Build Wealth Faster by Permanently Reducing Your Taxes

Let’s be honest. Most people aren’t happy about the taxes that they have to pay. However, as author and columnist Holly Sklar explains, “Taxes are how we pool our money for public health and safety, infrastructure, research, and services — from the development of vaccines and the Internet to public schools and universities, transportation, courts, police, parks, and safe drinking water.”

Even so, many of us bemoan our tax bills on Tax Day. Would you believe me if I told you taxation actually creates wealth?

This question was answered by Tom Wheelwright, CPA. He’s a visionary, entrepreneur, best-selling author, Rich Dad Advisor®, and international tax authority whose mission is to make taxes fun, easy, and understandable. It’s his life mission to learn and study tax law, and he’s taught thousands of people how to permanently reduce their taxes.

Also, Robert Kiyosaki invited Tom to speak at Rich Dad conferences around the world. There’s a good chance you’ve come across his work in publications such as Forbes, The Huffington Post, Accounting Today, CFO Magazine, ABC News Radio, and Entrepreneur.

Follow the Rules of the Wealthy to Build Wealth Faster

In this article, Tom tells us the truth about taxes. But he’ll also show us how to build wealth faster, pay less in taxes, and follow the rules of the wealthy.

Legally lowering your taxes will help you build wealth faster

According to Tom, income, payroll, sales, and value-added taxes are among the biggest roadblocks to wealth creation. To create wealth, we must reduce or eliminate the tax burden on income, so that we can create more capital. The more control you have over your money, the easier it is to grow it.

Thankfully, the government has stuffed the tax code with incentives. Why? Tax incentives are used by the government to encourage investors to invest in projects the government wants them to invest in, he explains. The key is to understand which incentives best fit the investor’s goals, which are available in all asset classes. The government has specific incentives for most active investors, so looking for loopholes is not necessary.

That’s why it’s so important to understand how tax law works, Tom adds. The media and politicians like to say that tax incentives are a drain on society. However, there’s no difference between the rich and poor, when it comes to tax incentives. As long as they’re being used for things the government believes are worth the tradeoff, like creating jobs, housing, and renewable energy, they’re worth the tradeoff.

Build wealth faster by building assets the government has tax incentives on

One rule of thumb is to build assets that the government encourages with tax incentives, such as real estate, businesses, and energy. It’s what people like Jeff Bezos and Elon Musk do. Rather than saving, where their money would be taxed more heavily, the rich invest their money in these investments. This allows them to accumulate wealth faster by retaining more control over it.

“These strategies are not tax dodges. These are things the government wants you to do, they pay you to do it, and they get a huge benefit as a result,” says Tom.

What you can deduct and what you can credit.

“When you talk about tax credits, states have a lot of dollar-for-dollar tax credits,” says Tom. Tax brackets are calculated based on income and deductions. The highest tax bracket is 40%.

In other words, a dollar of deduction is worth $0.40 at most to you, while a dollar of credit is worth a dollar regardless of your tax bracket. Whether you pay 10% taxes or 40% taxes, a dollar of credit is still worth a dollar to you, he explains.

Take, for example, the benefits of research and development tax credits. There is a deduction as well as a credit. Credits for solar energy work the same way. Solar credits, however, are far better than research and development.

As a result of this new bill, solar credits are scheduled to increase to 30%, and you can deduct everything except half of them. “So, let’s say, for example, you put $100,000 in solar panels, you’d get a $30,000 credit,” he says. “That’s dollar-for-dollar, but you get an $85,000 deduction.”

As a result, your depreciation is only reduced by half of that credit. In other words, the government is putting in 62% of the cost through a $30k credit and an $85,000 deduction.

This does not include any credits I may receive from the state if I install solar on my house. This applies to solar on your business, not your home. The utility company, however, sent me a check for $3,500 when I put it on my house.

Additionally, the utility company might credit you.” I’ve done the return on investment calculation, the ROI calc, on my solar, and my solar is like over 20% ROI because I reduced my usage.”

As well as taxable income, you have nontaxable income, credits, and low-taxed income like capital gains, as well as deductions.

There are some ways to delay your taxes, like a 401(k). However, that’s probably not the last thing you should consider since many other methods can permanently reduce your taxes. But, according to Tom, there seems to be no reason to focus on temporarily reducing them.

The government regulates the amount of money you can put into an account, how the money is taxed, when you can withdraw the money, how you can invest it, etc. “Unless you put it all into the stock market, seriously, there are much better ways to deal with your taxes than a retirement plan,” advises.

Take advantage of private equity tax benefits.

To begin with, we need to figure out what you are interested in investing in. Having decided what you plan to invest, we can determine how to do it in the most tax-efficient manner, he states. Some people enjoy investing in the stock market. If so, maximize your 401(k). Roths are also a good idea. However, if you aren’t investing in stocks, go look for something to buy.

“Let’s say you want to buy a new suit or a new shirt or a new dress,” he clarifies. “You can go buy retail.” However, what if you could buy the same thing wholesale, which would cost half as much? In a nutshell, that’s what private equity is. Investing at the wholesale level is what it is all about.

Additionally, private investments have terms that are unparalleled, and there are so many different ways that a deal can be structured. In comparison with public equities, it’s night and day. From a tax standpoint, you get endless benefits, and there are even things like depreciation you can take advantage of as well.

You’ve got to follow the money.

As a result of the 2021 infrastructure bill, IRAs will no longer be allowed to invest in private equity. 401(k)s aren’t included, which is interesting. But, pension plans can be used.

It is important to remember that rich people do not have IRAs. Pension plans are common among the wealthy. “So, when they say rich people know how to – to say rich people don’t pay tax is a fallacy, but to say rich people know how to reduce their taxes is an absolute truth,” explains Tom.

“When you’re investing, you always follow smart money, right?” he asks. “And the smart money, they’re rich for a reason.”

Gain more control over your money.

Here are a few levels of control to consider.

Qualified plans are the worst because you do not control the plan itself. What are you investing in? You’re investing in public equities, so you can’t control the companies you’re investing in. In other words, you’ve actually lost control on two levels. Transferring money back and forth isn’t possible, is it? You can’t pull that out when you use it. It doesn’t matter how much money you put in. That’s why you lose all your control.

Furthermore, you have no control over what happens with your investment because of the big Wall Street lie. “Wall Street is smarter than you are; therefore, should you give them your money?” Tom elaborates. “There are a lot of thieves outside of Wall Street that are smarter than I am.” However, I’m not going to give them my money.”

So, the message of my company, WealthAbility, is you are smart enough,” he adds. “You’re better at taking charge of your assets and your wealth than anybody else on Earth.

The only thing you need is a little education to take charge of your own finances. So, the control is yours — and that’s where we come up with this idea,” he continues. “The question is, what’s a riskier way to make money? Are you better off working for someone else or owning your own business? And most people would tell you, “Well, having a job is less risky.” But — wait a minute.

Ask these questions — In terms of control, do I have more control in the stock market, or am I more in control if I own my own real estate, run my own business, or own my own farm? “Personally, what I know is I have way more control if I run my business,” says Tom.

“I have complete control over the money, and I can pull whatever money I want. I can borrow whatever money you want. I can increase my salary anytime I want.”

How to reduce your taxes without breaking the law.

“You can push the envelope if you want,” Tom says. “Frequently, it’s not against the law, but my question is, why would you push it, if you don’t have to?” Why wouldn’t you go down the middle of the road if you can get the same result? “Because I’ll tell you what, I don’t have any clients whose goal in life is to end up in prison,” he adds. “They don’t want penalties. They don’t want the IRS to attack them.”

Find the Loopholes to reduce taxes and build wealth

What should we do then? We follow the government’s orders rather than finding loopholes and going with exotic programs, he advises. “Once you understand that 99% of the law is an incentive to reduce your taxes, why do you need to go outside that 99% law?” he asks. “I’ve never quite understood that because there are so many things that are so obvious within the law.”

By the way, as long as it’s clearly within the law, I’m fine with it, just so long as the IRS doesn’t like it. It doesn’t matter what the IRS thinks.

“The IRS is not who I’m afraid of,” Tom proclaims. “I work with the IRS. When we get an audit, which is rare, but when we get an audit, we’re working with the IRS auditor to come to the accurate result.” After all, they’re just doing their jobs. But, if you work with them and are transparent, there’s a need to fear the IRS. “You can have control, you can reduce your taxes, and it can all be right down the middle of the road.”

What investments the government will pay you for?

According to Tom, this is a really simple process. “I mean, you look at what the government wants to have happen?”

Since they are looking for jobs, business is an obvious choice. Real estate is obviously necessary since they need housing. It goes without saying that they need energy. They want technology, so you want it, too. As you scroll down the list, ask yourself, “what does the government get out of it? Well, the government wants a return on investment.

Look at Government Strategy

To get started, Tom looks at the government strategy. “What does the government need to do?” Then Tom asks — “And what do both sides get out of it?”

It’s fascinating to me that the government receives a higher return than the taxpayer, but the taxpayer receives enormous returns, he continues. “These are literally investments the government will pay you to make these investments.”

Featured Image Credit: Photo by Pixabay; Pexels; Thank you!