FBF 05 | Flash Back Friday | Why the Ultra-Wealthy Pay Less Tax And How You Can Too with Rich Dad Poor Dad Tax Advisor Tom Wheelwright

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9d ago 44:57

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Title: Why the Ultra-Wealthy Pay Less Tax And How You Can Too with Rich Dad Poor Dad Tax Advisor Tom Wheelwright

Summary:

In this episode of the Passive Income Attorney Podcast, host Seth Bradley and tax expert Tom Wheelwright discuss the intricacies of tax strategies for high-income professionals, particularly in the realm of real estate investments. They explore how to leverage tax incentives, the importance of depreciation, and the benefits of real estate syndications. Tom emphasizes the need for a holistic approach to taxes, focusing on long-term wealth building rather than short-term deductions. The conversation also touches on the significance of having a strong team of advisors and the importance of education in achieving financial freedom.

Links to watch and subscribe:

https://youtu.be/rvqgik6QCtI?si=U9Rc-6cHI6Ik57QU

Bullet Point Highlights:

Highly paid professionals bear the biggest tax burden.
Investing in alternative assets can work with tax incentives.
Depreciation allows for tax deductions without cash outlay.
Real estate syndications can provide significant tax benefits.
Understanding the real estate professional status is crucial for tax advantages.
Avoiding Schedule C can reduce audit risks.
Education is essential for making informed investment decisions.
Building a team is key to successful investing.
Passive income provides freedom from traditional work.
Tax strategies should align with long-term financial goals.

Transcript:

Seth Bradley (00:10.154)

What's up law nation? Welcome to the Passive Income Attorney Podcast, the best place for learning about the world of alternative passive investments so that you can have more freedom, flexibility, and fun. If you're ready to say bye-bye billables no more, start by going to attorneybydesign.com to download the Freedom Blueprint to get started. This will also get you access to opportunities to partner with us on one of our next passive real estate investments.

We'd love to get you started, get you on board and get you on your way to financial freedom. All right, kiddos, let's talk about taxes, baby. Boring to some, but not to us. We're highly paid professionals and we've worked damn hard to get where we are. We make this economy spin round and round, but what's the reward? We bear the biggest tax burden. Highly paid W-2s hit the hardest with taxes because...

Well, that's just the way that our beautiful system is set up. On the other side of the tax spectrum though, are investors and entrepreneurs. Now you might be asking yourself, you know, why is that? Because that's the beautiful system that we have set up and it's just set up to incentivize certain behaviors that the government deems the most important things like energy.

things like entrepreneurship, things like housing or real estate. See, when we invest in alternative assets like businesses, energy and real estate, we are working with Uncle Sam, not against him. He becomes our friend rather than our foe. Notice that I did not mention stocks, bonds and mutual funds in that category, in those categories of things. Those traditional investments are not tax incentivized unless you lock them away in a retirement account.

which you can't access without penalties until you're gray. So how do we as attorneys, doctors, engineers, the friend, Uncle Sam, you got it. We just said it. You jump into tax incentivize alternative investments, but there are other tools in your arsenal as well. That's not the only game in town. You can stack these things. Have your other half become a real estate professional and we'll dive what that is into later.

Seth Bradley (02:30.926)

Now your passive losses can offset your active income. Set up a tax sheltered infinite banking policy. You still have access to your capital. Plus you accrue compounding tax free interest. So your money works in two places, at least in two places at once. Saving is for losers. Lazy money disappears, especially in a hyperinflationary environment like the one we're in right now. Make your money work.

and make it work with Uncle Sam, not against him. And no one knows more about how to create tax-free wealth than our legendary guest today, Rich Dad advisor and Robert Kiyosaki's right-hand CPA, Tom Wheelwright. Tom is a tax and wealth expert, CPA, CEO of WealthAbility, bestselling author of Tax-Free Wealth. It's part of the Rich Dad advisor series.

speaker, entrepreneur and host of the WealthAbility show. Tom has spoken on stage on every continent to over 100,000 entrepreneurs, small business owners and investors. His goal is to help people achieve their financial dreams faster by permanently and legally reducing their taxes. Real Right is a contributor to Entrepreneur Magazine and his work has been featured and seen in Forbes, The Wall Street Journal, The Washington Post and on Fox and Friends, NPR.

And the list goes on super stoked for this. If you're ready, let's jump in. This is the Passive Income Attorney Podcast, where you'll discover the secrets and strategies of the ultra wealthy on how they build streams of passive income to give them the freedom we all want. Attorney Seth Bradley will help you end the cycle of trading your time for money so you can make money while you sleep.

Start living the good life on your own terms. Now here's your host, Seth Bradley. Tom Wheelwright, so happy to have you on, man. Welcome to the show. thanks. It's great to be with you, Seth. Absolutely. How are we doing today? Good. about you? Doing great, man. Actually just got back from Hawaii, so feeling refreshed, feeling a little tan. We're good to go. Nice. Hawaii will do that. Yeah, for sure, man. So.

Seth Bradley (04:52.43)

You know, for those who've been living under a rock, tell our audience a little bit about your background and your story and feel free to feel free to brag a little bit. I appreciate that. It's been a great career. Let me tell you. So I, I grew up in Salt Lake City, Utah, a good Mormon boy. So I got to spend two years in Paris, France, learning how to get rejected in French, which was a blast. Actually. I loved every minute of it. Even, even the first week when

when a guy slugged me and ran off. It was great. And then I spent a couple of years at the University of Utah to do my undergraduate in accounting, another year and a half at the University of Texas in Austin to get my master's of professional accounting and tax. From there, I spent the next seven years with Ernst & Young, including three years in the international office. I was there the last time we had really big tax legislation was 1986.

and I was in Washington, DC at the time. So that was an amazing experience, learning from the best of the best. Then I came to Phoenix. I spent a couple of years in charge of the real estate tax practice for E &Y Phoenix. And from there, I spent another several years as the in-house tax advisor for a Fortune 1000 company. I spent 14 years.

as an adjunct professor in the masters of tax program at Arizona State University, teaching multi-state taxation. I bought, built, sold CPA firms for about 25 years. And for the last 15 years, I spent a lot of time on the road with Mr. Robert Kiyosaki of Rich Dad Poor Dad fame, traveling around the world, frankly, giving financial education classes like what you're doing,

did literally on every continent except Antarctica. The penguins haven't heard our message yet, but everybody else has. then for the last three years, have, my team and I have been building a international network of CPA firms around the US and in Canada. And that's where we put most of our efforts now. it's a...

Seth Bradley (07:08.654)

It's a lot of fun, Seth. That's all I can say. It's absolutely great. It's a great career. It's a great, great opportunity that I've had. Oh, that's awesome, man. That's, that's the illustrious career to say, to say the least. How did you originally get hooked up with Robert Kiyosaki? How did that come about? So that's, that's one of my favorite stories because it's, it's really the story of are you an entrepreneur or are you not? And many years ago, about 20 years ago,

I broke up with a partner. Most attorneys know all about breaking up with partners, right? mean, attorneys break up with partners like every two, three years, right? So we'd been partners for a few years and we broke up. About 40 % of the clients went with him, about 60 % stayed with me. All of the staff stayed with me. Might indicate why we broke up.

Well.

My new partners, I actually took one of my managers, we became partners, we've been partners ever since then. But we decided rather than let staff go, why don't we just go out and acquire a CPA firm? So I was looking, I got a postcard in the mail from a broker saying, we've got CPA firms for sale, we've got a couple in your area, I called on them. And one of them, one of the clients happened to be Robert Kiyosaki. Honestly, I'd never heard of him, I'd never read Rich Dad Poor Dad.

I read Rich Steadport ad because I bought the CPA firm where Robert was a client. And we got to be pretty, pretty soon. We got to be fast friends and we've been traveling and speaking ever since. That's an awesome story. Awesome story, man. Well, let's, jump into nitty gritty a little bit. Let's start general. And you had mentioned that you and your team work with, you know, a lot of people all around the world. I'm sure a lot of them are highly paid professionals, like attorneys, like a lot of our listeners.

Seth Bradley (09:00.594)

and we get killed by Uncle Sam. I mean, we're paying crazy taxes. yeah. So what are some of the initial best strategies for them to start reducing that tax burden? You know, I think the biggest mistake people make is thinking that taxes are transactional and they're really not. I've tried the transactional approach for many, many years and it does not work. You can't say, this deductible? You can't say, what do I do in this situation?

We take a much different approach. We take a very holistic approach and we include, let's look at what are you gonna do with your money? How are you gonna invest your money? What's your relationship with money, with your children, with your spouse? You really have to take a very big picture because every single activity we engage in during the day has a potential tax impact. And it's a little tax impacts that add up. It's not, you we don't...

Frankly, I don't like loopholes. I don't subscribe to the idea of let's look for the loopholes. And I know a lot of people do, and I think good for them. That's them. What I believe is, and you know this, is that look, the tax law is really a series of incentives. The government wants you to do certain things. They'll give you tax incentives to do it. Let's just do what the government wants done. Let's build wealth. And frankly,

the more and better we build wealth, the lower our taxes will go. that's the, you know, the fallacy is thinking, well, if I, you know, if I get wealthier, I'm going to pay more tax. No, if you make more income, you will pay more tax. But if you build more assets, you will actually pay less tax. Right. It's crazy how that works, right? I mean, you mentioned about the tax incentives that stimulate the behavior that government wants, right? Could you maybe dive into that a little bit deeper?

Yeah, I mean, let me give you a simple example. Years ago, Warren Buffett was quoted as saying, I pay a lower tax rate than my secretary. Well, why is that? Because Warren Buffett employs hundreds of thousands of people. Okay, his secretary doesn't employ any people. Well, jobs are a major incentive. Just recently we heard Kirsten Sinema, who's in the news a lot lately because of what's going on in Congress, saying, look, jobs is what

Seth Bradley (11:24.556)

the government's all about. government should be creating jobs. And so the government does that in the tax law. you think about the last couple of years, we had this pandemic. If you had a home office and you were an employee, you didn't get a deduction for it. But if you had a home office and you were the employer, you did get a deduction for it. Well, that's simply an incentive to be an employer. That's simply an incentive to be a business owner. that's very simple example of it. But that's

You know, jobs, really, that's number one. Number two is probably housing. Right. So housing has major tax benefits to it. All real estate does. Housing has some tax benefits to it that the rest of real estate doesn't. What else does government want? Well, they want energy. So energy has great tax benefits. They want you to invest in energy, whether it's fossil fuels, their huge tax benefits for investing in fossil fuels and their huge tax benefits for investing in renewable energy.

So agriculture, mean, farmers frankly never pay tax. And I think they shouldn't, frankly. I actually think that's a really good policy because of all the things that we do, what do we need most? We need food to live, right? Food and water. you know, these are really simple things and you don't think about it, but if you put your money where the government wants you to, mean, the reality is Seth, we're all partners with the government. Anybody who's ever gotten a paycheck and looked at that.

at that checkstub and said, who's this FICA person that's taking all this money out of my paycheck, pretty quickly realizes that we're partners with the government and your choice is you get to be a silent partner, which is basically a tax mule. All right. Or you can be an active partner, do what the government wants you to do and pay little or no tax. makes a lot of sense, man.

Let's rewind a little bit back to that holistic approach that you take. What are some of those? How do you get started with that holistic approach? know, one of the mistakes people make is they start small and then they get smaller. And what we want to do is we want to start really big. So we want to know, very first thing we ask is something that you probably have never been asked by your accountant and that is what's your dream? What do you really want out of your life? And

Seth Bradley (13:46.572)

then how much is that gonna cost? What we're get at is quantifying what that dream costs, right? All right, so if that's your dream, where are you today? Well, if I know where you are today and I know where you want to go, it's pretty easy to come up with a roadmap of how to get there. And so we always start with that really big picture because the reality is until we know what you're trying to accomplish, until we know what your, even what type of assets

you want to invest in. I can't tell you anything about your tax situation. I'm going give you some tips, but what a waste. I mean, that's a waste of my breath, frankly. So what I'd rather do is I'd rather actually be able to set you up so that every year you pay a little less tax till eventually you're paying none. Yeah. Yeah. I'll tell you that my accountant's never asked me about my goals.

There you go. Yeah, but that's smart. I mean, that's smart with really anything. I mean, you've always got to figure out what's your end goal. What are you trying to get to so that you can create that roadmap to get there? Well, reality is that it's probably tougher for lawyers because as a general rule, the law profession is a transactional profession. So it looks at very specific situations and it's coming up solutions for those specific situations to really shift gears completely to looking at

a very, very big picture. mean, we're not just talking about for the next five years, we're talking about to your legacy and beyond, right? Because we can set things up so that your kids don't pay tax, your grandkids don't pay tax. You can actually have a legacy and do what you want. And it's way simpler than most people think it is. Yeah, yeah. I don't know why, but the whole discussion reminds me of the Donald Trump thing when they were talking about, you know, him not.

him not paying taxes. And it was like this big story. you know, all of us real estate investors are just thinking, yeah, of course, he doesn't pay taxes. He'd be an idiot if he's paying taxes. I used to tell people that when I get interviewed on that, that Donald Trump would have to have the worst tax advisors in the world to be paying any tax. Exactly. Exactly. Well, let's talk specifically about real estate. You know, what are some of those those

Seth Bradley (16:00.866)

big tax reductions for those that don't know, they're just getting started. They're like, we know we want to invest in real estate. We know there's some tax reductions we can take. What are some of those reductions and some of those advantages that investors get? Yeah, the biggest tax benefit from real estate is depreciation. my book, Tax-Free Wealth, I actually call it the magic of depreciation because depreciation is of those wonderful deductions where you don't actually have to spend money.

to get the deduction. You actually can build wealth and get a deduction and it's a deduction on paper, but you can still have positive cashflow and yet not pay any tax. So depreciation is really just, know, figuratively it's the wear and tear on the building and the contents of the building. But when you do a cost segregation, which is breaking down the real estate into the categories of the real estate, the land, the building, the land improvements, the contents, you know, you break it down to those into

those, of course, you need an engineer and accountant to do that. But when you do that, what happens is, is you find out that, wait a minute, I didn't just buy a building and I didn't just buy land, which is how most, frankly, most accountants classify. If you buy a building, typically an accountant is going to classify it. I'm going to tell you right now and you go look at your tax return. I challenge you to do this. It's going to say 20 percent of the cost was land and 80 percent was building. Well, that's only

part of the story because the gas, maybe 20 % was land, but part of that land probably related to the land improvements like the landscaping and the driveway and the lighting, all that kind of stuff. And then the building, it's not just the building, it's what's in the building. It includes the cabinetry and it includes the flooring, includes the wall coverings, includes the lighting, all of those things don't really make the building

function, they're really additions to the building to make the building easier to occupy, frankly. those things, so both the land improvements and the contents, they get faster depreciation. So the goal in tax is to get your money now. In fact, that's a goal in real estate. So I've spent my whole career working with real estate and real estate developers. I always joke because they never have any cash.

Seth Bradley (18:26.766)

Right? Because what they're doing is they're always investing in the next project. So they always need the money. So the idea with real estate is that I want to buy more real estate. Well, then I need to have more cash in order to have more cash. I need to pay less tax. And so I want that deduction accelerated. Well, the good news for real estate investors right now is for now and next year, 2021, 2022, a hundred percent of the costs attributable to land improvements

and the contents of the building are deductible the day you close on that building. As long as it's in service, as long as it's a used building, for example, and you're not building a new building. But the day you close, the day it's in service, you get that deduction. And that can be anywhere from 20 to 30 % of the cost of the building. So simple example, let's say you bought a building for a million dollars. Let's say bought a fourplex for a million dollars. And you put down 20%.

So you put down 200,000, you may get a $250,000 deduction even though you only put down 200,000 because the bank doesn't get a deduction. You get all of the deduction even though you put in part of the money. That's again, why it's the magic of depreciation. So depreciation is number one. There are a couple of other huge tax benefits to real estate most people don't discuss. One of them is low-income housing credits, which if you get into the low-income housing business specifically,

They're big credits and even under this new law, they're proposed to get even bigger. And then the other thing that we don't think about as being real estate is solar energy. And solar energy absolutely requires real estate to do solar energy. And solar energy has tremendous tax credits, depreciation, et cetera. So, I mean, the list goes on and on, but those are probably the top three.

Yeah, and those are the things that you don't get from investing in traditional investments. I think that's the piece that people leave out, right? They just kind of compare like, oh, I'm getting this return from my stocks in the stock market versus this is the return I would get in, let's say, some sort of a real estate investment. And they don't take into account the massive tax benefits that come along with it. Well, don't. I mean, consider why would the government care if you invest in the stock market? I mean, really, that's a derivative.

Seth Bradley (20:45.55)

Right? You're not investing in the company itself. You're investing in the market. And so what the government wants you to do is create productive assets. Pushing up the value of Apple stock does not create productive assets. I'm sorry. It doesn't. It's great for people who bought Apple at $10 a share, but it really doesn't do anything for the economy other than

It's a bellwether, know, the stock market is a bellwether for the economy. But other than that, really it doesn't do anything for the economy. whereas if you invest in the actual, let's say you actually build your own business, well, you get all these tax benefits building your own business that you don't get if you buy into somebody else's business. Yeah, yeah, for sure. For sure. Now, let's get a little bit more specific. So I love real estate syndications as an investment vehicle. So maybe walk through, you know, a typical deal.

Like when during the life cycle of the deal do passive investors see their returns offset by tax benefits? And at what points may they have to pay taxes? So, first of all, going to be some of this, some of how you benefit depends on your accountant. And I'll explain that in a minute, but just keep that in mind because I would tell you most people don't benefit as much as they could if they had a better accountant.

clear that

Seth Bradley (22:14.86)

So here's what happens. So syndication is really just, right. It's just a private equity deal where you've got a developer who goes out and buys or builds a commercial project like a housing project or commercial building could be retail, whatever. And what they do is of course they need investors. So they get the investors, then they get the bank, that all comes together. Typically you're gonna have anywhere from 40 to a hundred investors.

And the very first year, now, depending on the developer, because remember, the developer controls the syndication. Depending on the developer, they may or may not do a cost segregation. So that's number one. And I will tell you that there are a lot of developers that are very well known, a lot of syndicators that do not do cost segregation. So you should challenge. That's a question to be asking. Better investors.

People who are better investors just ask better questions, right? That's really, know, better questions get you better answers. So that's the first question you should be asking. Are you going to do a cost segregation? All right. So let's say I put a hundred thousand dollars into a syndication and let's say the first year I get a $90,000 loss because I've got, I put this money in, they did a cost segregation. I've got this $90,000 loss. Well, if I'm a purely passive investor and I have no passive income, that's a

key qualifier and I have no other passive income, that passive loss just carries over from year to year. Now it offsets any rental income, it offsets any profits and then down the road when the project is sold, that loss frees up and you can actually use that loss against ordinary income. Now some accounts will say, you know, my account, my...

My clients don't get these losses because they're just passive anyway. I'm going, all right. So besides you just admitted that you're an idiot, let me explain why this works. Even if you don't have passive income, because when you sell the project, you're going to pay capital gains tax on the project. But the loss that carries over is going to offset your ordinary income. So today, the difference between ordinary income

Seth Bradley (24:36.078)

and capital gains is about 17%. Well, when you rather pay 17%, I mean, that's literally 50 % of the tax, right? I mean, everybody I know would rather pay capital gains tax than ordinary income tax, all right? And yet you have people saying, well, don't do a syndication because you're not gonna get the losses until this thing sells. Okay, but when it does sell, and remember, I have a client, he says, this is the golden hamster wheel.

You just keep buying real estate and then they keep selling. And then eventually what you get to is as you go around on this golden hamster wheel is eventually you're going to get the gains and you're going to get those ordinary losses. And pretty soon, all those ordinary losses are going to be used against your ordinary income. And you're only going to be paying capital gains. Well, anybody who says I'm only paying 20 % on my income and they're making millions of dollars of income is in pretty good shape.

Okay, let's face it, 20 % is not a bad tax rate. Most people would be pretty happy with that. Now, I'm going to tell you, Seth, that that's only half the equation because most investors in syndications also own a business. And if you own a business, business income can be passive, okay? Frequently, you know, the businesses we own, they're active because we're very involved in my business wealth ability. I'm active in it, okay?

I'm working at it every day. I'm going to be treated as active. My active income cannot be offset by passive losses. What most people think is, well, I need to make those passive losses active. That's one way to do it. But the reverse is also true. If I can make my active income passive, that would also work. I've not met other accountants outside of our network that take that approach. They look at only

one side of the equation. They look at the equation, one side of the equation that says, well, I need my losses to be active. And we can talk about real estate professional. I need to make those losses active. Well, but what if I can't? My situation, my wife owns her own business. I own my own business. We are never going to be real estate professionals. So does that mean I don't get my losses? Of course not.

Seth Bradley (26:57.772)

because I can make turn business income into passive income. that's, I just want to put out that concept out there. This is the questions you should be asking your accountant is how do I not, not can I, okay. That's a terrible question. All right. Can I, or is it, those are terrible questions. Those are yes, no questions. The question should always be, can I, so how can I make this deductible? How can I use those passive losses now?

That's the question that I would hope you would be asking your advisors on a regular basis. Yeah. Can you do that with, say, a private law practice? Absolutely. Awesome. Let me ask you a question. I have to ask you a question to follow up. Can somebody other than a lawyer be an owner in a private law practice? It depends on state. There you go. I'll say there's your answer.

in those states where somebody other than an attorney can be an owner, then yes, we can do it with private law practice. Same with doctors. We have the same thing with doctors, right? Doctors, they have the same types of rules where not in not all states can a non-doctor own a private practice. But in a lot of states, they can. Accountants were a little evolved. So accountants can, a non-accountant can own an accounting firm in any state. Yeah. Yeah. I mean, that's what you got.

Set it right, man. You got to ask how, how do you change the passive to active or the active to passive? Get them to match up so you can offset them. Maybe we'll do a little bit of a clarification there because you maybe differentiate passive from active income and losses. Yeah, the general rule is active means 500 hours or more a year. OK, and that's you and your spouse combined. Five hundred hours or more a year. That's active. There are some other rules. are actually six other rules for it, but

That's the easy one. For real estate, if it's real estate rental, and real estate rental, by the way, does not include Airbnb. I wanna be clear on this. Real estate rental is long-term rental. So it includes you're renting to somebody who lives there, or it's a building rental or industrial, something like that. Real estate rental is per se passive. And I'm talking to attorneys so you know what that means. And the only way for it not to be passive

Seth Bradley (29:20.096)

is if you meet the real estate professional test. Gotcha. Well, let's dive right into that. What's the real estate professional status? A lot of people try to get it. A lot of people don't understand it. What is it? How do you achieve it? Conceptually, it's very simple, and it's a bright line test. You have to spend you, not you and your spouse. OK, this is different than the active test, which is the 500 hour test. That's you and your spouse. This is you or your spouse.

has to spend more than seven or 50 hours a year in real estate activities and more in real estate than all your other business activities combined. Okay. So it has to be your predominant use of your time that you spend on profitable activities. Okay. That's not counting hobbies, not counting personal time, but if you, let's say, for example, I have clients that have physician practices.

for example, and they are still real estate professionals because they only work part-time in their physician practice. They may work seven or 50 hours as a physician and a thousand hours in real estate. Okay, well, they meet the test at that point. The other thing to remember is you or your spouse. So let's say that one of you is a stay at home parent. Well, then that's really a seven or 50 hour rule, right? Because you probably don't have those other activities.

So it's either one as long as you're finding a joint return and it's 750 hours plus more than all the others. There are some elections you have to make. There's some details you have to follow. That's for your accountant to help you with. The IRS, by the way, will challenge that. So if you've claimed that and you get audited, you will be challenged 100 out of 100 times. And frankly, they should, okay? Because I think there are a lot of people that play loosey goosey with this stuff.

And I prefer not to. I think everything should be done ethically, morally and legally. And it's really easy. You just keep track of your hours. Now, remember, if you're also having another business or job, you have to keep track of both hours, not just the real estate hours. You need to keep track of your business and job hours so that you can show that the real estate hours are more. Yeah, makes sense. Makes sense. Got to keep track of everything, man. Put everything on paper and keep records of

Seth Bradley (31:44.87)

everything. You kind of touched on it a little bit there talking about the IRS audits, which people I think are very afraid of all the time. You know, they're scared of the IRS knocking on their door, auditing them. You know, let's let's talk about that fear. I mean, first of all, should you be fearful of an audit? Well, I definitely think you should be scared of the IRS. They are not your friends. But here, I'll give you a little trick. OK, we'll do it together, Seth.

so that you will never be afraid of an IRS audit. Okay, you ready? Ready. Okay. Repeat after me. I will never. I will never. Speak to. Speak to. The IRS. The IRS. There you go. That's my job. Okay. I don't care. I don't care what kind of law you practice. Unless you practice tax law, you are never to speak to the IRS. You hire a professional just like I don't ever. I don't review my own. I mean, I'm not the one who

who reviews my own contracts. Do I look at the contract? Absolutely. Do I have my attorney review my contract? Absolutely. They're the expert. I got to tell you, between the IRS and lawyers, I'm not sure that lawyers don't scare me more than the IRS. In fact, I'm pretty sure they do. Because the IRS, they're, you know what? They're doing a job. They have to do the job. And as long as you're prepared and you, we are very successful in the rare occasion where we actually handle an IRS audit.

We have been extraordinarily successful. And I think it's just because of two things. One, we don't let our accountants talk to the IRS. We don't have to, and we're not going to, frankly, because frankly, if you talk to the IRS, you will screw it up. All right. Just like if I talk to the judge, I'm going to screw it up. So I my attorney talk to the judge. I don't talk to the judge. You don't talk to the IRS. I talk to the IRS. And then what we do is we prepare a tax return. We actually, even though

very few of our returns ever get audited. We prepare every tax return as if it were going to get audited. So we wanna make sure that that return is as audit proof as possible. And that way when we actually sit down with an auditor, it's just not a big deal. I had a client just the other day, got a letter from the IRS and I said, don't worry about it. Said, we got all this stuff, we're all ready for it, it's not a big deal. And we just sit down with the IRS and have a reasonable conversation with them. So you don't need to be afraid.

Seth Bradley (34:08.802)

but you probably should be afraid if you're trying to handle it on your own. That's good advice. What are some red flags maybe that would stimulate that there increase your chance of getting audited? Let me give you the number one. You have a schedule C. Okay. You have a schedule C. So if you have a business, please, please, please do not have a schedule C because remember in our world, we have what's called double entry. Right? We have debits on

left and credits on the right. And double entry counting means that it's probably pretty accurate. A Schedule C is just one side of the ledger. So people cheat on Schedule C's when you hear all this talk about, the rich cheat, et cetera. No, no, It's the people between 100 and 400,000 that are 99 % of the cheaters. And the reason they they cheat, they cheat on their Schedule C.

They put in deductions that shouldn't be there. They don't report all of their income. That's where they cheat, is Schedule C. So the IRS knows that. They go after Schedule C's. You probably have about a five times greater chance of being audited if you have a Schedule C than if you don't. So I would not, I would recommend against the Schedule C. Now, people talk about home offices as being a red flag. That's only if you have a Schedule C, because if you don't have a Schedule C, your home office isn't even reported to the IRS, okay?

You use what's called an accountable plan. It's reported as reimbursement. It shows up on your S corporation, your return, your partnership return. The IRS is frankly, until they audit you, they're not even gonna know you have a home office. So that's not a red flag unless you have a Schedule C. So again, comes back, don't have a Schedule C. Got it. Do not have a Schedule C. That's a big takeaway there. What about Schedule E? Schedule E's a little better.

But not a lot. I don't like Schedule Ease either. So I like 1040s to be really clean. All they're reporting is they're reporting income from K1s.

Tom Wheelwright (36:12.11)

And W.

So that's all the reporting. It didn't come from K1s and W2s. K1 comes from an S corporation or K1 comes from a partnership. And then the W2 of course come from your employer, which may be you, maybe your S corporation, but it comes from the employer. And that keeps your personal tax return pretty clean. Yeah, that's great advice. Great advice, man. Switching gears a little bit from all your experience working with investors and entrepreneurs, what do you think separates

those folks who fit the bill of your poor dad and continue to work the nine to five and grind away and never take the leap into investing in real estate or small businesses and getting employees and other alternative assets and creating business. What kind of separates those two types of people? Do it yourself versus work with a team. That's the biggest difference. Employees are used to doing things themselves, right? If you want it done right, you have to do it yourself.

Self-employed people, same thing, tend to do it themselves. The people who are really successful build teams, right? So if you look at, for example, Robert Kiyosaki's cashflow quadrant, you know, there's four ways to make money as an employee, as a self-employed, as a big business owner, as a professional investor. Well, the employee and the self-employed tend to do things themselves. They don't rely on advisors. They don't have mentors. They don't have a team around them. Big business and professional investing, you can't do it.

without a team. So a lot of solo people on the left side of that quadrant, a lot of team players on the right side, and it's the team. One of the things that I love is when we do work with a client, we also do work with their attorney. So we always make sure that we're communicating with the attorney. There's too much finger pointing between the attorney and the accountant and the banker and the bookkeeper and everybody else. It's really...

Seth Bradley (38:08.777)

Robert said it best when he says investing is a team sport. So I think that is the biggest, I actually think that's the biggest difference between the successful and the unsuccessful. Yeah, I love that, man. I love that you said about the attorney and accountant kind of getting together and working as a team. Cause sometimes you get that with the attorney saying, oh, this is best for liability from a liability standpoint. And you've got the accountant saying this is best from a tax standpoint. And it's kind of a, you know, a back and forth, you know, with a, with the client being the middleman instead of

them communicating directly and finding something that works. Absolutely. So how do we go about finding a great tax advisor like yourself? Well, I give you two options. So Chapter 23 of my book, Tax Free World, actually tells you how to find a good tax advisor. in that the key to that, by the way, if you are going to do it on your own, then the key to that is to think about what questions

should they be asking you? Now what questions you should be asking them? Now your attorney. So as attorneys, you're good at asking questions. So you have an advantage over the average person that you're gonna ask better questions. But really I find that the most important skillset of a CPA is the ability to ask good questions. Certainly, I mean, I think it's pretty clear that's the most important skillset of an attorney. It's also most important skillset of an accountant because it...

your facts determine your tax. We always like to say, if you want to change your tax, you need to change your facts. Okay, well, so I need to be asking you the questions, what are your facts? And then I can help you, I can help give you the option of which facts could you change to reduce your tax liability. But I can't do that unless I'm asking the right questions. It's no different than you go to a doctor and if you're there, if you're with a doctor for 20 minutes, I guarantee you 19 minutes he's asking you or she's asking you questions.

And then the very last minute says, well, here's then here's what you need, right? Here's the prescription. Well, that's the same thing an accountant should be. And frankly, all advisors, think that should be the number one thing they do. I will give you a there is an easy button. OK, there's a reason we built a network of CPA firms and it's to give people the easy button. Then you just go to welteability.com. Just just contact us. We have already done the vetting. We've already done the training. We've already

Seth Bradley (40:33.846)

we deliver the system for reducing taxes. It's a formula that we use, it works every time, as long as the clients do what they're supposed to do and if the accountant does what they're supposed to do, it will always work. So that's the easy button. But if you want to go look for somebody on your own, that's good too, chapter 23. Got it, got it, like that easy button. All right, man, before we jump into the Freedom Four, one last golden nugget for our listeners.

You know what, don't be afraid of it. I think that's the biggest thing. Don't be afraid of investing. Don't think that, don't buy into the Wall Street lie that they're smarter than you are. And so you need to turn your money over to them. I think that is the biggest lie perpetuated on the American people and people worldwide, frankly, but particularly the American people ever. that is, know, invest, put your money in your 401k. That's your best tax benefit. It's not.

and get a well-diversified portfolio mutual funds. You know what? A well-diversified portfolio mutual funds, when you're rich, works really well. But until you're rich, it works really bad. Diversification is a way to prevent you from losing money. It is not a way to make money. You make money by being a specialist. Now, lawyers, you guys are really good at this. You're all specialists. There are very few lawyers who are generalists anymore. And you're a specialist because you get really good at something.

The same is true with investing. You've got to get really good at it. you know, this whole idea of diversifying or I want multiple streams of income from a lot of different types of investments, that's baloney. You look at great investors and they never, ever do that. Warren Buffett doesn't do it. Donald Trump doesn't do it. Amazon doesn't do it. You know, Bill Gates doesn't do it. They're very focused. I mean, think about Bill Gates. I mean, all they do is

is software. That's it. I look at Apple, all they do is consumer hardware. know, software, Apple's not good at software. Microsoft's not good at hardware. You know, they're not really competitors, but they've done really well in their niches. And that's, know, the old niche will make you rich. And I think that's the most that's so important that you recognize that you've got to focus. And you've got to make sure you've got that team around so that you can stay focused. Yeah.

Seth Bradley (42:59.862)

Love that man. All right, let's jump into the freedom for it's time for the freedom for what's the best thing you do to keep your mind and body healthy. I compete in triathlons. So I find that I need that target of the competition in order to keep my training up, but I love the three sports. I love the swim and I love the run and I love the bike. So it's very, it's very Zen for me. Yeah. Love that.

With all your success, what is one limiting belief that you've crushed along the way and how did you get past it? So, all right, so this is terrible to admit, but pretty much my whole life I've been an approval whore. So pretty much done anything for approval, right? You know, I know there are attorneys out there who relate to this, right? And really it was a matter of just, had a coach that helped me recognize that that was the issue and why that was the issue. I mean, it took me all the way back.

like to when I was a kid, you know, did all that, that personal development stuff. And once you realize that you've got a weakness, you know, and then it begins so much less important. So it's all that to me, that personal development is so important. would, in fact, I think of Robert and Kim Kiyosaki, they're more of a personal development company than they are an investment company. And I've learned more about myself working with them than, really even investing.

Yeah, thanks for sharing that. And self-awareness is such a key. It's a huge key to life and fulfillment and just success in general. What's one actionable step our listeners can do right now to start creating more freedom?

get educated. It's education. It's funny. Education is everything. It is. People make mistakes in investing because they don't know what they're doing. They don't have a team around them. They don't know what they're doing. haven't created a plan of action, a strategy for it. So I really think what you're doing, Seth, is critical. you know, I...

Seth Bradley (45:09.366)

I work, I've been on podcasts with doctors who do similar things. And I just love that there's more and more of this financial education because we're not taught this in school. We're certainly not taught in law school. We're not taught in business school. This is something that you have to learn outside of school. the more education we can get about how the economy works, how the tax laws work, how investing works, the better off we're gonna be. Yeah, agreed. I went through over a decade of...

higher learning and didn't learn anything about financial education. Amen to that. Last but not least, how has passive income made your life better? You know, it goes back to that previous question, it's about freedom, right? Passive income means that you don't have to go to work. A lot of us like what we do. I mean, I like what I do. I have no plans to retire because I like what I do. I feel like I'm in the very

almost beginning of my career. I've done all the training now. Now I can actually do the fun stuff, but I don't have to. And not having to go to work is that there's really not much more freedom than that. That it's, what? If I don't close a sale today, that's okay. I have money coming in. So I think passive income is such, I mean, if you play Robert's cashflow game,

game, I highly recommend to everybody play the game over and over again. It's all about passive income and excessive expenses, right? That's how you get out of the rat race. And it is true. That is how you get out of the rat race. Yeah. Once you take that necessity of having to work, you sometimes find that the work's not that bad and you actually enjoy it. Amen. It's been an absolute pleasure, man. Appreciate you coming on today. Where can our listeners find out more about you? Just wealthability.com. Wealthability is your

We're our job is to help you create the ability, your own ability to create wealth. So it's wealthability.com. Awesome. Thanks, Tom. Appreciate it. Absolutely. Anytime, sir. Ladies and gentlemen, Rich Dad, Poor Dad advisor, Tom Wheelwright. Fascinating. That's the first time I've heard the story about how Tom and Robert Kiyosaki met and joined forces. Man, Tom brought the fire and hopefully you came away with some big takeaways to start growing tax.

Seth Bradley (47:31.15)

free wealth major key. Don't think you're stuck bearing the weight of a massive tax burden. There are so many legal ways to reduce or even eliminate your taxes entirely. You just have to take the time to get educated. Connect with a tax expert and put a winning strategy together. Don't let the Wall Street lie. Win the day. You're better than that. All right. If you're ready for a change and ready to take action.

partner with us on our next passive real estate deal. Go to passiveincomeattorney.com and join our Esquire passive investor club. right, kids, enjoy the journey. Thank you for listening to the Passive Income Attorney podcast with Seth Bradley. Do you want more ideas on how to generate multiple streams of passive income? Then jump over to passiveincomeattorney.com for show notes and resources. Then apply for the private Facebook community by searching for the passive income attorney on Facebook.

and we'll see you on the next episode.

Links from the Show and Guest Info and Links:

Seth Bradley’s Links:

https://x.com/sethbradleyesq

https://www.youtube.com/@sethbradleyesq

www.facebook.com/sethbradleyesq

https://www.threads.com/@sethbradleyesq

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Tom Weelwright’s Links:
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https://wealthability.com/spotify
https://wealthability.com/stitcher
https://www.wealthability.com/show/
https://taxfreewealthbook.com/
https://www.wealthability.com/
https://tfwadvisors.us/franchise/
https://www.facebook.com/4wealthability/
https://x.com/WealthAbility
https://www.instagram.com/tom_wheelwright
https://www.linkedin.com/company/wealthability/

358 episodes

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