bit about 401ks and Wall Street and traditional investments and how those, you know, are good or, you know, bad. But I think if you take control over your own destiny, plot out, you know, create that future vision, create that plan, create that game plan that gets you to that. And then educate yourself, surround yourself with the right team members, and do the things that you need to do, not only on a yearly, quarterly, monthly, you know, weekly, daily basis, but then, you know, just do whatever you can, you say, to kind of move that needle forward. But if you have control over your own situation, your own destiny, by betting on yourself, you’re going to—you’re going to be more successful.
I think that later on down the road.