Optimizing Cash Flow and Expense Management with Tom Wheelwright
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What are some of the things that people miss when they're things that shit like again, fair game in the tax code? What are the most common places where you guys see and wind up saving people money?

And now, Escaping the Drift, the show designed to get you from where you are to where you want to be. I'm Jon Gafford and I have a knack for getting extraordinary achievers to drop their secrets to help you on a path to greatness. So stop drifting along, escape the drift, and it's time to start right now. Back again, back again for another episode of Escaping the Drift, the show that gets you from where you are, like it says in the opening, to where you want to be. And today, ladies and gentlemen,

Man, if you make a bunch of money, you make a little bit of money, you just make money in general. There's somebody out there that wants part of it, and that's the US government. And they do want their piece. And my guest today is an advisor to Robert Kiyosaki.

in the Rich Dad Poor Dad community in the area of taxes. He is the author of the best-selling book, Tax-Free Wealth. He is the CEO and founder of WealthAbility, an expert on how to keep more of your money rather than giving it to Uncle Sam. Ladies and gentlemen, welcome to the program. This is Tom Wheelwright. Tom, good morning. How are you?

Good morning, John. I'm good. How are you? I'm doing good. So yeah, I mean, the bane of all of our existence, right, is paying taxes. I don't care if you're my son with his first job, seeing that check where the government, she does take a bite, or you're somebody that's making a truckload of money, and yeah, they're taking it. So first of all, how did you get started with taxes? What's the interest there?

Oh, my heavens. So I actually started back when I was a teenager. I was interested in accounting. I worked in my dad's printing company as a bookkeeper in his printing company. And then when I started school at the University of Utah as a young man, I took a tax class and fell in love with it.

So I get to deal with law and I get to deal with money and I don't have to deal with lawyers. So it's a really cool job. It's a win-win there. So you said as you were a kid, you were doing the books for your dad. How did you learn how to do the books when you were a kid? Well, my mother was the controller for my dad. Okay.

So I, you know, being a mama's boy as I was, I loved working with her. She taught me everything I needed to know on the bookkeeping side. My first job after that was bookkeeping for a CPA firm. So I actually started with my first CPA firm in 1979. So that's how long I've been at it.

Wow. I love the fact that you love numbers and this, because I preach on this show. Normally, inevitably with every high level entrepreneur that comes on, the subject of is college worth it normally comes up at some point. And I make the point always with my kids who are approaching college age. It's like, I am a big believer in college. I think it's a great place to learn how to be an adult, but I think it's also very important what you actually study.

I think if you go there and study native pygmy mating rituals for four years, you don't understand why you have to get a job as a tour guide. Yeah, there's an answer to that. And I say that the only two things that I ever want my kids to study in school are either finance and accounting as an undergrad, because it's the language of business. And I think if you have a firm understanding of those two things, then you can kind of do anything. So did you go to school for accounting or did you just stay with-

education. I did. I went to school. I did my undergraduate in accounting. And then I did a master's of professional accounting at the university of Texas in Austin and just specialized in tax there. Right. So really learning the language of business and numbers is so important. And I think most entrepreneurs don't,

They don't bother to learn this stuff until there's a problem. I'll tell you a shocking story. So I used to teach a class to a group of entrepreneurs twice a year, and it was called Cashflow 101 is what we called it. And this was actually going through their financial statements and walking them through the income statement, the balance sheet, statement of cash flows. We had people in there who'd been in business 30 years that had never...

their financial statements and just going, how have you survived? And think about how much more they could have thrived if they'd really understood their numbers and understood what caused their numbers to be what they were.

Yeah. In the business that we're in, we do a lot of joint venture partnerships with large brokers across the country and different things. And I have found, especially in the real estate industry, I'll go into some people that have some massive businesses across the country. I mean, monster businesses. And they just have no clue. Like I say, okay, let me see your balance sheet. Let's look at your balance sheet. Let's look at your financial statement. What you just said, they can't read them.

Because they've just never had to. It's like most entrepreneurs just get so focused on driving the top line. Like let's just, you know, sales saves everything. We just need more sales. We need more revenue. We need more income. And then everything else kind of takes care of itself, which can be true to a certain extent until you start adding the Uncle Sam to the equation.

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Sales does solve a lot of problems. There's no question about that. And if you don't have sales, of course, nothing else you do matters. Right? On the other side of that, actually, reading your finance statements is not that difficult. If you want, I'm happy to kind of walk through some of the things that we teach people on how to do that. Absolutely. So if you're a person with a business or a person that is thinking of getting a business or even

Some of the older people I've met that never bothered to understand this, listen up because here it is. Let's go through. Let me make it very simple. So basically your two primary financial statements are your profit and loss or income statement, income and expense, and then your balance sheet.

assets and liabilities, and then what's left over is your equity. But let's start with the income statement. So the purpose of income, here's the number one thing to remember, the purpose of income is to create cash flow.

And believe it or not, there's a lot of income, doesn't create cash flows. You've got a big receivable out there from a customer, it's income, but it isn't cash flow. And if it's not cash flowing, that's not a good customer. So that's how we analyze income. The second thing we look at is expenses and understand that the purpose of an expense is to create income.

So it's really easy to analyze your P&L. If you look at all of your expenses and you go, okay, does this actually create income? If it doesn't create income, let's get rid of the expense. If it does create income, would more money allocated to that expense create more income? And if it would, and there's a multiplier effect like there should be, then allocate more income to that category. And so that's the easy way to do the income statement.

The balance sheet, I think, is particularly interesting. I used to always wonder, why is an asset on the same side of the financial statement as an expense? The reason is actually very simple. It's because an expense creates money in the short term. It creates profit in the short term, whereas an asset creates profit over a long term.

But they both have the same purpose. One's just a longer term expenditure of money, whereas the other one is a short term expenditure of money. The expense is short term, the asset is long term. So again, if you look at your assets and you go, "Well, wait a minute, do I have an asset that's not performing?" In other words, is it not producing

income or reducing an expense. You can do one of the two, but it's got in some way, it's got to increase my cash flow in the end. If it's not doing that, do I need to get rid of it? Or is there a way to make it start working?

The fourth one is actually what's most surprising to people because in your business, you know this better than anybody, that the purpose of a liability is to create an asset. And so if you look at your liabilities, a lot of people are scared to death of liabilities. It's debt, right? People are afraid of debt. It's a four letter word. Well, if you're afraid of debt, it's simply because you don't trust the asset.

That's all it is. So if you trust the asset, in other words, if that asset produces lots of income, and you could add more money to it through a liability to create more income, then you would do that. So you actually want more debt. But if your debt's not producing an asset that actually produces income,

then you shouldn't have the debt. So it's actually a very simple analysis. And just remember, if you're afraid of debt, it's because you don't trust the asset. When I talk to people about, especially starting out, I look at expenses on a P&L as offensive money or defensive money. That's how you have to look at it. Is this expense or line item, is it something that's going to create revenue like buying leads or paying for something that

you know, is it like you said, is going to generate revenue or is defensive money, meaning it's there to service the sales once the sales happen.

And, you know, so many people, especially in my industry with real estate, tend to make cuts in the, in the offensive money before the defensive money, because they're just too, you take back on, you know, it's like, well, I delegated this task out by paying this person to do it. And now I don't really want to take that back on. So they start cutting the offensive money, which is marketing. And now they wind up with a major problem, which is they've got a bunch of hands sitting around doing nothing. Right.

Yep. That's right. You know, when people are looking, you know, because obviously, look, times are getting a little lean right now out there right now. So if I'm looking at my P&L, we'll get to taxes, but if I'm talking about just P&L management, what are some things you would look at in a business in order to maximize cash flow in a business in times like now where we have recessions? Well, I think you're right. First of all, I do think I like the offense defense. You do have to look at your offensive money.

But you have to look at the defensive too. I mean, even think of taxes as defense, right? What you're doing is you're spending money to reduce another expense. And so I look at your team members, you know, who's on your team, including your tax advisor, including your attorney, including your insurance agent, all of these people are on your team. Are they making you money?

And so a lot of people, they've got a tax preparer that isn't making them any money. It's just costing money to prepare a tax return. Now, unfortunately, tax returns are a necessary evil, but there's another way to look at them. There are also...

in our view, they're the first they're the looking at last year's tax returns, the first step in my tax strategy for this year. And the way I report last year's strategy is on this year's tax return. So I need to see a tax return that is actually tax effective. So it's not just

a matter of yes, I want good advice and I want good advice throughout the year. That's an important asset. I think your advisors can be your greatest assets because they're long-term that, you know, a lot of business owners look at advisors as an expense and they look as an expense that, well, it's just a, you know, I'm trying to reduce my expense. But if you look at as an asset,

and the assets producing money. I was talking to a prospective client this morning. I said, what do you want in a relationship with the tax advisor? He says, I want one that makes 10 times as much as they cost. I'm going,

Well, I think that's wise. I mean, I think 10 times is a lot, but I think the 10, you know, if I have an asset that produces two times what it costs, I want more because that's 100% return on my investment. If I can get 200%, 300% return on my investment, that's a better investment than buying a piece of real estate. Real estate's not going to get you 100%, 200%.

I think the mistake a lot of people make is, I mean, there's levels to the game, right? There's levels. And when you first start out, I mean, you might go to H&R Block and you go in there and there's a dude making 20 bucks an hour preparing your return. It's just real simple. Takes you W-2. They're just there to try to get you to borrow money from them so they can, you know, charge you a VIG on the return. And there you go. And you have your money today. That's what it is.

And, you know, people get complacent and they stick with that guy or that person. And maybe they're like, oh, it's getting a little more complicated. Maybe I'll just get another CPA. And this CPA might not be well-versed in the industry in which you work, but they are. I mean, they're very good with the tax code. They're just – but they're going to prepare –

Just vanilla as they can, you know, straight up, you know, right down the middle. Just accuracy. They just want accurate. Just send it right down the middle, 85 mile an hour fastball, right over the plate, easy peasy, you know, no curve balls, no sliders, just right down the middle. And then you get what that person,

and that person you like them they do a good job they're always following your stuff and then one day you wake up and you've got a four or five hundred thousand dollar tax bill that's been me and then all of a sudden you're like holy like this is not cool like i gotta figure this out and then you know you pivot to somebody else now here's a question so at what point do you think like let's talk about the levels of the game there because i think that's a great piece of advice when do you pivot

When should you be worried about each level, if that makes sense? What should you do? So your story is a perfect example. You woke up and you were paying $400,000 to $500,000, which now it's too late to get that back. So wouldn't you like to have that advisor on the front end before you're paying $400,000 or $500,000? So I think pivoting early is a...

tends to be an enormous value. And it's a much better use of your money than pivoting late. You know, people, one thing you didn't mention is a lot of people start off with the do-it-yourself, right? They're the DIY people. Yeah, that's true. And they'll go read my book, Tax Review Waltz, say, got it, I'll put this in my tax return. I'm going...

Probably not a good idea. Probably not a good idea, but okay, if you want to do it, that's fine. But I always like to pivot early. I want to have an advisor who's better than what I currently need because I will need them.

So I always want to level up. I want to be one level up from what I think I need. So should you, I mean, this should this start as soon as you start having to really pay? Is that what you're telling me? For sure. For sure. Because the minute you're paying, I mean, you're giving up money that you shouldn't have to give up, frankly. I mean, getting to tax free wealth is it's if you have a good tax advisor and you're willing to do the work, it's not that hard.

Because I got to tell you, I think people look at CPAs the same way they look at your insurance. Why are you with State Farm? Because I always have been. Bill comes, I pay the bill, the car's covered, and that's it. It's like set it and forget it. I don't want to think about it again. Nobody wants to go look for a new dentist. It's the same reason people invest in mutual funds, right? Yeah, just because it's just set it, forget it, and it's done. I think it's easy.

It's easy. It's easy because we love comfort. We love what's easy. But you know what ain't easy is writing those big ass checks is not easy. So my question is like, let's ask another question. So a guy like me, right, that you take over, you look at last year's tax return and you're like, holy smokes, this was you missed a lot of opportunity here when I made the shift from what into what you're talking about.

I was advised not to go back and refile those previous tax returns. They're like, dude, you're going to get audited if you do this. If you go back and do it, he's going to eat it and move forward. And that's just how it is. You know just how to hit my hot button there. So I appreciate that. So here's my view is that if your tax advisor or tax preparer is afraid of the IRS, you need a new tax advisor.

Because you think about, I mean, you go back to those levels, H&R Block, then you have the small-time CPA, and then you have a pretty good CPA. Then you end up with one of the big national firms. And if you're really lucky, you find a really good

local firm because just like restaurants, the local firm, the good local firm is always going to be better than the chain, right? Always going to be better than the chain. So you'd rather have the entrepreneur serving you rather than some employee who's just out of college, who doesn't really know much. And so what happens is that a lot of people,

They're so worried about the IRS. They're so scared of the IRS. I still think people are more afraid of the IRS than they are of public speaking or death. Oh, I agree.

And because, but the CPAs and the taxpayers are just as afraid of the IRS. I'm going, wait a minute. The people who work at the IRS, they're not bad people. They're good people. Okay. They're doing a really tough job. I mean, seriously, can you imagine having customers that all hate you? That's a really tough job, right? So. I mean, I have a real estate broker, so it's pretty close. Well, there you go. So, you know, you get it. You get what I'm talking about, right?

I feel the pain a little bit. Good people trying to do a tough job, but they're not, you know, the A students don't go to the IRS.

Let's face it, the A students don't go to the IRS. The A students go into private practice. And the really good students that are also entrepreneurs, they have their own practice, like one of our franchisees at WealthAbility. So what we're looking at is I look at if your CPA is afraid of the IRS, that's like saying,

i'm afraid i'm i'm i don't want to play one-on-one with this other player because i i i'm afraid they're going to beat me i'm going well if they're a high school player wouldn't you rather have a professional an nba star

playing for you. Wouldn't you rather hire LeBron James? Wouldn't you rather than go in, add it yourself or have some CPA that is barely out of little league? So I just think stay away from any tax preparer or tax advisor that is afraid of the IRS. It's great.

that you want to be aware of the IRS. We want to do things that reduce your chances of audit, but those who aren't afraid of it are more likely to reduce your chances of an audit than those are. Those who are afraid of the IRS are just more likely to increase your tax bill. - I think I'm going to defend the people right now, because I think we've all been, you know, everybody that watches the news has heard that the Biden administration, you know, I believe the fund, it depends on what channel you watch,

But some channels say finally get what the US government deserves and some channels say weaponizing the IRS against the American middle class, the entrepreneurs and business people, depending on how you vote is how you look at that. But I think when you hear the word,

weaponize when it comes to the IRS by adding so many people that will come back and audit. I think, I think people in general, I don't, I think like, look, even if you're a tax preparer, I think if you tell somebody like you might get audited, I think the knee jerk reaction to most people is, Oh shit, I don't want to get out. It's like, you know, it's, it's like, I might be able to win this fist fight, but I would rather just not have it. You know what I mean? Is, is, is the thinking. I understand that, but, um, I'll give you an example. We just, uh,

We don't have very many audits for our clients because we're really good at preparing the tax turn so that they don't get audited. That doesn't mean that our clients pay a lot of tax. Okay, so those two are not mutually exclusive. You don't have to pay a lot of tax to not get audited. But the same thing is that let's say you do get audited. I think audits are going to triple or quadruple.

no matter what you do they're going to triple or quadruple over the next few years okay so wouldn't you rather have somebody who's not afraid of going into that battle so that you can sleep at night in fact um john i'll give you um a way to always sleep at night never be afraid of the irs you ready for this yep i'm ready i like it okay so so you can play along with me repeat this repeat after me i will never i will never speak to speak to the irs

the IRS. Not your job. That's my job. So really the way to not worry about it is to have a professional on your team that will handle it for you. The IRS doesn't scare me. I've been dealing with the IRS for 45 years. Why would the IRS scare me? I went to the best schools in the country. I was in the national tax office for Ernst & Young. So the IRS doesn't bother me. And I don't ever take a position that I can't defend.

Yeah, we just finished an audit where we had a very large income and the end result was I think we ended up paying $2,000 over two years. That was it. Well, let's talk about this too because a big mistake, especially in real estate, man, this is such a mistake that so many people make.

is, you know, real estate, you have a lot of people come to the business and they might not have ever made this much money before. And all of a sudden they start making money. They're not paying quarterly. And then they get a big bill at the end of the year. And all of a sudden it's like, oh crap. And then it starts to sit there and that bill's there. What advice do you give to my folks that were not responsible that have some bill hanging out to the IRS? How do you deal with that? You call your CPA, let them take care of it.

Okay. You just say, Hey, call. That's it. Don't, don't talk to the IRS. Don't worry about it. Send it to me. We're going to look at it. We actually don't charge extra for doing that. Um, and in our practices, um, you just send it, send it to your, your tax advisors, what you should be doing. They should be asking for it. Send it immediately. If there's a mistake, we'll figure it out. If, if you owe the money, pay the bill, just pay the tax.

Because the problem I've always heard is it's not necessarily running the balance then, which you don't want to do. I mean, obviously you don't want to do that. No, that's a bad idea. It's the not filing that gets you in really deep trouble. It is. So remember that under payment penalties, that's only a half percent a month. So that's 6% a year. But a late filing penalty is 5% a month. That's crazy. Yeah.

So it's 10 times as much to not file. So file an extension. It's not hard. File an extension. I think that's what happens. I think people get behind to the IRS and then all of a sudden they're like, oh crap, I can't go file again because I- You need to file. File, file, file, file. Always file.

Now, I know that every time you turn on the TV again, I'm just right now I'm talking, which is hopefully nobody that's listening to this has these problems, but I'm just, it's just where my mind is going. Cause you know, obviously you see those TV commercials all the time. Like do you owe money to the IRS? Don't just stop the phone call. Stop this. We'll take care of this. What percentage of this stuff actually gets worked out? Are these companies real? What like you tell me.

Some of them are. I mean, we work with a couple of tax resolution companies. We don't do it. We refer that out. Yeah, it's not as...

It's not as often as they like you to believe that you actually get a reduced tax bill. More often than not, so here's general rule. If the IRS looks at your income and you could pay it back over five years, you're going to have to pay it all back. Yeah. Period. Okay. There's no offer compromise. There's no reducing your tax bill. If you can pay it back over five years, the IRS is going to require you to pay it all back.

Okay. So if you're still making money and you think you're just going to get a discount, probably save yourself the phone call to the 800 number on the- Yeah. And by the way, but that does bring up, but you can get an installment arrangement with the IRS pretty easily. Yeah. They'll just say it. Because I mean, the thing is, and not to say, I have done this in the past when it, I guess it was maybe what year was this?

There was a time when real estate might've been 2008 or whatever it is. I think I ran a balance because I looked at it like you just said earlier. It was like, dude, this is a half percent a month. This is the best credit line I'm going to get. I couldn't, it's when the banks were kind of frozen and I was like-

I'm like, am I really in a hurry to pay this off right now when it's churning to 6% a year? This is pretty good interest rate. I can use this money to make it back. And I think I did. Not advisable. Don't do that. Don't lever your tax bill to create, to flip properties. That's a bad idea. But yeah, that's just something I can, I mean, I'll admit it. I did it in 2008 probably.

Let me tell you, I've never known a real estate developer, for example, that I deal with a lot of real estate developers have over my career. I've never known that one that would pay any tax, any of their tax bill before October 15th, which is the extended due date. That is the date they pay it because they like the loan.

So just so you know, it's not criminal. It's just a civil penalty. It is a legitimate choice that you have to borrow from the government until October 15th. Now, if you don't pay it by October 16th, you owe those failure to file penalties back to April 15th. So in other words, if you're one day late, you're six months late. Right.

So don't be one day late. Don't be one day late. Got it. Okay. So you can borrow the money from April 15th or 16th to October 15th, but not after that. That is correct. Actually, just don't bother money. Just don't do that. Somebody's going to do this and be like, make your estimated payments for sure. And now I'm in trouble. That's it. So

what are some of the things that people miss when they're things that like again fair game in the tax code what are the most common places where you guys see and wind up saving people money well so i'll give you two of them right off the bat so in your industry the number one thing is is that you guys broker you guys

sell a lot of real estate, but a lot of you don't own a lot of real estate. And you are what we call, under the tax law, you're a real estate professional, which means you don't have the same restrictions the average person has when it comes to taking losses, like from depreciation, which is the king of all deductions, as I say in chapter seven of Tax-Free Wealth, it's the king of all deductions. You're not limited.

cost taking that depreciation you can do the cost segregations you you can do all of that get the bonus depreciation because you're a real estate professional because you're a broker okay or you're an agent agent or a broker same same difference from a from a tax standpoint so that's the biggest mistake that real estate agents and real estate brokers make is they don't own their own investment real estate that's number one and that's a big one and that's why i say

I always tell people that there's three questions your tax advisor should be asking. If they're not asking you these questions, then you probably need a different tax advisor. The first one is, how do you make your money? Which a lot of tax advisors will ask you that question. But the second question is, what are you going to do with your money? And that's actually a bigger question. And then third question is,

which I never hear anybody outside of my circle ask is, "What are you going to do with your money when you die?" Because that also can have a big impact on your taxes. That's the second thing is they get a tax advisor. Number one, in your industry, they don't own their own real estate. Number two is you're trying to do it yourself on a tax or you're trying to go cheap

on your tax advisor, that's the second big mistake. I would say the third one is actually they get talked out of a home office.

They get talked out of a home office. They have a business. They may have an office somewhere else, but just because you have an office somewhere else doesn't mean you can't have a home office. That is false. That changed in 1997. So if people say, well, you can't have more than one office, they are like 30 years, literally 30 years behind the times. Okay. So having a home office, here's why that's so important.

Because your first drive of the day, let's say you're a real estate agent. First drive of the day is a commute.

not deductible. So your car is not deductible. That first drive and the last drive home, not deductible. However, if you have a home office, your first drive of the day is 30 feet from your kitchen to your home office. And your last drive of the day is from your home office back to your kitchen. So you make sure that you start your morning at your home office, you end your day at your home office, and then that first drive out to that first client, deductible.

The last drive home deductible because you're going to your home office rather than having the client be your office. Well, it's interesting you brought up driving because obviously realtors have to have a nice car. We've seen million dollar listing. You can't feel nice car. You can't do it. Let's talk about the advantages of leasing versus buying a full tax.

So right now, unless you're driving a big SUV or a big pickup truck, leasing is by far the better tax benefit. By far. I have a habit of buying cars, but I lease cars. So I just leased a new car. And the reason is because I get practically 100%

business deduction for the lease payments. Whereas if I buy the car, I'm very limited on my depreciation on a regular passenger vehicle, much better tax deduction on a lease. And then after, if the lease is up, you want to buy the car, buy the car, that's fine. But for the first three to five years, lease the car. I normally, what I'll do is I lease to a dollar.

So, the residual on the backend is a dollar? If you lease to a dollar, it's not a lease. You bought it. I bought it. Under tax law, that's not a lease. That's a purchase. That's called a capital lease. Okay. So, what do you have to do then to make, so what should I be doing instead? So, instead, you would lease to like a residual, to the normal residual. Okay. And then buy it. So, what's the difference? So...

How do they estimate? Let's say you lease it for three to five years, right? Typically, a typical lease is three, four, or five years, right? So you lease it for, let's say, three or four years, and you lease it until...

But they're still a residual. So you're getting get 100% of those lease expenses as a deduction. When you buy it, now you get depreciation on that and you still get your ordinary expenses. You're just buying it at a lower price. Well, what's funny is a lot of real estate people are scared to lease cars because of how much we drive. They're like, oh, I'm going to be on it.

I'm going to do $12,000 a year because I'm going to do it. Not understanding that at the end of the lease, you don't have to turn the car in. You can trade it in on something else. Or you can buy it. Or buy it. You don't have to get taxed. You don't have to. But you're right. If you're driving 30,000 miles a year, you want to buy the car. I mean, forget the tax.

The cost is so much more to lease a car when you're driving 30,000 miles a year than to buy. You always want to buy. Okay. All right. I'm thinking about other things. So I'm sorry if this is all in real estate talk, but I'm thinking about things that people in real estate would buy. I'm wondering how far they can push legally, you know, writing stuff off. Let's say custom suits. What says you? So.

So here's the rule. They're actually a very specific rule. You have to have your logo on it. You have to deface the suit. It's going to be inside?

Not necessarily. So I have a client, he asked me if it worked. I said, I think it absolutely works. He put a lining, he actually put a lining in his jacket that was his logo throughout the lining. The whole lining was his logo. I'm going, I think that works. It has to be a uniform. So it makes it a uniform. But like, for example, you go buy a suit off the rack or you go buy a tailored suit, it's not deductible. Yeah.

so but yeah you can't buy it off the roof i mean look i'm a big tall lanky dude i can't buy suits off the rack anyway yeah i mean even if you get it tailored yeah even if you get a tailor unless your logos

prominent on it somewhere, it's not a uniform. It's got to be a uniform. The lining is a good move. But the lining, that was, yeah, I'm always learning from my clients, right? I think the lining is a really smart idea. And dude, any custom suit guy can make anything you want on the inside. Oh, absolutely. Absolutely. Anything, which is good. Okay, what else? What else should I be thinking about writing on? So here's the big one. So...

People always ask me if something's deductible. They'll look at my mug and they'll say, "Is that mug deductible?" Wrong question. Let's change the question. You get a better answer. Let's ask the question, "How do I make it deductible?" Because if you ask me if something's deductible, my answer is, "I don't know. I don't know your situation." Because I always say, "If you want to change your tax, you have to change your facts."

If you want to change your tax, you have to change your fax. So I can make anything deductible. So the question is, let me give you an example. So I had a client who used to travel to New Mexico all the time just because he liked New Mexico. He said, well, what do you do over there? Well, I do all sorts of stuff over there. I said, so he's in real estate, like different. He was in contracting, not a broker. I said, here's what you need to do.

spend more than four hours a day during the work week, spend more than four hours a day looking at real estate over there. And I said, you do that, your travel's deductible. Now, a lot of times you want to go on vacation. You want a vacation. You don't want to work. You don't want to do four hours a day looking at real estate or whatever you're going to do, meeting with clients, et cetera. But he did it. He came back to me. He goes, he was very excited. He says, guess what? He says, I found a deal.

I said, great. I said, what's the benefit of the deal? He says, I'll make a million dollars on this after all costs. It'll net me a million dollars. That's the whole reason why

that the government allows that travel to be deductible because they're going to get a piece of that million dollars that he makes. And so you got to think of it this way. You're the government's your partner, whether you like it or not, your government's your partner. You're the question is what kind of partner are you to the government? Are you a silent partner? Are you an active partner? Most people are silent partners with the government. They just let the government take their money. Whereas an active partner is going, okay, what would the government like me to invest in? How would they like me to invest my money?

how would they like me to spend my money? And if I do something the government wants me to do, whether it's solar energy on my real estate, which by the way, big fan. So if you're in the right location, solar energy on your real estate projects, solar energy, whether it's a real estate, whether it's a business, whether it's agriculture, those things are in my second book, "The Win-Win Wealth Strategy."

but if you're doing what the government wants you to do though the government says look we'll give you a tax break because we want you to do that in in and and our reward is you make money on it we're going to get a piece of that so it's a pretty good deal for actually it's a very good deal for the government it's actually a better deal for the government than it is for the taxpayer so it's not aggressive at all it's actually exactly what the government wants you to do so for example the travel okay if you're spending

um four plus hours during the work week and you're actually doing business and you're doing it in such a way that you expect that travel to make you money the government's good with that because they want they want you to make money because they get to tax that money that you make so they're good with that again they still look at does the expense produce income if the expense produces income and you document it properly it's probably deductible

Well, let me ask you this, because you talk about travel and that brings up an interesting topic that I know people are big on. I want to talk about your kids and I want to talk about incorporating them into your tax plan because one of the things you love is employing your children, paying them X amount of dollars and then paying for all of their ballet lessons and lacrosse practice and pay all of that stuff out of their own money that you're paying for them and also listing them as officers on your LLCs.

Tell me what your thoughts are on that. I don't do that. I'll take those two are separate. Okay. So paying your children is encouraged by the government. Having your children work in your businesses, but they have to actually work and they can only get paid a fair, fair amount, a fair, fair market amount for their services. What's the $10,000 a year? Why is that? So, so, so they have, so here's, so we all get this, um,

standard deduction, right? It's almost $13,000 now, right? It's $13,000. So they get that standard deduction for earned income only. So if you pay them up to $13,000, they pay zero tax. Now, if you pay them another 10,000, they're going to only pay 10% on that 10,000 extra. So don't think that you're limited to that 13,000. You're limited to what the fair market value is of their services. But like I had a, I have a buddy who's a surgeon and, uh,

he does a lot of real estate and he has, he taught his daughter when she was eight years old, how to do his bookkeeping. And she learned how to do booking. She is now, by the way, at a big firm on wall street. That's where she is. Well, she started doing bookkeeping for a dad's real estate when she was eight years old. So the government likes that. The government's all for that. Now, the fact that they are an officer, uh,

doesn't mean they get deductions. Okay. You, they actually have to be involved in the business just like they would be if they were employees. Well, the question that I had by that is I've, is I've heard that if you have your kids as an officer, you can have your annual officer's meeting on vacation and making a tax deductible. That's something that, you know, there's lots of people. You, you, you, you would have to spend four and a half hours per day

every day doing business that can only be done in that location. Okay. So in other words, it couldn't be done at home. So that the, the getting that travel, that's probably a myth then.

To a large point, to a large part. I've heard people say, well, my kids are officers and so when we go out on the boat, we talk about business and therefore the boat's deductible. Probably not because there's four tests for deduction. The first is a

Is that does it have a business purpose? You might meet that test. The second question is, is it ordinary? Meaning is it typical in your business to do that? And the answer to that one being no, it's not typical. So I don't know how you're going to get through the typical part, the ordinary part. Next is, is it necessary? Can you say that that's really a necessary expense? Probably not. So you're going to lose two of those, right? The fourth one is it has to be documented, but

I think that's a very aggressive... Here's what I believe. I actually believe you don't need to be aggressive to eliminate your taxes. I think you can be very aggressive

Very conservative, as long as your tax advisor truly understands the law. So a lot of people do try to run off boats. I've never tried to do that. I've never even bothered to go down that road because I just don't think I can get there. Is there any way to run off a boat? Oh, sure. I mean, let's say you had a fishing boat that you chartered.

That's a business. Absolutely. Okay. Let's say that the only time you used it was to take clients out on the boat. The problem with that is it's entertainment. Entertainment's not deductible. So I think it's a very big ask to write a file. Now, could I show you how to

Right off the cost of the boat, which is different than riding off the boat. And the answer to that is yes. Okay. That is, that is actually chapter nine of the win-win wealth strategy, where I actually talk about how to get the government to pay for your Ferrari. So if they can pay for your Ferrari, they can pay for your boat.

Okay, now I got to know how to do it. You're just going to have to read the book. It's a long explanation. It's too long for that. It's a long process. Okay, cool. I got it. All right. So employing the kids to do that is a wise idea, writing the boat off. Absolutely. 100%. Not necessarily a good deal. Employ your kids.

Yeah, because you can do that really at any, and if you're thinking, well, I just started out, I'm only making 75 grand a year, your tax balance

rave is going to be different than under 13 more than zero if it's more than zero then why wouldn't you why wouldn't you do this and keep in mind you don't have to give them the card um right it's not something you have to do you know something that that we do that i that i heard and i don't know maybe you tell me this is a terrible idea but we made our kids authorized users on

every credit card account I have. I mean, they don't have a card obviously, but we did that when they were very young to try to build their credit and build those things as we're going along for them.

I actually had my kids own real estate when they were kids. We just did it through a trust because they can't own it on their own because that's a voidable contract. But my kids had 800 credit scores while they were in college. They had

800 credit score. That's the goal. And then hopefully they won't demolish it. Absolutely. Why not? With those people standing around on freshman orientation, get a free credit card. We'll give it to you. Yeah, they know exactly what they're doing. Next question. I'm a big fan of the infinite banking system through insurance policies in the closed loop, being your own bank on a whole life that you pay back. I'm a big fan. What says you on that?

That is chapter seven of the win-win-wilt strategy. I devote a whole chapter to insurance. Insurance is one of the seven investments the government will pay you to make. I have a whole life insurance policy myself. I like it. I like the idea of having safe money. Everybody needs safe money, right? This is not money that's making a lot of money, but it's safe money. And I like the ability that I can actually use it as collateral to

I get an automatic loan from the insurance company when I want at a predetermined interest rate. And if I use that money to invest or in my business, I get to deduct the interest. And at the same time, I'm deducting that interest payment. The insurance, the cash surrender value is growing tax free. So where you can't do that in a 401k because you're actually paying yourself

that you're actually paying it to yourself, but with the insurance company, you're actually paying the insurance company. Okay. It's a loan collateralized, not a loan of your cash surrender value, but it's a loan collateralized by your cash surrender value. It's a very important difference from a tax standpoint. And then of course, the proceeds when you die are tax-free. So I'm

i'm a huge fan as well and i walked i walked through the whole thing i have a really good example i walked through it in chapter seven well how okay so so let's talk about the book because it's obviously there how do they find the book where can where can we buy the book

Amazon, Barnes & Noble, all the bookstores have it. Tax-Free Wealth, fortunately, has been number one in the tax categories since 2012, and we just did the third edition. So it's in Audible. It's an e-book. It's number one.

- You gotta get it in your hand. It's a tax book. You can't listen to it. Who's gonna listen to that? - You know, it's interesting. About 50% of the buyers and we sell a lot of books. Not a lot of books make money. We actually make money on this book.

And a lot of people listen to it. I can't do it. I need it in my hands. I want to highlight. I want to bend the corners of the book, bend the corners down. I want to mess with it. I've done podcasts where I had a guy just the other day

that he'd been through it three times. He showed me his book and it was completely tattered and torn. I'm going, that is the right use of that book because it was written for the average person. It was not written for CPAs. Yeah, it's a user's manual. It's a user's manual. Think of it this way. The tax laws, a roadmap to reducing taxes and building wealth.

But you got to know you need to be able to follow that map and most people can't follow it. Tax-free wealth is just makes the map easy. Well, I also want to talk about WealthAbility, which is the franchise that you're doing now. So tell us about that. Yeah. So we are, to my knowledge, the first, but what we decided was as an entrepreneur, it's much better to have another entrepreneur serving you because they'll understand you. And the problem with the big firms,

um is that they have a bunch of employees and they don't have entrepreneurs serving you in fact even the partners are employees they're just highly paid employees so you don't have any entrepreneurs in those big firms except for the top guys right and they're not going to deal with you so i love i love the idea that we have entrepreneurs serving entrepreneurs they're franchisees which means that they follow our system um we're teaching you know like i i'm talking to them today i talk to my franchisees pretty much every week

And I'm training them so they know Tax-Free Wealth. We have a whole series of courses. They go through them before we ever turn them loose on a client. And so I love my franchisees. They're amazing tax professionals. How many locations now with WealthAbility? How many do you have? So we have right now, we have 10 franchisees in a corporate location. But we actually look at... So one of the things we've done with the franchise is

We have some franchisees that handle people just starting out. We have other franchisees that handle people that have leveled up from that. Then we have other franchisees that handle top level. That's the nice thing about being in the WealthAbility franchise system is that you talk about leveling up, you can do it within the same system. We're the only place you can do that.

Well, Tom, man, that is a, uh, you are obviously a wealth of knowledge, my man. And, uh, and it's, it's knowledge that everybody needs. I mean, look, wherever you are on your journey, you probably write a tax bill. Uh, if you're listening to this show, you probably pay taxes. You're probably, or hopefully on your way to paying taxes or supposed to pay taxes. So if you're not doing this by the book, uh, do that. Um,

You're based in Tempe. If you live in Tempe, you should definitely be looking out for you. Where are your franchises? We have clients all over the world. So it doesn't matter where you live. We can take care of any state. I actually taught multi-state taxes at Arizona State University. So we're pretty good at all the different states.

And what's the easiest way for them to connect with you? Just go to wealthability.com. Wealthability.com. And you can connect with them. Wealthability.com. Thank you so much for joining us today. I appreciate it.

And guys, listen, again, as we always sum it up, if you are drifting along with the currents of life and dude, I got to tell you, if you're drifting along with the currents of taxes, believe me, you will get a hard stern wake up call one day when that happens to you. So go ahead and just swim against the currents, especially when it comes to paying the U.S. government.

Because remember, the tax code is huge. The majority of it tells you how to not pay taxes, not just pay taxes. So take advantage of that. We'll see you next week.

What's up, everybody? Thanks for joining us for another episode of Escaping the Drift. Hope you got a bunch out of it, or at least as much as I did out of it. Anyway, if you want to learn more about the show, you can always go over to escapingthedrift.com. You can join our mailing list. But do me a favor, if you wouldn't mind, throw up that five-star review, give us a share, do something, man. We're here for you. Hopefully, you'll be here for us. But anyway, in the meantime, we will see you at the next episode.