Creating Tax-Free Wealth – Episode 506     

This transcript was auto-generated and may contain errors.

[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, welcome to the podcast. We’re gonna be talking about taxes, but specifically, we’re gonna be talking about a book that Tom Willwright wrote called Tax-Free Wealth, and there’s a Twitter thread covering six points. We’ll cover those, and most importantly, we wanna hear Kim’s take on these six points, because you know, Tom, you’ve read the book, you understand this intimately. You also have a clarity that many of us may not have, so we wanna hear that, too. So. Well, thank you, this is fun. Yes, I’ve known Tom for like probably close to 30 years, and I’m so grateful for the relationship that’s there, and his second book is equally amazing,

[00:49] and the Tax-Free Wealth book, I know, has been updated, even though Amazon doesn’t let him say it’s been updated because of their rules, and I love the concept of visioneering, which is really what you have to do when you’re looking in the tax space, because sometimes the ideas that you get might take three or four or 10 or 20 years to implement, and so visioneering is just such an amazing thing to get us to lift our chins up, look out on the landscape, sometimes over what we’re currently dealing with that’s right in front of us, and create some new opportunities for ourselves. I love that. Let’s just take a brief moment to use the word visioneer in the terminology and linguistics of taxes.

[01:40] So I’ll first go, and then I want you to actually like tighten it up and wrap it up. So I think what happens often is that we’ll hear main street language where people will say, oh, they found a tax loophole, and then you talk with yourself and Tom and others, and they say, no, there’s no loophole, we understand how to get clarity, and we follow what they tell us to do. So help us to understand the visioneer side of that. Well, when you are visioneering, you’re not setting a goal. So like a goal might be, I want more tax-free income, like that sounds really awesome. But visioneering says, well, wait a minute, if I’m getting tax-free income, or if I’m lowering my taxes, which those two things go together,

[02:28] or if I’m getting income that’s in a lower bracket, what’s really happening there? And so visioneering lets us lift the lid up, not get specific. So goals are specific, right, with numbers and timeframes. Visioneering is a general sense of the future that is inspiring to us, that has positive possibilities, whereby it’s often the exact opposite of what the original thought or the original goal is. So here’s an example. If the original thought or goal is, I would like to be in that thing I hear about, which is tax-free income, or a lower tax bracket at retirement, or whatever. The opposite is, what would my life look like if I paid as much taxes as possible? Well, in order to pay as much taxes as possible,

[03:26] that means you have to have a huge income, and be in the highest tax bracket because of all of the various income that you have, even if you are lower in that highest tax bracket, than you would be if you didn’t do any work. But just your numbers generate the highest tax bracket, not dollars, bracket. So that’s an example of visioneering where you just completely take the opposite side of the discussion and just see, well, what would this look like? And you can really learn from that. Ooh, I like that. So what we’re gonna do right now is we’re gonna go through this thread of the six points. But what’s really interesting about this is that we’re gonna find the balance between strategic and tactical.

[04:18] And it’s very difficult to find someone that can actually find a balance between the two. This right here, the thread, arguably is a little bit more tactical, and that’s okay, because we want to see the vision that you have. So the first one is that the first take is, real estate is the single biggest tax shelter. So let’s get Kim’s take on that. So I believe that that is an accurate statement for some people. And that’s the thing. And Tom will say this as well in that you have to choose the investments that are best for you. And for some people, real estate is amazing. It does incredible things, provides amazing tax structure, cash flow, all the things that we think we want in an investment.

[05:08] And it’s not right for everybody. I mean, I have horrific stories of owning real estate and the disasters that occurred with it, because it wasn’t best for Kim and Todd as a couple, even though we had managers and we had pieces and parts and the right books and all of the things that you would want to have. And so distinction between tactical and strategy. Now there are ways to own real estate without actually owning it. What comes to mind in the public is usually a REIT. And I’m gonna make a distinction that that’s not what I’m speaking of. What comes to mind in the private space when you’re dealing with somebody that knows what they’re doing from a strategy standpoint is you can lend money to other people

[05:54] that own real estate and get some really good results that way, and you can lose all of your money. So like all strategies, you have to look at this and decide for yourself, am I comfortable with that? Is that a good situation for me? Or do I prefer to take another tactic because there are other things that act very similarly to real estate that can give you a lot of those good tax advantages and maybe they’re a better match for you. Absolutely. You know, you didn’t know it, but you made the perfect segue to point two, which is everyone should own a business. Do you agree with this? Yeah, 99%, right? Cause there’s always an exception. And if you’re serious about living life in a fashion that is tax efficient

[06:48] and pursuing your highest and best use of your skills and talents and vision and capability. I mean, this is why the vision error lingo is so perfect for this conversation that a business is gonna be necessary. And I believe everybody 100% can be an entrepreneurial thinker even if they’re not an entrepreneur. Nevertheless, no matter what you do, you’re gonna pay more taxes as a W-2 employee than as a business owner. So there is an intermediate space, which is the 1099 income earner where they get treated essentially like a business, but it’s a sole proprietorship. And you know, there’s some issues with that, but it’s a start because it basically means that you get paid for results. And if you’re an awake, alive, ready to go,

[07:44] vision oriented, meaning you’re pulled into the future human being, you can always serve better inside a business where you get to control the deal than under somebody else’s structure. I want to, and I’m trying to think this through real time because you said 99% of the cases and I’m like, dang it, where’s that 1% because I’m like, I think 100%. But there probably is a case that it’s not. And for me, where it comes back to is that owning a business and being a part of something, it could be as small as the selling honey at a market or whatever, is the opportunity of total and free expression and it is the ability to face fear and conquer fear, which many people don’t do. And it doesn’t mean that you have to give up the W-2,

[08:40] but there’s something special about doing it. And trying it, sometimes it’s a failure, three or four or five or 10 times, but the experience and the learning that comes with that is unbelievable. I just do absolutely know that there are some people it’s just not ever gonna be right for, at least in their current space. Absolutely. So point three about this tax-free wealth is the tax code is a set of incentives. So it’s meant to stimulate growth. You agree with that? Yes, absolutely. And I will totally admit that I learned that from Tom and his predecessor, Diane Kennedy, because that is how they looked at it. And they would get so excited when new tax codes would come out because then they could figure out

[09:28] what the incentives were in that and help their clients navigate those incentives and their incentives for a total win-win-win. The person that’s getting the benefit, maybe it’s a opportunity zone or a section eight housing or extra real estate depreciation or whatever it is, investing in oil. I mean, there’s all kinds of things where there’s tax benefits. The investor is getting a good deal. The person that’s sponsoring the opportunity is getting a good deal. And the people that are benefiting from that business slash piece of real estate, et cetera are getting a good deal. And so that’s a space that we can operate confidently and positively in a world whereby we seek the incentives that are being given to us.

[10:17] And it’s not anything negative at all. Clearly, it is not a loophole, which implies that you found a way to get through or around the problem in a devious manner and that’s not accurate. Yeah, that’s just a polarizing phrase that they use. And I think one of the other problems is is that what will hurt us is what we don’t know is what hurts. Because right now, talking in 2023, the employee retention credit, that’s money that’s out there for business owners. There’s not a lot of knowledge for most people whereas that can help people. And there’s no loophole to it. It’s just not widely available knowledge. And so luckily we have a podcast like this where you’re educating and you’re out sharing things

[11:08] that will help. And of course, we’re focused more on principles than we are on tactics because if you’re listening to this podcast in 2025, some of those strategies and tactics will change. Well said. So point four, partner with a strategic CPA, do you agree? Yes, absolutely. So this is an arena that you can, when you’re first starting out, do yourself. And maybe you should because of the good learning that goes on for about one year and not as a business owner, but just as a initial, maybe a real estate investor, maybe a first foray into the 1099 world, that kind of thing. But as quickly as you can, do the work that you are put on this earth to do. Don’t try to do somebody else’s work that they’re put on this earth to do.

[12:03] Our friend, Cathy Colby, who Tom also knows very well, and I don’t know whether he mentioned her in this book or not, but I know he has mentioned her in others, truly believes that there should be no unemployment in the world because everybody has a skill, talent, opportunity. And if they bring that to bear in the environment, then they will do good. And it doesn’t matter what you look at, somebody loves that work. So find a CPA, wealthability.com has amazing resources, CPAs all over this country that use Tom’s knowledge and thinking and processes. And they’re not cheap, so they’re not for everybody. And for those that they are for, they will pay for themselves, hands down. I’m gonna pull a page out of Kim’s book.

[12:55] So I’m gonna say, I agree with that one, yes. And with that relationship, you need to have a financial advisor that is principled based, that can communicate and understand where the accounting side, the CPA side is going, is aligned with that. And then I’ll even go a higher level, which may not be immediately, but using someone like Tammy, your sister, with Blueprint Process, that can understand the overall vision and help you articulate the vision to those people so that it’s all connected together. And again, it might not be at the beginning, might not be in the middle, who knows where it is, but they’re all integral and important pieces. Yeah, and I’ll throw in a bookkeeper in the mix as well,

[13:42] because if your books are not good, your accountant cannot help you. And so I have found over time, as much as I love Tom, my bookkeeper Carrie is almost more valuable than Tom is some of the years, just because she keeps all of the things going that are necessary in the bookkeeping realm that I’m not gonna be patient enough with, detailed enough with, or wanna spend time with, to implement the strategy that Tom laid out. Yes, so true. You said something in there before we jumped to the next point is so under the radar yet important. You mentioned of all the years that you’ve had Carrie, that’s a long-term relationship that’s showing a habit, very much like savings, very much like investing.

[14:33] You find it, you build the habit, you just do it. So that’s so cool, love it. All right, point five, earn the right type of income. So you got active income, money while you’re working, passive income, money you earn while sleeping, and your active income is taxed higher. Do you agree about focusing on the right types of income? I do, and I think it’s an area that really sidetracks people too soon, because frankly, for most people and even business owners in their 20s, 30s, 40s, even 50s, there’s just flat out gonna be a lot of earned income. So great, let’s make that happen. Plus you build assets that can create portfolio income, you develop things that create some of that passive income. That’s wonderful too.

[15:25] What I have seen, and I will readily admit, I am not a retirement income expert. This is not my space. I don’t like to help people retire. I don’t think people should retire, so they’re not gonna get the best of me. Nevertheless, I do have some clients that I have helped with that, and it is scary how much the tax tail can wag the financial dog in this space. What I mean by that is sometimes we get so obsessed with not paying taxes that we miss the financial opportunities that are out there. Sometimes it is okay to pay a little bit of tax in order to get more consistent income, more guaranteed income, or dollars that we do not have to be afraid of losing. So it’s an extra element in there that just has to get looked at,

[16:18] which is your point of somebody in the financial space overseeing it in the realm of, okay, yeah, let’s try to reduce our taxes legally and legitimately. But in the end, especially when it comes time to actually use the assets and spend the income, sometimes it’s okay to pay some tax. Oh, that’s so good, so good. Number six, and this one, I already know the answer, but we just gotta talk about it. Don’t rely on traditional retirement vehicles. Yes, so as our listening community knows, I have a serious hangup with the word traditional when it’s applied to things like 401Ks and 403Bs and whatnot. I assume that’s what the person was probably referring to. Exactly. Yeah, traditional retirement vehicles.

[17:08] Those have only been around since the 60s or 70s. I’m talking 1960 or 70. Real estate, life insurance, businesses, oil and gas deals, lending money. These have been around for millennia in some cases and at least a couple centuries in other cases. Those are the things that are traditional. Those can and should be relied on. And the point was half right. You don’t wanna rely on the typical retirement plan structure, which is the 401Ks, 403Bs, IRAs, the Roth IRAs, and all types of pension plans that are in that space, the KEOs and the prof sharing plan, et cetera, et cetera, et cetera. All of which, well, with an exception to the Roth IRA, all of the others are going to generate the highest taxable income,

[18:16] which is ordinary income that you will ever see. To why on earth would you be overtly focused on those? Yes. You mentioned one thing as we wrap up. You mentioned that the 401Ks and all of these tools, we’ll call them, have only been around for a handful of decades. And there’s another thing I was recently reading about is the word priorities. That word priorities has only been around for a handful of decades. It used to be priority, meaning there wasn’t priorities 100 years ago. You had one priority. And I wanna tie that back into this episode that your vision of having this clarity is your priority, which guides you to be able to make the decisions on the other pieces. Now, if you were saying,

[19:16] hey, these are my priorities, that’s pretty difficult to have a single focus. Yeah, interesting. Wow, it’s a really good wordsmithing on your part because when you think about it, that’s a complete disruption of the word, like priority and then priorities, okay? Now I love looking at the order of operations, right? Like what should you do first, second, third? Well, still first is priority and how can you have more than one priority? It’s bizarre that our language has shifted that much. It is odd. And we got back to the principles. So, Kim, your ability to dissect this, I felt that many of this was accurate that you, meaning what you agreed with what Tom is saying, but the clarity that you provided,

[20:09] meaning we took the wide angle approach and then we zoomed in and dissected the pieces that are zoomed in. So for any of you listeners, we have tax season coming up. And of course, the tactics will change, but having a clear vision will never change. So a simple email to hello at prosperitythinkers.com. To get clarity is really good. Reading books like this is really helpful. We’ll put a link to Tom’s book as well, but having that clarity, absolutely. Fabulous, thank you. Thank you for listening to the Prosperity Podcast to take control of your money and have it work for you. Visit prosperitythinkers.com.