YouTube Channel: @RyanDanielMoran

We're talking taxes today. If you didn't think that taxes could be exciting, you haven't met Tom Wheelwright. Because you know what's more exciting than taxes? Not paying taxes. Because if you're an entrepreneur, there's a whole bunch of tax write offs that you're probably not taking advantage of. Good to see you, my friend. How the hell.

Good to see you, Ryan.

So could you demystify for us how Trump paid $750 in tax or whatever it is, and is that possible for regular entrepreneurs who are not the president?

If you think about how people earn money, okay, you can really break it down into four groups. And this is, this is the whole essence of this New York Times article that they never addressed in the New York Times article. I mean, they did all this research, and I believe they probably did their appropriate research, right? And here's what happens. Most people, right? They earn their money as an employee, okay? And then there are people who get extra education. They're Doctors, lawyers, accountants, etc. And they earn their money as self employed people. All right? Then we have big business owners, right? And we have professional investors.

Okay, well, so Joe Biden releases his tax return and. And Kamala Harris released their tax return and they're paying a boatload of taxes. Well, Joe Biden's paying a boatload of taxes. Why? Because he's here, he's an employee. And a typical employee pays 40%. He said he only paid 30%. So he's doing some kind of tax planning to get down to 30% over here as a self employed. That would be Kamala Harris and her husband, attorneys. And they're going to pay about 60% in tax. And then the big business owner, this.

Is.

Warren Buffett and Jeff Bezos, et cetera, they're going to pay 20%.

And then you have this group down here, these professional investors that are in real estate and agriculture and clean energy and natural resources, and they can actually pay 0%.

So basically what we have is we have Biden right here, Harris down here.

And then over here.

We have Trump. He makes all his money in business and then he puts it into investing. So let me give you a simple example of this. Okay? The New York Times talked about he took his money from The Apprentice, right? $400,000. 400 million. Sorry, $400 million. Right. And that would be taxable income. In fact, a lot of it was taxed. And that's why I had a big tax bill in a couple of years there. All right? But then what he did was he took that money and he put it into his real estate. When he put it into the real estate, it actually moved it from taxable.

To non taxable.

Okay, he moved it from taxable to non taxable.

So, Tom, when you talk about non taxable, are you talking about income sources that are more, that are taxed at a lower rate because of depreciation or because of the tax code? Could you elaborate on that just a little bit?

Absolutely. So the tax law fundamentally is a series of incentives. Okay? It's 6,000 pages, approximately. It's one page of basically saying everything's taxable unless we say it isn't. Nothing's deductible unless we say it is. And then it's, it's another, you know, 5,999 pages of instructions on how to reduce your taxes. I mean, that's effectively what the tax law is. That's why I wrote my book Tax Free Wealth. Because what, what happens is, is that people think that, well, it's not fair if everybody doesn't pay the same tax rate. But that's not, but nobody really believes that because they say, well, it's not fair that, that Donald Trump got a deduction for depreciation. Wait a minute. Did you take a deduction for your, for your, for your home interest expense.

Home mortgage, or for having kids or.

Or did you get it, take a deduction? Did you take tax credits because you have kids? What about those people without kids? What about those people who rent? Okay, so the reality is, is that from that standpoint, and it doesn't treat everybody equally, but on the other hand, it is absolutely fair because everybody has the choice of where they live in this quadrant and how they make their money. And everybody who lives in these quadrants pays the same amount of tax. So it's an absolute, it's actually a very fair system. The question for the politicians is what, where you want your incentives? Well, so far the incentives have been heavily into economics, right? And energy. I mean, that's really where they've been economics. Real estate, housing and energy. That's where the big incentives are. That's why these guys, I mean, think about it. Do you think Jeff Bezos has paid taxes? He hasn't been paying taxes. What about Elon Musk? I mean, Elon Musk doesn't pay taxes, okay? I mean, they haven't made a profit yet. So that's what's going on, is that people just don't understand that this is how the tax law works, naturally. And it's not going to change. It's just going to change where the incentives are. But having incentives is never going to change.

The important thing here is Tom is just looking at what is, like what is in the tax code. We are not looking to hide money. We're not even taking it offshore, per se. We're looking at what in the US Tax code says we will incentivize these behaviors. And politicians have said we want to incentivize certain behaviors because it's good for the economy and therefore it incentivize certain activities by reducing tax bills. And that's what, that's what happens on the other side of this quadrant with the 20, with the, with the big business and the investor, they're taxed at a lower rate.

All income eventually gets taxed. It's just who's paying the tax. What we're discussing is what is the law, not what the law should be. Now, what the law is is that we know that we do have to pay taxes. The Supreme Court of the United States said that the 16th Amendment was rather properly ratified. And when the Supreme Court says something, it's over. Okay. Until they change their mind. Right. So we do have to pay taxes. Okay. Under this tax law. This is the tax law we have to pay taxes under.

So, Tom, let me ask you this. So most of the world makes their income in the E and S quadrant.

Oh, for sure. 90%.

Right. And I think most of us would like to be in the B and I quadrant quadrant. And we're talking to entrepreneurs and investors. But I was hoping that you could clarify the difference between B and I. So this B quadrant, the business quadrant, is taxed at 20%. And that's your, that's your business, obviously. But this investor quadrant, that's at 0%, we kind of, sometimes that line gets blurred a little bit. And I was hoping you could help us draw some distinctions there, because I know that the greatest incentives happen when you, you move over into that I part of the quadrant.

Before I. Right. Before I go there, just understand that anybody in the S quadrant can be taxed like the B quadrant if you choose to. So you can actually, you can actually elect to be taxed like these guys if you decide to behave like they do. Okay. You can elect to be taxed like these guys do if you elect to behave like they do. Any, any money we use or save, we're going to pay tax. Any money we invest and produce with that goes into production, we don't pay tax. So if you use it or save it, you're paying tax. If you use, if you put it back into production, invest it, it's not, it's not subject to tax.

That's a, that's a huge distinction, Tom. That's my braingasm so far today that, that if you, if, if you basically take it for yourself and don't spend it, you put it in the bank and let it sit there, it gets taxed. But if you're putting it into production, then it's rolled over, it continues to grow and not be taxed. Now, in this s part of the quadrant, we're talking consultants, we're talking coaches. In a lot of cases, we're talking.

And frankly, anybody with a small business with only a few employees. So you could be an Amazon reseller or with two employees or null employees, and you'd still be here.

Okay, so how does, how does somebody like that make that move over to the B. Is that a structure thing like electing to be a C corp rather than an S corp, or is it something else?

It is. One of the, one of the things that I like to say is that if you want to change your tax, you have to change your facts. Okay, so what facts do you have to change? And that's where people like me come in. Okay. Where we kind of walk you through. Because everybody's going to be slightly different, right? Everybody needs different amounts of money to live on. Everybody wants to spend different ways, everybody wants to invest different ways. The general rule is if you leave your money in your business, okay, so you elect. It's a structure and election thing. If you elect to be taxed in the B quadrant, then you're electing to leave your money in the business and let it grow within the business. Okay? Now we have this wonderful thing that I mentioned on stage with your folks before called section 1202, which allows you, if you do leave it in the business, and then down the road, five plus years, you sell the business, you pay zero tax. Running the business is here and here. Okay? Investing in the business is here. When he was on the Apprentice, he was here. He was superstar and he was on the Apprentice, he was making money here. But if you take your money here and then put it over here, then you get the tax benefits. And they're amazing. They're absolutely amazing tax benefits that you get. And I'm sure we'll get to that in this church hour.

If you make your money in one of these other sections, but then you invest it into the incentivized places, you could eliminate what would be a 40 or 60% tax because now it's being rolled into the incentivized investment, if that's correct. Could you give me a few examples of what some of those investments are?

Yeah, I'll make it really simple. There's your income statement.

Income and expense, and this is assets.

And liabilities. This is your balance sheet, okay? So what most people do, what we were talking about is in the ems, what most people do is they take the money and then they spend it and then it's taxed, okay? That's what most people do. What, what we are talking about is, look, if you put it back in your business, okay, Comes in, but then it stays, goes in your business. There's no tax, right? There's no tax at all. Now here's what's pretty cool about our country right now, and that is if you take the money and you put it into an asset.

Then it's not taxed. And an asset, of course, produces income over a long period of time. So what are some of those assets? And that's, here's your example. Obvious one is your business. That's the place I tell every client of mine, your business is going to produce the highest rate of return for you at the lowest risk. So put your money back into your business, okay? That's rule number one. Because that's always gonna give you the best result and tax wise as well, okay? You put it back in the business, it's not taxed. Now think about this. You also have, besides business, you have real estate. You have paper.

Assets like stocks, bonds, mutual funds. And then you have commodities like energy and oil and gas, okay? Gold and silver are not commodities. They're not used up. Okay? So to the extent they're used up, yes, but not to the extent they're not used up. All right? So any place you put this. Now, with the exception here, so paper.

Paper, you can.

You'Re very limited, okay, because remember that's a derivative. So you're really just, you're, you're, you're really just investing in somebody else's investment with paper.

Okay, when you say, when you say paper, could you define that?

Stocks, bonds, mutual funds. Okay, got it. Right. Paper, anything that's basically the assets on a piece of paper, okay. As opposed to an actual business. Say paper is actually a derivative of business or real estate, right? It's a derivative business, real estate or commodity. That's what a paper asset is. So it's just one level or two levels down and you don't get the same tax benefits but you put your money into a business, you're going to get to write it off. Real estate, get to write it off. Commodities, you get to write it off actually 100%. These are all three of these. They're almost equal real estate. Right now, of course, we think about who our president is. Real estate is the top choice right now because you actually can get more benefit than the money you put in. So that's the only place you can do that.

So let's, let's summarize up to this point on this, this question of how did Trump pay only $750 in taxes?

No, no, the question is why did he pay that much?

Why did he pay a whole $750? So, so what, what I'm realizing is his income, whether it's from the apprentice or from, or from wherever, he then puts into real estate, right? Just buildings and apartments and condos and Trump Towers and stuff like this, that's incentivized and is not taxed because of depreciation and all the other incentives. And it cancels out all of his income right now.

So right now, Ryan, you know, you've heard he's under audit. Well, he's under audit for a refund claim. Well, so he paid taxes on the apprentice income. Okay. And so when he, when he put the money a couple of years later into real estate, he got losses that he was able to carry back and offset the income. And that's that $70 million that's sitting out there actually, that he actually got the money. And now the, you know, they're auditing him over that $70 million refund. Here's what he's got.

He's got debt.

Right? He's king of debt. So debt, when you think about it, when you, what does debt do for you? It leverages, right? Well, in this case, it's not just leveraging your.

Return on investment, it's actually leveraging your tax benefits. So because of the way the tax law works, you could put $0 down. I mean, for example, if you bought a SUV in the last couple of years, you might have put, like I did, you put $0 down, used 100% for business, you get a deduction for the $80,000 you paid for the SUV, even though you didn't put any money into it. Your business is paying off that debt, right? But you got a deduction because that's how much it cost. And even though the bank put the money in, you get the deduction. So remember, it doesn't have to be your Money that goes in it can be the bank's money. And Donald Trump is, you know, the self proclaimed king of debt. And, you know, I'm shocked that he paid any taxes, frankly.

So let's, let's make this a little bit more applicable to the solopreneur or the small, small business owner. And we're not making recommendations here, but could you tell us what the menu of options is that entrepreneurs could look at and say, okay, we, which one of these strategies might make sense for me where I'm at in my career, in my journey?

Let's think about how educated you are about something, okay? As your education goes up, what are some things that happen? Well, first thing that happens is the more educated you get, the less risk you have. So your education goes up, but your risk comes down at the same time that your risk is going down. As you get more educated, your returns are going up, okay? Because you're more educated, you're better at your business, you're better at what you're doing, okay? And this is why, you know, as Ryan says, we don't want to make suggestions just because everybody's going to be different, right? But in this case, everybody's the same because as you get more educated, your risk always comes down. As you get more educated, your returns always go up, okay? That's by definition. What, what else happens? Well, what else comes down are your taxes and what else goes up? Your control. So this is the formula. These, this is the basic principle of how you make money and don't pay tax right here, okay? You get educated, which is why I love what you're, you do, Ryan, because you're all about the education, right? But the more it. So if you're really educated in real estate, if you love real estate, get educated in real estate and you can do real estate, and real estate will give you those returns. What matters is, do you, is it something you enjoy? Are you going to spend the time at it? Okay? You can't just turn your money over to somebody because that's, as soon as you give up your control, okay, you give up all a lot of these other benefits, okay? So don't give up your control. It's, it's. But you get that control from the education, right? That's where the control comes from.

So let's, let's put this into kind of an order. Let me break this down for like, where you might be at in business when you're first starting out. Things like courses, the 1% membership, events, mentors, travel, your own education, they're all write offs. Those are all things that take like that. Just you can write off and eliminate some taxes at the very beginning. Even if you're not selling anything yet, but you just have paper that says you're a business, you can now write off all those pieces. And so at every stage of the business, the tax code has different incentives to reduce down your tax bill, to keep you investing in the economy and in your own business. But that changes depending on where you are within that journey.

The minute you stop reinvesting the money, you're going to start paying tax.