Most investors are trained to think about returns first and taxes later. Tom Wheelwright argues that separating the two can leave a remarkable amount of wealth on the table.
Taxes can amplify an investment’s return just as easily as they can erode it. That makes tax strategy more than an annual exercise in reducing what you owe. It becomes part of how capital is invested, financed, and ultimately preserved.
In this episode, Wheelwright challenges investors to reconsider one of the largest sources of friction standing between the returns they earn and the wealth they keep.
Read the transcript below.
Transcript
Monetary Metals
Welcome back to the Gold Exchange Podcast. My name is Ben Nadelstein. I am joined by Tom Wheelwright, the bestselling author of Tax-Free Wealth. He joins me today to talk about all things taxes.
How taxes can double or halve your returns
Monetary Metals
I know everyone hates taxes, but nobody more fun to talk to than Mr. Wheelwright. Tom, tell us kind of an overview. What’s the number one threat to an investor when it comes to taxes? A lot of people spend hours and hours talking with experts. Hey, I needed a little 1% yield here, maximize here, but taxes, people always forget about taxes.
Tom Wheelwright
Well, taxes can either double your yield or cut it in half.
Monetary Metals
Right.
Tom Wheelwright
And the reality is the tax law fundamentally is a series of incentives.
Monetary Metals
Okay.
Tom Wheelwright
So the number one thing people miss is that taxes don’t have to be your enemy. They can actually be your friend. If you understand how the tax law works, then you realize that, hey, you’re a partner with the government.
Monetary Metals
Okay.
Tom Wheelwright
You are. And so Your income can be taxed or not. Your expenses can be deducted or not. And so really it’s just understanding, okay, what do I want to do and how do I do it in such a way to reduce my taxes legally?
Monetary Metals
And so when you’re saying you’re a partner with the government, whether you like it or not, is there certain asset classes or certain activities that the government has basically said, hey, do as much of this as you can?
Tom Wheelwright
Yeah. In my book, Win-Win Waltz Strategy, I give 7 investments the government will literally pay you to make.
Monetary Metals
Okay.
Tom Wheelwright
Okay. And the number one is business. I’ve done comparisons between business and real estate and oil and gas. And the best is business.
Monetary Metals
Always.
Tom Wheelwright
Always. And what’s interesting is not just the US government, every government in the world, and I’ve been in 30 countries. So every government incentivizes business. Not every government incentivizes minerals, real estate, but they all incentivize business because businesses, that’s the lifeblood of an economy, is business. So it makes sense they would incentivize it.
Monetary Metals
And so, okay, we have a lot of business owners who listen to the channel. They say, well, I’m a business owner. I’m paying a ton of taxes. What can they do maybe right away to kind of help with the tax situation?
Tom Wheelwright
Well, first thing I’d say, read Tax-Free Wealth. Okay. Start there. Okay. The second book in the series is actually, so it’s a 3-book series. The third book hasn’t come out yet. It’s the Win-Win Wealth Strategy, which is, so the first book, Tax-Free Wealth, is a question about, okay, how do I make my money and how do I reduce the taxes? on the money I make.
The second book is, what am I going to do with my money to reduce my taxes? So how you invest your money has actually a bigger impact than how you make your money on how much tax you pay. But there’s so much you can do. But I’d say the number one thing is to get a basic understanding yourself and then find a really good tax advisor who is willing to walk you through it and is not afraid of saying, I don’t know, let me see what I can find.
Because the question is never, can I do it? The question is always, how can I do it? So like, the question is not, can I deduct this? It’s how can I deduct this? Once you understand that frame of mind, now all of a sudden your whole world changes when it comes to taxes.
Monetary Metals
So in the past, I’ve gotten some advice, which is, hey, don’t invest solely on the taxes, because if you do well, you’re going to pay taxes either way. So what do you think about this idea? Hey, don’t invest solely based on what the tax consequence is going to be.
Tom Wheelwright
Well, I would agree. Don’t do it based solely on the tax consequences because you never want the tax tail wagging the investment dog.
Monetary Metals
Right.
Tom Wheelwright
Okay. However, don’t exclude taxes in your computation of your yield on your investment because taxes can easily either halve your yield or double it. I mean, I can show you a simple example in real estate where you use debt and taxes the right way. You can literally double your rate of return on any real estate investment. But you have to understand, okay, I have to do this, this, and this. Devil’s in the details. But understanding the concepts is where you start.
Why taxes must be included in your yield
Monetary Metals
Obviously, we’ve heard recently a lot of these millionaires and billionaires are using the strategy where they borrow against their stocks, they go into debt, and they use these different strategies. How important or how relevant do you think a lot of these different stories we hear about these strategies are to just your everyday investment?
Tom Wheelwright
I find that hilarious because I coined the term buy, borrow, die in Tax-Free Wealth in 2012.
Monetary Metals
Really?
Tom Wheelwright
I invented that.
Monetary Metals
So they owe you a check.
Tom Wheelwright
They do. They all owe me a check. I love it. Or at least a thank you note. But yeah, I mean, debt is not taxable because—
Monetary Metals
Break that down. So when people hear debt is not taxable, break that down for us.
Tom Wheelwright
Well, that means that you owe that money back.
Monetary Metals
Right.
How “buy, borrow, die” works
Tom Wheelwright
So it’s not income to you because you have to pay it back. Okay. That’s why it’s not taxable. So you can keep borrowing. So, you know, life insurance is a really simple example, right? Cash value life insurance. You can always borrow using it as collateral. So it’s like a line of credit.
Monetary Metals
Right.
Tom Wheelwright
Right. It’s just like a line of credit where you still got the asset growing, but, you know, you’re borrowing the money. But I honestly think everybody should max out other lines of credit because I think that you want to have cash available, but you don’t want to have your own cash available because your own cash is losing value. Okay. You’re an expert in this. Your own cash is losing value every single day due to inflation.
Monetary Metals
Right.
Tom Wheelwright
Right. And due to the government printing more money. So having cash on hand is not what I would do. I would have cash available.
Monetary Metals
And break down this idea, because a lot of people hear debt, scary. I don’t want to be in debt. Dave Ramsey says, don’t be in debt. What is the kind of right way to think about debt? Is it something that’s a double-edged sword and you got to be careful with how you play with it?
Tom Wheelwright
So I think what you have to understand is what’s the purpose of debt?
Monetary Metals
Okay.
Tom Wheelwright
Okay. So think of an asset. What’s the purpose of an asset? And that purpose of an asset is put money in your pocket, right? Right. Over and over and over again.
Monetary Metals
Right.
Tom Wheelwright
The purpose of debt is to buy an asset. So if you’re afraid of debt, it’s because you don’t trust the asset. Okay. Dan Ramsey goes, don’t use debt in real estate. I’m going, if you don’t use debt in real estate, not only have you cut your returns in half, right? But you cut your tax benefits by 80% by not using debt. 80%. So you lose a little bit of yield, but you lose a ton of tax benefit. Because like, remember, I mean, if you’re borrowing money, you’ve got to pay the bank back, right?
Monetary Metals
Right.
Tom Wheelwright
But if you get tax benefits, you don’t have to pay the government back.
Monetary Metals
Ah.
Tom Wheelwright
Okay. So it’s 100% instead of the difference. It’s not an arbitrage thing like debt is. That’s always an arbitrage. Okay. I’m going to make 8%. I’m going to pay 6%. Therefore I have 2% yield. No, in taxes, it’s like I could spend my money. If I can multiply that by 5 times by borrowing from the bank, I’m actually multiplying my tax benefits 5 times.
Good debt versus bad debt
Tom Wheelwright
So like if you take a typical real estate deal, if you put in $100,000, even if you’re in a high tax bracket, you’re, Tax savings is going to be 10 to 12% because tax rates and bonus depreciation, everything. However, if you take that 10% and now you’ve got an 80% loan-to-value, you’ve multi—you can multiply that 10 by 5. So you’ve actually got a 50%. So you’ve got, instead of $10,000, right, on $100,000, you’ve got $50,000 on $100,000. Now, instead of having a little bit of impact on your yield, you’ve actually doubled your return.
Monetary Metals
I also want to ask you about when someone’s looking at something like real estate and they’re saying, hey, okay, maybe I want to take some debt because of these, you know, tax efficiencies. Are there other asset classes where people can do this, or is it mainly with real estate where this is best done?
Tom Wheelwright
This is the best. It works in business best. Definitely works in real estate. Real estate’s just the easy one to conceptualize because it’s easy to borrow on real estate, right? But you can borrow in the stock market. There’s multiple ways you can do it. You can either do it through actual borrowing, through the margin loans. Or you can do it through using options, which is a form of borrowing.
Monetary Metals
Right.
Tom Wheelwright
Okay. Now, the one place you’re probably not going to use debt is oil, right? But farmers know all about debt because they’re using debt constantly. That’s how they make their money is on debt. Farmers actually have the best tax benefits and they use debt the best way and they hedge better than anybody because it’s a big gamble, right? You’ve got crop prices, you’ve got Pests, you’ve got weather, you got everything.
Monetary Metals
Wow.
Tom Wheelwright
So, you know, I find agriculture, it’s a very cool industry, not for the faint of heart, but it’s also the best tax benefits that you can possibly get are agriculture.
Monetary Metals
Talk to me about some of the mistakes you notice people make when they’re thinking of not only taking on debt, but then the tax situation afterwards.
Tom Wheelwright
First of all, you need to make sure you do have this asset that is going to put money in your pocket, right? And it’s going to pay back and it’s going to put money in your pocket and more money in your pocket because of the debt, not less money in your pocket because of the debt. So you want the debt to lift and leverage. That’s why they call it leverage. It leverages your returns, right? So a simple way to think about it is I say, well, if you’re paying cash for something, 2 2 4. If you add debt, 2 2 8. But if you add debt and taxes, 2 2 16.
Monetary Metals
Right.
Tom Wheelwright
And so the numbers actually work that way. So I can actually prove those numbers out, which is really fascinating to me because I had the thought Hey, this seems like the right relationship. And in fact, it was, right? I’m an accountant, so I have to prove it out. I mean, debt, as long as you trust the asset, you know what you’re doing, you’ve got the experience, you’re not chasing returns. Okay. Chasing returns, the worst thing you can ever do, but you’re really focused. You know, you really understand it. If you do that, then why would you be afraid of debt?
Monetary Metals
Talk to me a little bit about on the tax side. Are you a proponent of saying, hey, don’t wait till April 15th to get this all settled? Are you thinking, hey, I want to before I do the investment, kind of have the taxes in mind, setting aside, hey, I’m going to need this, I’m going to need that?
Tom Wheelwright
Well, I think a tax strategy is something that you do every day of the week, all year long.
Monetary Metals
Okay.
Tom Wheelwright
Okay.
Monetary Metals
So don’t wait until April 14th.
Tom Wheelwright
Don’t wait till December is what I’m saying. This idea of year-end tax planning, it’s phony. It doesn’t work.
Monetary Metals
Okay.
Tom Wheelwright
It’s like deathbed repentance. Okay. It doesn’t really work. All right. So what you really have to do is instead of doing it in December, which is way before April, right?
Monetary Metals
Right.
Tom Wheelwright
Do it in January before the 15 months ahead of April.
Monetary Metals
Right.
Tom Wheelwright
Right. That’s where you want to do it. You actually want to start because if you’re thinking about it every day, some way, remember every dollar you bring in is either taxable or not. And every dollar you spend is either deductible or not. So everything you do every day has a tax impact. Wouldn’t it be great if it always had a positive impact?
Monetary Metals
Talk to me about some of the kind of hidden or hidden gems in the tax code? Because a lot of people see this tax code is so long, I got to hire someone like Tom to help me figure it out. What are some of the hidden gems? Because obviously all the time the tax code is changing, they’re adding things, they’re taking things out.
Tom Wheelwright
So first of all, don’t confuse tactics with strategy. Okay? Okay. Tactics. You’re talking about tactics. You’re talking about tricks and tips. Okay? I’m like, don’t worry about tricks and tips. Read Tax-Free Wealth. You’ll get all the tricks and tips. You don’t need anything else. But the strategy, but the strategy, that’s a holistic, okay, how am I making my money?
What am I going to do with my money? And what am I going to do with my money when I die? Those are the 3 questions. That’s what comprises a strategy. Strategy is a plan of action to accomplish a specific purpose. And the purpose is not reducing your taxes. The purpose is whatever your dream is, right? But taxes are going to be the biggest dead weight on your financial success of anything you’ve got. You think about it, to tax something means to actually hold it back.
Monetary Metals
Hold it back, right.
Why year-end tax planning is phony
Tom Wheelwright
That is the definition of—that’s one definition of tax, right? You’re taxing something. And so what you don’t want to do is hold it back. You want to free it up. So you want to get rid of that friction, right? Which taxes are friction, right? So you want to get rid of that friction. And the best way to do it is to really start with Tax-Free Wealth and get your tricks and tips there. I’m not a tricks and tips guy.
I put it all in Tax-Free Wealth, but really understand that, hey, how I make my money and how I structure how I make my money is very important. That’s tax efficiency. And then what am I going to do with my money? That’s tax effectiveness. Can I actually reduce the taxes on the money I earn by the way I invest my money? And that is the 7 investments the government will pay you to make. Okay. That’s what that is. And then the last thing is, most people don’t think about this. They don’t want to think about this, but what you’re going to do with your money when you die can have a very positive impact if you know that on how much tax you have today.
Monetary Metals
Hmm.
Tom Wheelwright
Okay.
Monetary Metals
Break that down for us. Obviously, hopefully everyone in our audience stays healthy, but, you know, in the event when things do end up happening, what should they be doing? Yeah, we’re all dying, but some of us sooner rather than others. But talk to us a little bit on the morbid side. What should people think about? Because I know they don’t want to think about it and it’s, oh, that’s not going to happen to me anytime soon. But what should they be focusing on?
Tom Wheelwright
I mean, for example, let me give you a simple example. Let’s say, hey, I’d like my money to go to charity when I die. Okay, great. Well, why don’t we set it up so you get the deduction today on your income tax for money that’s going to the charity when you die?
Monetary Metals
Interesting. Okay.
Tom Wheelwright
You can do that.
Monetary Metals
Okay.
Tom Wheelwright
Okay. It’s not that hard. We do it all day long, particularly if you’re, you know, over 50, right? That’s when you really start thinking about it. But the reality is, is that if you know that, if you say, hey, my kids are going to take over my business, or I want my kids to be able to perpetuate my income. All right. Well, then that’s important because we can actually affect your income tax because of that.
Monetary Metals
Because you’re giving it to your kids.
Tom Wheelwright
Right.
Monetary Metals
Wow. Okay.
Tom Wheelwright
All right.
Monetary Metals
I want to ask you in a kind of rapid-fire round questions from all over the map, and you can answer as short as you want or as long as you want it. Let’s start with our good friend Robert Kiyosaki. What have you learned from Robert Kiyosaki over the years?
Tom Wheelwright
Financial success comes from personal development. It’s all about who you are. We all have our own glass ceiling. And we impose it on ourselves. And so the more personal development we do, the higher that ceiling gets and the more money we allow ourselves to make. Money’s not that hard to make theoretically, right? But what keeps us from doing it is because of all of our head trash. Okay. What do you know?
Monetary Metals
Do I deserve it?
Tom Wheelwright
Do I deserve it? What is—and we go, yeah, of course I deserve it. No, but we all have it. Okay. With very few exceptions. I mean, like Donald Trump would be an exception to that rule, right? He has no head trash whatsoever about making money. And actually, if you look at billionaires, that’s the biggest thing is that they just don’t have that limitation on them. And so for me, what I’ve learned most from Robert is that it really is personal development.
Monetary Metals
Okay, here’s another figure, Dave Ramsey. Obviously, he’s kind of on the, hey, let’s get out of debt. What have we learned from Dave Ramsey? Or what can we learn from Dave Ramsey?
Tom Wheelwright
Well, always look at your motivations. I was actually on a podcast with Dave, and good guy. And I understand where he’s coming from on the debt because he had a bad experience with it. Okay. But you got to think about how am I using it?
Okay. If you’re using it to speculate, which I think is what Dave did, I’m going, that’s a terrible idea. You’re taking a risky bet and making it riskier. Right. Adding to the risk. You’re adding to the risk. But if you’re talking about an asset that produces income over and over, I mean, for example, let’s say I was going to go out and buy a CPA firm.
My goal would be to spend none of my money and use debt 100%. Why is that? Well, because I know I can make it successful. I have no risk in that acquisition. I’m okay. A little thing, thing, but really very small. I’m probably going to pay off that debt in a year.
Monetary Metals
Okay.
Tom Wheelwright
But I trust that asset because I’ve been doing this for 45 years.
Monetary Metals
Right.
Tom Wheelwright
So, but know who you are, know what you’re good at, know what you’re not good at. Don’t do things you’re not good at.
Monetary Metals
All right. Talk to us about Warren Buffett. What have we learned from Warren Buffett? Where do we agree? Where do we disagree?
Tom Wheelwright
I didn’t used to be a Warren Buffett fan, but I’ve been becoming a Warren Buffett fan.
Monetary Metals
Okay.
Why Tom disagrees with Dave Ramsey
Tom Wheelwright
In part because he says diversification is for poor people. He calls it, you know, deworsification. I love the idea that he is so focused. You want to talk about strategy, investment strategy? He has such a clear investment strategy. And if you look at what he does, he does things that other people don’t do. For example, he won’t invest in something unless he can put a person on their board, right? He wants to have a controlling interest, right? Which may be a 5% interest in a public company, but he wants to have some control. And some companies he owns like Frito-Lay 100%.
Monetary Metals
Yeah.
Tom Wheelwright
Right. So I think people misquote him all the time. And I think that they need to understand that, hey, what Warren does better than anybody else is strategy.
Monetary Metals
Okay. I want to ask you now about buy, borrow, die. We’ll send you the check after the podcast comes out. What in terms of, obviously there’s the slogan, people hear buy, borrow, die, but what should they know is the second step? They hear the slogan, but what’s step number 2?
Tom Wheelwright
Well, you get education. I mean, it’s education because you don’t want to buy something unless you know that you’re going to be successful buying it.
Monetary Metals
Right.
Tom Wheelwright
Right. By the way, it’s never the investment. It’s always the investor. Right? If an investment is successful, it’s probably not because of the investment. It’s probably because of the investor. If it doesn’t do well, it’s probably not because of the investment. It’s probably because of the investor. So the first thing is to buy right. Okay. The second thing is, is to borrow properly. You do want to borrow properly. You don’t want to just borrow. Like, for example, I talked about line of credit. Yeah, I actually love lines of credit. I like to have all the lines of credit I can possibly have. I basically have a line of credit with my cash surrender value life insurance.
Monetary Metals
Right.
Tom Wheelwright
I have a line of credit on my house. Right. I like having cash available. That’s not my cash.
Monetary Metals
And talk to me about the diversification of those different places where you can borrow. For example, whole life, they are contractually owed a line of credit to you, right? Versus a bank. You got to wear the suit and look nice and say, hey, can I get a line of credit?
Tom Wheelwright
On real estate, the nice thing about real estate is they’ll give you a line of credit on your house. I mean, it’s not that hard. So get the line of credit. So how you borrow and then don’t die of something stupid. That’s kind of rule number one is don’t die of something stupid. Right. So, but if you buy, borrow, and die, what it means is, is that you’re not selling the assets or if you do, you’re selling them in a tax-free exchange because like, I mean, you know, in gold, effectively a 35% tax rate.
Monetary Metals
Tax.
Tom Wheelwright
Yeah. Right. Because between your state tax and the collectible tax, Right. It’s a 35% tax. Well, on your net investment income tax, I mean, it gets up, it gets up, it easily be 40, 50%. So you also have to know, okay, where am I going to buy it? Okay. Am I going to buy it in my IRA or 401? Gold is a great, that’s a great thing to buy in your IRA or 401 because the tax is the same, whether it’s gold or whether it’s real estate. In fact, don’t ever buy real estate in an IRA.
That’d be rule number one. Don’t buy real estate in an IRA, 401. You don’t Don’t want to get hit. do it. 95% of the time it’s a bad idea. There’s a few percent that works, but it’s really rare. You give up all the tax benefits of real estate by putting it in an IRA. You’re actually just eliminating your tax benefits by putting it in an IRA or 401.
Monetary Metals
Wow.
Tom Wheelwright
So, and you’ve also limited your debt available to you, right?
Monetary Metals
All right.
Tom Wheelwright
You can’t guarantee the loan. So here’s another thing to remember though, like with real estate, I have people say, but what about when I finally sell my real estate and cash out? I’m going, why would you cash out? People think, well, I’m going to cash out because I don’t want the real estate. I’m going, you don’t have to have the same real estate.
Monetary Metals
Yeah, that’s right.
Tom Wheelwright
Well, why don’t you transition to like triple net lease real estate where it’s just mailbox money? Right, right.
Monetary Metals
And that’s a 1031 exchange.
Tom Wheelwright
You can do it in a 1031 exchange. Actually, now one thing you need to think about is a 1031 exchange really the answer? Because I would say about 90% of the time it’s not the answer.
Monetary Metals
Really?
Tom Wheelwright
You’re better off selling the real estate, recognizing the gain and buying new pieces of real estate.
Monetary Metals
Because then those benefits go right back.
Tom Wheelwright
Because the tax benefit of buying, right, is greater than the tax cost of selling.
Monetary Metals
Wow. Okay. Interesting. All right. I want to ask you a personal question now. What’s the best gift you’ve ever received?
Tom Wheelwright
My granddaughter.
Monetary Metals
Oh, great. That’s a good one. Okay.
Tom Wheelwright
That is the best gift I’ve ever received.
Gold, real estate and retirement accounts
Monetary Metals
My next question ties in. What’s some educational advice that you can tell the younger generations? Because a lot of kids who are my age say, Well, I want to get into real estate or gold, but what are some advice you can give these people?
Tom Wheelwright
You know what? Read the great books. Read Rich Dad Poor Dad, read Cashflow Quadrant, read Tax-Free Wealth, read Who Not How, you know, read these great books. Good to Great, you know, read the great books on finance because you really want to get an education before you start. And then I would also say Robert and Kim’s game Cashflow is probably the best way to learn, but you’ve got to play it over and over and over again because you’ll play it differently Every time you play it.
Monetary Metals
Okay. Now I want to ask you a question. What’s a question I should ask all the future guests of the Gold Exchange Podcast?
Tom Wheelwright
I would ask them, what do you want?
Monetary Metals
What do you want?
Tom Wheelwright
What do you want?
Monetary Metals
All right. My job’s easy. I get to turn it around on you. Tom, what do you want?
Tom Wheelwright
I want to serve more people, teach them how to be financially free of employers, Wall Street, and the government.
Monetary Metals
Simple as it comes. Tom, if people, and I know they’re going to want to get more Tom Wheelwright, where can they find more Tom?
Tom Wheelwright
Easiest way is YouTube, frankly, social media, but also my podcast, The Wealthability Show, and our franchise, tfwadvisors.us.
Monetary Metals
And where can people get the book?
Tom Wheelwright
Amazon, bookstores, Barnes Noble.
Monetary Metals
Wherever books are found.
Tom Wheelwright
Wherever books are sold, you will find Tax-Free Wealth.
Monetary Metals
Tom, it’s a pleasure.
Tom Wheelwright
Thanks so much. My pleasure. Thank you.
