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Today we have an incredible guest joining us, Mitchell Day, a specialty tax manager with Provision PLC, brings over twenty years of taxation experience to the table. His expertise lies in tax planning for the real estate, construction, banking, and multi-state sectors.
Mitchell’s impressive background includes working in various roles in both public accounting and industry. But before embarking on his successful accounting career, Mitchell served as an investment advisor in Canada. This unique perspective allows him to provide valuable insights and strategies to his clients.
In this episode, Mitchell shares his expertise on a variety of topics, including consolidated returns, tax provision, and income tax planning. His breadth of knowledge and practical experience will provide our listeners with actionable insights to optimize their wealth strategies.
He also talks about understanding unique financial goals, Mitchell identifies how his expertise and knowledge over the years can help people achieve long-term success while maximizing tax efficiency.
Discover tax-efficient strategies that can take your financial goals to new heights.
In This Episode
- Insights into the process of estimating and accounting for income taxes in financial statements.
- Exploring the tax implications and benefits of utilizing structured financing methods in various financial transactions
- Proven strategies and approaches for optimizing income tax planning to minimize tax burdens and maximize wealth accumulation
- The upcoming changes in tax planning and how you and your business can adapt
Welcome to today’s show on Wealth Strategy Secrets. We have another exciting episode focused on taxes. Today, we’re joined by Mitchell Day, a specialty tax manager with ProVision PLC based in Tempe, Arizona, who brings over 20 years of taxation experience to the table.
Mitch has worked in a variety of roles in both public accounting and industry, emphasizing tax planning in the real estate, construction, banking, and multistate sectors. Before his career in accounting, Mitch was an investment adviser in Canada. In addition to being a CPA, Mitch holds several prestigious credentials, including certified management accountant, certified financial manager, and chartered financial analyst.
Mitch, welcome to the show!
Thanks, Dave. Thanks for having me on. It’s great to be here.
Awesome to have you! I’ve been looking forward to this conversation. I know our investors are always eager for tax strategies and tactics, and I’ve learned a lot over the years.
It’s been a fascinating journey for me. I’ve faced frustration along the way, as I’ve shared in my book. I’ve fired five different CPA firms. As I progressed and started working with more prestigious agencies, I found myself paying increasingly higher fees but never truly receiving strategic advice from my tax providers. They never really engaged with me on where I was today and where I was headed. I often wished they would help me move the pieces around on the chessboard to align with my tax strategy.
This insight has been crucial for me. For almost a decade now, I’ve had the opportunity to work with professionals like yourself to gain those insights and incorporate them into our overall wealth strategy. One key takeaway I’ve identified is that taxes are the number one wealth destroyer—bar none. It’s the biggest expense on your income statement, whether you’re a business owner or a W-2 employee.
I love how Tom Wheelwright puts it—it’s a sobering thought that you could be working five to six months out of the year just to pay your taxes. Mitch, could you tell us more about your background? You have such a unique journey in the fields of taxes, accounting, and financial planning. What’s your perspective on it all?
My path has been somewhat circuitous. I was born and raised in Northern Ontario, in a town called Sudbury. My dad was a chartered accountant—essentially a CPA—and he owned his firm. Growing up, I gained a solid understanding of the business from him. He emphasized advisory services, especially since, in Canada, the tax landscape is quite complex—California looks like a tax shelter by comparison! Tax planning is extremely important up there, and my dad always viewed it as a significant aspect of his practice.
As I went through university, I initially chose a different route. I earned my undergraduate degree in statistics and chemistry before pursuing a second degree in accounting. Ultimately, my goal was to enter finance, specifically investment management, because I’ve always enjoyed understanding balance sheets and learning how to create wealth.
When I graduated from college, I started working for a firm that eventually merged with Merrill Lynch Canada, and later, I worked with RBC. It was there that I honed my skills as a deep-value investor. My training was rooted in Graham and Dodd’s classic principles of margin of safety, income, and growth. However, after the dot-com bubble burst, the entire industry underwent a massive transformation; it was a period of upheaval, and many people found themselves out of work.
At that time, the investment sector was struggling to hire, but thanks to my accounting background, I was able to immigrate to the U.S. and secure a position at a CPA firm in the Detroit area. I was fortunate to join that firm with my college roommate, where I began learning from him and a couple of managers. They taught me that tax returns are more than just forms; they’re an opportunity to arrange your financial affairs to minimize your tax liability.
Many people approach tax returns by simply checking if everything is filled out correctly, but that reflects a fundamental flaw in our educational system. Colleges teach students how to complete forms, but they don’t instill the mindset of thinking critically about tax strategy. I was lucky to have mentors and to grow up in a family that emphasized viewing tax returns differently. I learned to identify money left on the table and recognize ways to lower tax numbers.
Starting over from scratch allowed me to learn from a new perspective. After a couple of years in public accounting, I had the opportunity to work for Bank of America in their corporate tax department. There, I learned how the largest taxpayer in the U.S. approaches tax strategy. Many people view the tax department as a cost center, but it can also be a revenue center. By organizing your financial affairs and interactions with counterparties effectively, you can achieve significant tax savings.
Seeing how large corporations operate was eye-opening. For instance, the CFO approaches the chief accounting officer with a directive: “What’s the lowest effective tax rate we can achieve?” They establish targets for the effective tax rate and then explore strategies to utilize their tax attributes to lower it. If they find themselves below their target, they may look for opportunities to harvest gains or take advantage of off years to stay within their desired tax rate.
This perspective made me realize that individuals are no different from businesses in this regard. We have a profit and loss statement, which is our financial statement encompassing all our businesses and their interconnections. Taxes are typically our largest expense, as you’ve mentioned before. Thus, we should manage this expense as we would in a business.
Unfortunately, many of us are conditioned from our first paycheck, often as teenagers, to believe that taxes are a fixed cost taken off the top with no recourse. It isn’t until a person experiences an epiphany that they realize there are ways to manage this expense. Our approach is to first understand this expense by measuring it accurately.
How do all the pieces fit into our tax return? It’s crucial to know how these elements contribute to the expense because if you can’t measure it, you can’t manage it. Once we have that measurement, we can identify the elements involved and develop a plan for managing our taxes throughout the year. We set a target effective tax rate and strategize on how to achieve it. Each person’s situation is unique, as their ways of making, spending, and investing money differ.
I essentially began my career after college by working for a firm that ultimately merged with Merrill Lynch Canada. Then I transitioned to RBC, where I developed my expertise as a deep value investor. My training was grounded in the classic principles of Graham and Dodd, focusing on margin of safety, income, and growth.
After the .com bubble burst, the entire industry transformed, leading to mass layoffs, and many people, including myself, found it challenging to secure positions in investment roles. Fortunately, my accounting background allowed me to immigrate to the U.S., where I started working for a CPA firm in the Detroit area. I was fortunate to enter this role through my college roommate, who provided me with valuable mentorship. I quickly learned that tax returns are not just forms; they represent a way to arrange one’s financial affairs to minimize tax liability.
Many people approach tax returns with the mindset of merely ensuring that everything is completed correctly. This is a significant education gap, as universities often fail to teach students how to think critically about tax strategy. I was lucky to grow up in a family that emphasized looking at things differently, leading me to recognize opportunities to minimize taxes. For example, I learned to identify money left on the table in tax returns and consider alternative actions to lower tax burdens.
After a few years in public accounting, I had the opportunity to work in the corporate tax department of Bank of America, where I gained insights into how large corporations manage their tax obligations. Many people see tax departments as cost centers, but I learned to view them as potential revenue centers. By organizing their affairs strategically, corporations can achieve significant tax savings. This experience opened my eyes to how businesses operate: they have a profit and loss statement, much like individuals do, where taxes often represent a significant expense.
We’ve been conditioned to think of taxes as something that is simply deducted from our paychecks with no recourse. Many people only realize that there are strategies to manage taxes when they have a moment of realization. Our approach involves measuring tax liability accurately and managing it throughout the year. This allows us to set a target effective tax rate and work towards achieving it, recognizing that every individual has different financial circumstances and goals.
Each person has unique objectives concerning effective tax rates. However, when deploying capital to create cash flow and tax efficiency, we don’t have the luxury of printing money, so we must optimize our strategies based on our individual goals, risk tolerances, and other non-financial constraints. Our goal is to maintain an ongoing awareness of our tax liabilities so that when it comes time to file, the tax return merely reflects what we’ve already planned and executed throughout the year. There should be minimal variance and no surprises; the process becomes a routine we can repeat annually.
To elaborate, many individuals believe they are using a tax strategy simply because they have a CPA who files their taxes and claims deductions. However, this is often not a true strategy. The industry is fragmented because education, particularly at the university level, tends to focus on the mechanics of tax code and return preparation rather than fostering strategic thinking. Many firms approach tax preparation as an assembly line process, viewing tax returns merely as widgets to be produced and filed.
Moreover, clients often resist the costs associated with tax strategy and planning, failing to see the value that can be gained. Many will research extensively before making a purchase, such as a TV or a smartphone, but won’t invest the same effort into finding a qualified professional advisor. Our industry needs to communicate the value we provide effectively. Yes, there are fees for our services, but through strategic planning, we can often generate tax savings that significantly exceed those costs.
A specific example from the recent tax season highlights this point. We have an oil and gas fund, and many of our investors submitted their tax situations to their CPAs. A common response was that they couldn’t offset active income, which indicated a lack of understanding of how these investments work. When CPAs encounter areas of uncertainty, like home office deductions, they may consider them risky or gray areas.
However, risk can be understood differently. For instance, I’ve heard for years that claiming a home office deduction will trigger an audit, yet in over 20 years, I’ve never seen that happen. It ultimately comes down to documentation and substantiation. If you can support your claims with facts and they align with the tax code, there is no reason to avoid these strategies.
You have to support your claims with documentation and understand the tax code. The problem is that many CPAs lack exposure to certain areas. For example, in your oil and gas scenario, they may not understand working interest because it’s not something they encounter often. They might not be aware that the IRS Section 469 rules have specific carve-outs for oil and gas interests. If your money is at risk and you’re a general partner, it’s considered ordinary income. The tax code encourages exploration in this way.
Similarly, the home office deduction is valid as long as you document it properly. With the Augusta rule, as long as you have a rental agreement, a valid business purpose, and can document how you’ve used your house (backed by comparable market data), you’re in good shape.
Unfortunately, some CPAs may not take the time to research these topics. They may prefer to remain within their comfort zone, focusing only on traditional documents like W-2s and 1098s, and just want to get the job done quickly without charging for the additional time required for in-depth analysis.
I think that’s a perfect backdrop for folks to understand. It’s important to recognize that the tax code serves as a roadmap of incentives for business owners and investors. By understanding the code better and aligning your activities with what the government incentivizes—like investing in energy and real estate—you contribute to job creation and economic growth.
Once you make that paradigm shift, you can identify opportunities for investing or improving your business. You can then work proactively with your CPA throughout the journey.
You nailed it. The Internal Revenue Code can be seen as a guidebook on how not to pay taxes. It informs you about what you owe, but it also reveals strategies for minimizing your tax burden. This perspective shift helps you manage your financial affairs more effectively. You should consider how it affects your investment decisions and your work structure—whether you operate as a W-2 employee or a 1099 contractor running your own business.
The Internal Revenue Code is basically a guide book on how not to pay taxes… It’s a whole paradigm shift.
Once you adopt this mindset, you can ask questions and explore possibilities. There are no dumb questions, and often the answer will be yes—if we can meet certain conditions. Let’s determine how to implement those strategies and assess the impact on your tax return.
So, what changes should we be aware of in 2023 and beyond regarding tax planning? There are a few significant changes to note. The biggest one relates back to the Tax Cuts and Jobs Act, which passed in 2018.
To meet the reconciliation rules for the Senate and avoid a filibuster, certain elements of the act will phase out over the next few years. For example, bonus depreciation was originally set at 100%, which was a huge benefit for real estate investors. Now, it has been reduced to 80% for 2023 and will continue to decrease—60% next year, then 40%, and ultimately, it will be gone. This shift will impact the tax benefits of every dollar invested in real estate and depreciable equipment.
Moreover, if you have investments in real estate syndications that previously benefited from 100% bonus depreciation, selling those investments could result in a significant recapture bill. With the reduced bonus depreciation, you won’t have the same offsets available, so you’ll need to explore other mitigation strategies.
Another significant change is the qualified small business deduction. The 20% deduction for pass-through income will begin phasing out in a couple of years. As this happens, we need to consider how these changes will affect business operations and strategize on how to keep effective tax rates down.
Lastly, the estate tax exemption has dropped from $10 million per person back to $5 million in a couple of years. For high-net-worth individuals, this means that you have a “use it or lose it” situation with the exemption. You may want to consider transferring assets to heirs or into a trust while there’s still time to take advantage of the current exemption level.
In summary, there are many changes on the horizon that require proactive planning and a strategic approach. Another challenge we face is considering what the tax code will look like starting in 2025. Will the composition of the House and the presidency change things? There are many moving pieces to this, but we know that several provisions are beginning to phase out, and we need to plan accordingly.
Really good insights. Given what you know today, what do you think are some effective strategies? I’d like to break this down into two parts for our listeners: first, let’s cover strategies for business owners, and then we’ll discuss strategies for high-income earners on W-2 income. For business owners, are there any top strategies or investments they should be considering?
One of the main things I focus on for businesses is assessing their operations and the variability of their revenues and income. Some clients have a consistent floor—a stable revenue and income every year. We start evaluating their business based on its nature.
For instance, do we want to explore benefit plans? If you and your spouse are the only employees, maximizing those benefits can be a significant advantage. Another valuable strategy is considering captive insurance companies. This can create deductions on your return while allowing you to retain capital through captive insurance. It’s a more complex approach, but it can be very effective for tax savings.
Additionally, we need to review fixed asset purchases. If you’re limited on what you can do, we might need to set up a separate leasing company to lease equipment back to you. Alternatively, we could consider establishing a separate C-corporation to take advantage of the difference between personal and corporate tax rates.
These are all important discussions, but one key point I always emphasize is: don’t do something solely for tax purposes. If the cash flow doesn’t make sense, the tax benefits typically won’t justify the effort. We need to build a business case first, ensuring that our strategies enhance efficiency and that the tax benefits simply improve your returns.
So, we’ll look at your operations, identify opportunities to create expenses,ses and explore ways to generate additional deductions. We might also need to reconsider your business structure. For example, if you’re operating as a partnership, you may face self-employment tax. In that case, would it make sense to elect S corporation status or even consider a C corporation? It’s essential to evaluate what your business needs in terms of income and cash flow while optimizing for tax, business, and risk needs.
Don’t do something just solely for tax purposes. If the cash flow doesn’t make sense, the tax benefits almost all the time will not more than justify that.
You make an excellent point here. I admit I sometimes fall into the trap of allowing tax considerations to dictate decisions. In our pursuit of tax efficiency, we can underestimate the overall impact—both upstream and downstream. It’s crucial to ensure that our strategies make business sense, whether that’s for your business or your investments. This is why we advocate for creating a comprehensive wealth strategy that considers everything end to end and even plans for 10 to 25 years into the future. We want to make the right decisions now, not just for the next quarter or year.
Exactly. One thing I emphasize with clients is the importance of establishing investment criteria. What’s our minimum return on investment? We need to maintain discipline in our approach because, as I always said when I was an investment adviser, I’m a value investor. I have my criteria, and I stick to it. When we drift away from that, bad things often happen. If an opportunity doesn’t meet your investment criteria before taxes, why even consider it? That’s the key takeaway.
So, here’s a question for you, Mitch. How can investors more quantifiably measure tax impact as part of their overall wealth plan? For example, if you aim for a marginal effective tax rate of 20% this year, what strategies can we implement to achieve that? And then let’s say you make some decisions, invest in real estate, and benefit from bonus depreciation, but you also anticipate a recapture in, say three to six years. How do you plan for that?
How can you actually plan for these types of situations in the future? For example, many entrepreneurs here are selling their businesses and experiencing significant liquidity events, which come with tax implications. How can you proactively plan for some of these things in your strategy?
What we typically do first is to assume certain known factors. There are known knowns, known unknowns, and unknown unknowns, as Donald Rumsfeld once articulated. We can look at the current tax code, the projected tax rates going forward, and how the rules might change. From there, we can model various scenarios for 3, 4, or 5 years.
Using the liquidity event as an example: once the sale is complete, we need to consider how to offset the initial tax impact of the gain. A common strategy is to invest in real estate and utilize bonus depreciation to counterbalance the gain. It’s essential to define your hold period as well, as this will influence your strategy. Some investors prefer a buy-and-hold approach, while others aim for value-add strategies with a quicker turnaround.
If we anticipate another liquidity event in a few years, we need to strategize on reinvesting. This leads to questions like, “How much can we defer?” or “What will our tax expense be if we can’t find qualifying investments?” At the very least, deferral is beneficial because it leverages the time value of money. Ideally, when we do face a tax hit, we want it to occur at a lower tax bracket.
We must also evaluate our investment outlook for the next few years, as this can impact our decisions significantly. Real estate, for instance, is closely tied to the long-term bond market and fluctuates with interest rates. We need to consider where interest rates will be in 3, 4, or 5 years. If we buy now and rates rise, we may face higher cap rates, lower valuations, and different cash flows.
Our goal is to model these scenarios in tax projection software, demonstrating the potential impacts. This helps us create a decision tree: if this happens, we’ll take this action; if that happens, we’ll do something else. By establishing a roadmap, we can make informed decisions and avoid being caught off guard.
That makes a lot of sense. You’re looking at everything comprehensively and from all angles. Can you share the top three strategies for someone exiting a business and trying to offset significant income?
The first question is what the individual plans to do after selling the business. If they’re looking to take a break and enjoy some free time, a significant strategy is to become a real estate professional. I’ve seen clients structure their sales so that they close in January, giving them an entire year to meet the requirements for being classified as a real estate professional. This allows them to invest in properties, deploy capital, and take advantage of cost segregation strategies.
If the seller plans to continue working and cannot qualify as a real estate professional, we explore other options. One possibility is short-term rentals, as they have different rules regarding the deduction of real estate losses compared to long-term rentals. We evaluate whether there’s a business case for this approach. Additionally, we could consider investments in oil and gas working interests, which can also provide tax advantages.
Another strategy to consider is negotiating the deal in installments. If you’re closing late in the year, you might arrange to receive half the payment now and the other half in January. This approach can help mitigate tax bracket impacts and gives you additional time to manage your assets for both risk and tax purposes.
You might also explore qualified opportunity funds, which require time to identify viable options. Finding funds with a solid business case that also offers tax deferral benefits can be challenging, so the more time you have to structure your investment, the better.
It’s crucial to avoid making these decisions during a transaction. Having sold a business myself, I understand how demanding the process can be. You’re juggling the business’s day-to-day operations while trying to manage various responsibilities, and tax planning often becomes an afterthought. You don’t want to feel forced into making decisions that don’t align with your investment criteria simply due to timing constraints.
As soon as you receive the Letter of Intent (LOI), it’s essential to have these discussions. You need to consider timing and terms to structure the sale in a way that is more advantageous from a tax perspective. This should be part of your negotiation strategy.
Absolutely. It’s essential to have these conversations early on. First, you should have someone like Mitch on your team, someone who can provide expertise in this area. By assembling a group of subject matter experts ahead of time, you can ensure you have the right advice when you’re ready to exit your business.
For example, with many of our dental clients, I recommend they get an appraisal of their practice’s value. There are private equity firms and dental support organizations actively looking to acquire practices. Even if you’re not ready to sell, talking to these entities can give you an idea of your practice’s worth. This knowledge is critical, as understanding your business’s value will inform discussions about what it might look like if you were to sell.
This preparation allows you to respond confidently if an unsolicited offer meets your criteria. You’ll have a high-level understanding of the tax implications, and you can negotiate the finer details based on that foundation.
Another important point is that having a pre-established relationship and an ongoing conversation can significantly benefit you when negotiating. When you present the LOI, having someone like Mitch on your team means you can start negotiating with a clear strategy in mind.
When you bring up taxes in these discussions, it’s essential to remember that the other side often has corporate attorneys and M&A specialists who typically conventionally approach transactions. They may not consider innovative strategies that could benefit you, so it’s up to you to negotiate effectively.
As a business owner, you generally want to sell stock, as it typically results in straightforward capital gains taxation. On the other hand, buyers often prefer asset sales because they can allocate a larger portion of the purchase price to depreciable assets, which allows them to take advantage of depreciation deductions. As a seller, this can be problematic because of potential recapture issues and varying tax rates.
These dynamics play a significant role in negotiations, as you must adjust the price accordingly. If you face a substantial tax hit, you need to negotiate a better deal to offset that impact. Understanding this negotiation process is crucial. Mitch, could you explain your concept of a passive income generator and how it works?
Many people invest in real estate syndications as passive investors, typically as limited partners. They receive their K-1 form, which often shows significant passive losses that are suspended because passive losses can only offset passive income.
The challenge arises when individuals heavily invest in real estate syndications, ATM funds, or similar ventures. They may accumulate substantial passive losses that remain unused. These losses will sit dormant until the properties are sold. To expedite the realization of these losses, you might consider deploying capital into investments that generate passive income but don’t benefit from bonus depreciation.
The idea is that I have this tax attribute—specifically, many suspended losses. If I can invest in something that generates passive income without losses or depreciation, just straightforward income, I can receive cash flow while using those losses to shelter it from taxes. This approach complements your passive income portfolio.
Essentially, you’re diversifying across different sectors, so you’re not reliant on a single sector. This generates cash flow while leveraging your losses to offset the tax burden. You’re benefiting from both the time value of money and tax savings. That’s the concept of a passive income generator.
We refer to them as PIGs. The idea is that if you have a substantial amount of losses, it contributes to a broader portfolio strategy focused on diversification—investing in different sectors and return profiles. This structure ensures that the income generated is sheltered by those existing losses, effectively putting them to work.
That’s a great explanation, and it aligns perfectly with our strategy for creating the credit fund we have. It’s a fantastic diversification play that provides strong cash flow and significant tax offsets. I don’t want to overlook W-2 or active income earners; they often have less flexibility than business owners. Can you share some key strategies you use to help W-2 earners?
A common strategy involves high-income earners, such as physicians or executives, where the spouse becomes a real estate professional. The first step is to assign a dollar value to your time. If you’re looking to make this work, it’s crucial to recognize that time is our most valuable resource; it can be converted into money or memories. We need to evaluate whether an endeavor is worthwhile.
For example, if I have a high W-2 income and my spouse is designated as a real estate professional, I might have a specific amount of capital to deploy. Let’s say this leads to $10,000 in tax savings. We can calculate the cost per hour by dividing that amount by 750 hours. The real question becomes, what is that hourly rate worth?
For instance, would I pursue this if it pays $20 an hour? Probably not. But if it’s $200 an hour? Absolutely! So, it’s important to evaluate this aspect. The goal here is not to create stress or unhappiness while pursuing these savings; it has to be worthwhile.
It’s vital to consider the associated tasks, such as tracking time, seeking investments, evaluating whether they meet return criteria, understanding funding impacts, and determining how much leverage to use. All of these factors come into play when deciding where to deploy capital to create tax savings.
This approach can lead to significant reductions in tax liability, but it requires a family discussion to assess interest and commitment. If you’re not up for it on that scale, alternatives like short-term rentals might be worth exploring. However, you need to understand the business case involved. Unlike long-term tenants, short-term rentals do not guarantee consistent income. They can be volatile, influenced by seasonal trends and consumer discretionary spending. When the economy is strong, performance may be better, but during downturns, it may suffer.
You need to plan for your cash flow. After considering everything, the question becomes: does it make sense for me to pursue this tax benefit? Oil and gas funds present another opportunity. You need to assess the deductions available and evaluate your views on oil, the management team’s track record, and the associated risk-return profile. It’s important to understand that there are risks involved with working interests. You must ask yourself whether this aligns with your overall wealth strategy. We want to avoid putting all our chips in one basket unless you have expert knowledge of that sector. If not, diversification is key, and it’s essential to understand the different tools available and how they function.
Absolutely. Mitch, you’re providing valuable insights, and I appreciate you sharing this perspective with the audience. You’re encouraging people to engage in deep thinking and to analyze their situation from all angles. As you mentioned, it might be beneficial to establish your spouse as a real estate professional. However, if that means you end up managing properties in your limited spare time and you find yourself disliking it or having to travel to unfamiliar locations, then it might not be worth it.
It’s crucial to consider the whole picture. Remember, the primary reason we’re doing this is to help people achieve their goals. Money is simply a tool for creating those goals. I often emphasize that we want to build wealth so that we have the time to do what matters most to us.
For me, one of my key goals is to create wealth that allows me to spend quality time with my family. I don’t want to miss out on my children’s lives only to see them off to college and wonder where the years went. That’s something everyone should reflect on. Similarly, if your goal is to travel with your spouse, you can’t do that if you’re tied down managing a real estate professional role two days a week. You have to evaluate whether the trade-offs are worth it.
This is why I stress the importance of assigning a dollar value to your time. There are many non-financial factors to consider before committing to these strategies. In some cases, the honest answer may be that it’s not worth it. You might end up feeling miserable and lose out on more than just money. Yes, you may pay a bit more in taxes, but being unhappy isn’t the purpose of life. We want to create happiness and lasting memories, and that needs to be part of the equation.
Absolutely. It’s all about creating freedom in your life—financial freedom, time freedom, freedom of purpose, and freedom in relationships. If you compromise these aspects just to make a tactical move for tax savings, you could end up hurting yourself. This highlights the need for a comprehensive strategy that takes into account all dimensions of your life, enabling you to be a better investor and realize your vision.
At the end of the day, it’s about living your life the way you want to achieve your vision. This is why our onboarding process starts with fundamental questions. One could be a sarcastic, “What do you want to do when you grow up?” or, more philosophically, “What defines the good life for you?”
Defining that first and foremost is essential, as it sets the foundation for your roadmap. When creating your financial roadmap, it’s crucial to understand what constitutes a good life for you. Regarding taxes, I need to know this as well because I don’t want to recommend tax strategies that don’t align with your investment criteria, risk tolerance, or time commitments. Without understanding who you are and what drives you, I can’t add real value. I aim to help you reach your goals holistically, not just financially.
Mitch, if you could offer just one piece of advice to our listeners on how to accelerate their wealth trajectory, what would it be?
The biggest piece of advice, drawing from my own experience in the markets over the last 20 to 30 years, is to understand risk. Having a broader perspective on risk is crucial. It’s essential to understand where you are in the interest rate cycle and how leverage works. Leverage is a double-edged sword; it can amplify your profits, but it can also wipe you out twice as fast.
One of the key things to grasp is your position in the market and business cycles, whether those are positive or negative. Once you have those facts, you can deploy your capital appropriately without overleveraging or over-allocating your resources. That’s the first step.
You need to approach it from a business perspective, evaluating risks in your business case. Once you have that understanding, we can start layering in how this applies to your tax situation. The priority is to understand your business, the risks involved, and where you stand in the economic cycle—considering a 2, 3, or even 5-year horizon.
Remember, past results are not indicative of future returns. We are entering a new cycle after 40 years of declining interest rates, and it seems we are beginning a period of rising rates. These cycles can last 10, 20, or even 40 years. Understanding your position within that framework will inform your investment decisions and help you succeed. If you cling to outdated paradigms, you risk getting wiped out.
I appreciate your time today, Mitch, and all the value you’ve provided for our listeners. I have to admit, I never thought tax could be so exciting. It’s like a complex web of incentives and strategies, and how you can incorporate them into your life. One key takeaway I’d like to share is the importance of having a proactive tax strategy, like the one you offer at ProVision. But it’s also crucial for individuals to educate themselves about their options.
Every day, when you make decisions—whether it’s a purchase, travel, or an investment—you should consider the tax implications. This mindset changes how you approach these choices, making you a more active partner with your CPA in transforming your financial picture. It’s far more effective than waiting until the end of the year to provide your CPA with all your statements and simply asking them to prepare your taxes.
Think about it this way: understanding philosophy can lay the foundation for everything we do. I wish I had taken more philosophy courses in school. It’s all about concentric circles. The first circle is knowing yourself and your goals. The next circle is understanding the financial aspects—how to create those finances. After that comes understanding tax implications, followed by recognizing non-financial factors. Everything flows from that understanding.
Once you grasp that process, you achieve a higher level of realization. It resembles Maslow’s Hierarchy of Needs—self-actualization. You start to see how everything fits together and interrelates. You reach a level of consciousness regarding wealth and your personal goals, and you become aware of what you don’t know. You might not know all the questions to ask, but recognizing the need to ask questions will guide you toward solutions. If people want to reach out to you, connect with you, or learn more about what you and your firm are doing at ProVision, what’s the best way for them to do that?
The easiest way is through our website at www.provisionwealth.com. You can check it out there. If you’d like to talk, I’m happy to offer a half-hour consultation to discuss your situation and see how we can help you determine if we’re a good fit. You can call us at 480-467-4400.
I’m looking forward to talking about your situation and figuring out the next steps on your journey.
That’s awesome! I also want to mention that ProVision is one of the faculty members in our mastermind and virtual family office. If you’re looking to elevate your wealth and receive tailored advice and strategies for your overall wealth planning, check out our mastermind group as well.
Thanks again for coming on the show today, Mitch. I appreciate it.
Thanks a lot, Dave. This was a blast!