Podcast March 21, 2023

E239 | Winning The Wealth Game by Knowing Your Tax Law with Tom Wheelwright

Do you really understand how tax work in your country? Our guest this week believes that 80% to 90% of people pay taxes and complain about the rich not paying. But, why do the rich don’t pay taxes? Our guest says it’s because smart entrepreneurs and wealthy people understand the laws. What people don’t realise is that tax law is primarily a series of incentives for entrepreneurs and investors.

This week on Mind Your F**king Business, we learned from Tom Wheelwright, the CEO and founder of Wealth Ability, a network of CPA firms in the US and Canada. He’s spent 25 years buying, building and selling CPA accounting, whilst travelling the world with Robert Kiyosaki, author of Rich Dad, Poor Dad, giving financial education to entrepreneurs and investors.

In this episode, Tom tells us about the difference between CPAs and entrepreneurs and how rare entrepreneurial CPAs are. He’s also a Rich Dad advisor and shares the story of how he met Robert Kiyosaki, author of Rich Dad, Poor Dad and how they ended up teaching the fundamentals of business to entrepreneurs all over the world. Drawing from his latest book The Win-Win Wealth Strategy, he talks about what are the seven investments the government will pay you to make.

A fascinating conversation. Download and listen today.

On today’s podcast:

Is it a moral duty to pay taxes?
How do taxes really work?
The seven investments governments will pay you to make
The power of playing Cashflow
Becoming financially independent

Follow Tom Wheelwright:

Website

The Win-Win Wealth Strategy book

Podcast

How To Win The Tax Game

Tax and wealth expert Tom Wheelwright is a CPA, CEO of WealthAbility®, Rich Dad Advisor, entrepreneur, international speaker, and bestselling author of Tax-Free Wealth: How to Build Massive Wealth By Permanently Reducing Your Taxes. He recently released his newest book, The Win-Win Wealth Strategy: 7 Investments the Government Will Pay You to Make.

Tom is the CPA for Robert Kiyosaki, author of Rich Dad Poor Dad, and has spoken on stage on every continent to over 100,000 entrepreneurs, small business owners and investors. He is also the host of two popular podcasts: The WealthAbility® Show with Tom Wheelwright CPA and The WealthAbility® for CPAs Show.

His goal is to help people achieve their financial dreams faster by permanently and legally reducing their taxes. Tom is also a contributor to Entrepreneur magazine, and his work has been seen in Forbes, The Wall Street Journal, The Washington Post and on FOX and Friends, Marketplace / NPR, ABC News Radio and hundreds of other media outlets.

Tom’s career started at Ernst and Young, one of the largest county firms in the world. He spent three years in the National Tax Office, and then another four years as the in-house tax advisor for a Fortune 1000 company. He’s also spent 25 years buying, building and selling CPA accounting. Whilst he was doing that, Tom was also travelling the world with Robert Kiyosaki, author of Rich Dad, Poor Dad, giving financial education to entrepreneurs and investors.

“And really the message is financial education. Not just only for the entrepreneur and investor, but for those who would like to be entrepreneurs and investors and really explain how financial education actually works.”

Paying taxes: a moral duty?

For the last five years, Tom and his partner have run a network to train other CPAs, delivering financial education around taxes. In his latest book, The Win-Win Wealth Strategy he covers the laws of 15 countries to show how the tax laws really work. Not how the pundits say it works, but how the tax laws really work, how the government benefit from it and how the entrepreneur, investor and average individual can benefit from it.

For Tom, it’s our moral duty to pay every bit of tax that we owe, but we don’t have a moral duty to pay more than what we owe. In fact, adds Tom, we actually have a moral duty to do what the government wants us to do and, by doing so, pay the least amount of tax possible. You have a choice when it comes to how much taxes you pay. However, you don’t get to choose whether you’re in the game of partnering with the government.

“You live on Earth. Therefore you are partnered with the government, you are in the game. But what you do get to choose is ‘am I a silent partner with the government or am I an active partner with the government’?”

Over the years, every government look for the policies they want to encourage, and the things they want to do, and they provide tax incentives to get people to do it. They realised that nobody likes paying taxes, but incentives go a long way and get better results than physical payment of money, says Tom.

For instance, if the government wants to increase jobs, or increase clean energy, they do it through tax benefits. Currently, the big issue is between the EU and the US. The US just passed a law that gives tax benefits for clean energy, but only if you manufacture in the country. So what about businesses in the EU? What about BMW and Volkswagen and all these other companies? If they wanted to get US tax benefits, they would need to move there.

“The biggest power that anybody in government has is the power of taxation. And so the way to actually encourage behaviour, one of the ways that they’ve learned over the years is let’s give tax benefits. And if we give tax benefits then we will get the results we want.”

How taxes really work

Every country has a law that says all income is taxable unless we say it isn’t. So the general rule is, everything’s taxable unless they say it isn’t. And then they have another rule that says nothing’s deductible unless they say it is. Governments have charts and tables stating how much tax to pay. In the UK, the tax law is basically an instructing guide to reducing taxes of about 12,000 pages. The problem is that most people are so fearful of taxes and of the HMRC or the IRS that they end up paying without even looking at the law. They don’t learn what the government wants them to do, so they just pay, hoping they’ll leave them alone.

“I would say 90% of the public, 80% to 90% of the public does that. They just, okay, I’m just going to pay my taxes on my own way and complain about the rich, right, not paying taxes. What the smart entrepreneurs do, the reason the rich don’t pay tax, most of them, is because they understand the laws.”

They understand that different countries have different laws, and they play those laws against each other. It’s called tax avoidance, not tax evasion. And It’s perfectly legal and expected, adds Tom. Once you understand the rules, you see that what the government want is for you to invest your money where they want. And then, they’ll give you a tax benefit and you’ll pay less tax. To illustrate this, Tom gives the example of South Africa.

“South Africa gives a 150% deduction for research and development expenses. So if you spend $100, you get a $150 deduction or 150 grand in South Africa, right? But that’s how it works in South Africa. That’s better than the tax benefits in the US for research and development. Every country has these, and they tend to be the same. That’s why I work with those seven [investments] in my book, because they tend to be the same from country to country.”

A lot of government help comes through tax benefits. A great example of that is Airbus, which got help from the French government. This is not unusual, says Tom. In the UK and the US, companies get a lot of tax benefits.

“If you invest in real estate for your business, you’re going to get a lot of tax benefits that you wouldn’t do if you invested in the stock market or if you invested in bonds. So the government is just saying, well, don’t put your money over here. If you put your money over here, we’ll tax you. If you put your money where we want it to, or create technology, or whether it creates jobs or creates energy or builds real estate, housing, etc. Things that the public needs, we’ll give you better tax benefits and you’ll pay less tax.”

The unintended consequences of laws

For Tom, loopholes are unintended consequences of the law. For example, up until recently somebody living in the US could set up a pension plan in Malta, put the stock from their own business into that company and into that pension plan and never pay tax on it. That’s a loophole. When asked what his favourite loophole was, Tom says that actually, business is actually the best place to put your money. You have the most control over it, you can impact it the most, and your return on investment should be the highest of any investment you make. Every dollar you put back into your business is tax-free because you get a deduction for it as a business expense.

“So you make $100 in business you put $100 back into your business, and you pay zero tax. Because you got $100 of expenses in your business, $100 of income. But if you take that $100 and put it in the stock market, you pay tax on that money. So put in your own business. Everything else builds on business. If you don’t have a business, you’re pretty much out of luck.”

When the author of Simple Numbers, Greg Crabtree was on the show, he said that if you’re a business owner, you should be getting somewhere between 50% and 100% return on the capital invested in your business. Still, many entrepreneurs don’t know the answer to what return they’re getting.

Understanding accounting is so important because you need to know your numbers. And return on capital is one of them. You need to break it down between return on services and return on capital. Tom explains that return on services should come from a salary, and the rest is return on capital.

“And a good entrepreneur will do 50% to 100% in their business, and they’ll never do that well anywhere else totally, except maybe with a good tax advisor.”

Is your advisor saving you taxes?

Tom has a network of tax advisory firms in the US and Canada. He defends that advisors do your tax return, but that’s not where you save taxes. He tells us how they spend a great deal of time working with people that then complain saying they didn’t get any value out of it. He has provided tax opportunities that the client simply didn’t want to take. You’ve got to participate. You got to be partners with the government and with your tax advisor.

“My job is to tell you what facts you need to change in order to lower your taxes, but you have to change the facts. So we always say if you want to change your tax, you have to change your facts. I can’t change your facts for you. All I can do is tell you what facts to change. You have to decide.”

Tom also adds that it’s very important that the person who gives you the advice also does your tax returns because that’s part of the advisory process. That’s where the rubber meets the road as it’s implementing the tax planning you’ve done. So it’s very important that it’s done by the same person.

The game of Cashflow

The author of Rich Dad, Poor Dad, Rober Kiyosaki and his wife, created the game that teaches how to get out of the Rat Race and achieve financial freedom. It’s a great way for entrepreneurs and investors to learn how to handle their financial statements, what they really mean and then how to look for cash flow instead of looking for just appreciation in their stocks, bonds, mutual funds, etc. They can actually get cashflow from operating businesses, real estate and other investments.

“So I think it’s a great game from an educational standpoint. It can be a long game if you play it all the way through, for sure. Except I will tell you, the goal is always you should be able to win in under an hour.”

Once you really learn the rules of the game, says Tom, it’s a really easy game to play and to win. The key is to know all the rules of the game, which you won’t until you play it several times. The same thing is true in business, entrepreneurship and taxes, adds Tom. Until you understand the rules of the game, you can’t say I follow the rules of the game. You follow the rules you know, but you don’t follow the rules you don’t know. And you don’t know what you don’t know.

The 7 investments the government will pay you to make

In his book, Win-Win Wealth Strategy, Tom shares the seven investing strategies that governments are happy for you to make worldwide and that will fatten your wallet while making the world a better place. Of those seven, business is number one, followed by technology because of the research and development tax benefits. Real State is number three on the list. In some countries, governments don’t allow people to invest in fossil fuels, but they can invest in solar, wind and geothermal. That means that new energy that’s emerging, comes from private investment, not governments. And with them come huge tax benefits.

In the US, for example, you can get the government to pay for about two-thirds of solar equipment that goes on your commercial building or your rental property, which means you’re tripling your return on investment.

“So I just put solar panels, $100,000, on my roof at my office, the building that I own in Arizona, and my actual return is 7%. But because I only put a third of it in, the government put in two-thirds, my real return is 21%.”

Another favoured investment is in agriculture.

“I’ve never met a farmer who paid tax. I mean, literally never in my life met a farmer who paid tax. And it’s just huge tax incentives. I mean, agriculture has the most of everybody”.

Then, there are minor life insurances that can have huge tax benefits in them, as well as retirement plans. The problem with these is that, in most cases, unless you’re in Australia, you end up paying tax at the end. So you’re just postponing the tax, says Tom. Australia has Superannuation, with which you pay a much lower rate of tax, so you actually don’t pay tax. In the US, they’ve got the Roth IRA 401K where people don’t pay any tax.

Tom admits that there are some benefits to the so-called qualified plans but, they really are tax incentives to put your money in the stock market to boost it up.

“Wall Street is basically a Ponzi scheme. You boost up the price by putting more money in. Let’s say you have a pension plan, and that pension plan is required. You’re required to put money in every month. What does that do? That just pushes the price up, because you get more money into the market with the same number of companies. So that just keeps pushing up the prices. It’s a total Ponzi scheme.”

So the average investor who never put their money in the stock market prior to 1974, is now putting all their money into the stock market and depending on it for their retirement. Something that, adds Tom, is a ‘horrible idea’.

For him, the better tax benefits of all come through business ownership.

Working with Robert Kiyosaki

When Tom broke up with his business partner, half of the clients went with his partner, but all of the employees stayed with him. With the surplus of employees, he decided to buy another CPA firm and the first thing the seller recommended to him was to read Rich Dad, Poor Dad by Robert Kiyosaki.

“This was back in 2001. Had no idea who Robert was. I read the book. Turns out that one of my good friends had just become the chief financial officer of Robert’s company, Rich Dad. And so all these things work together. Robert’s very bold. He put me on stage without knowing anything about me, which was very gutsy of him, and actually had me explain depreciation, which is cost recovery on real estate. And I said, well, it’s a little bit of magic. And so I’m explaining this. And since then, we’ve just been off, teaching all over the world.”

How to get financial independence

Tom teaches about finances every day, including on his podcast The Wealth Ability Show. He calls his personal purpose the Declaration of Financial Independence.

“And our goal is to help people everywhere, doesn’t matter what continent they’re on, become financially independent of employers, of the government, and of Wall Street. Once you gain that kind of financial independence, basically you can do anything you want in life. So that is our mission.”

We asked Tom what should people start doing today to achieve financial independence. The first step, says Tom, is education. He highly recommends playing Cashflow, a powerful game that’s not just about cash flow gains, but about detailed financial statements, and you have to have an auditor. Also, you should read the Rich Dad, Poor Dad series.

“It’s understanding that what you’ve been told in school is not just a small piece of financial education, it’s a very small piece, and there’s a lot more to learn out there, and you just can never stop learning.”