Save Taxes Like A Billionaires

Medium. This week's going to be a great show. We are talking about three masters in the concept of tax planning. That's Jeff Bezos, Donald Trump, and Peter Thiel. Now, you may not think these are masters and maybe other areas of their life, they may bother you in their form of communication. They're taking over the world or politics. Set that aside. But there are three lessons to be learned here. Welcome, everybody, to this week week's episode of the Main Street Business podcast with yours truly, Mark Kohler and the amazing Matt Sorenson. I got to come up with better intro. I just do the same thing every week. It's just.

You can keep saying amazing every time. It's okay. Oh, oh, okay. It's true. Just add some other good stuff in there.

Add some other. All right, fair enough. Good call. That was my co host, Matt Sorensen. For those not watching on YouTube, but catching this on your favorite podcast channel or medium. Okay, let's get to our topic. Now, do you want to introduce our concept number one from Jeff Bezos? Now, what is the concept he has lived by, Matt, that if you want to save taxes and build wealth in America. What can we learn from Jeff Bezos?

It's kind of a double strategy. Double concept.

Sorry, it's a two part concept. Two parts.

A double double.

Okay, I don't see where you're going.

I know you got one, too. Okay, if you, you know, you've, we've, you've heard us maybe talk about the. How Propublicus reported how they pay 1% tax, how Bezos has paid 1% in tax. That's because his wealth has grown. And they're calculating that 1% on his wealth. Well, we don't have a tax code based on building wealth. What Bezos has done is he's made money and he's built wealth. He's converted his income into assets, Amazon stock. All right, so as his assets grow and his wealth grows, he doesn't pay tax. None of us do that. You're building a rental real estate portfolio. You're investing in the stock market. You're buying GameStop or the S&P 500 or whatever you're doing, you're building assets over there as those assets appreciate.

You don't pay tax until you sell. Or then again, there can be strategies to implement. Now, for those that don't know, and it's true, I mean, we can't just assume this, that Jeff Bezos is the CEO, founder, blah, blah, blah, of Amazon, which is now the largest corporation or most profitable corporation in the world? I don't know. As total wealth, what is it?

Is it, I mean, hundreds of billion? I don't know.

Yeah, yeah. So the first point is, I guess that, and I think this is important that Matt's talking about is there's a wealth building concept and there's also a tax saving concept, and it all revolves around the concept of, in my opinion, entrepreneurship. Now, some of those listening to this podcast are watching on YouTube are like, Duh, I wouldn't be watching you guys if I didn't believe in entrepreneurship. But I know there's a good chunk of people that may have bounced onto this podcast that are like, okay, what are you saying? Quit my day job? Nope, not saying quit your day job, but broaden your thinking or the scope of what you define as business to throw a lot larger, cast a wider net. Owning a rental property is owning business. Bezos started a company, sure, it's consumed his life. It'll be as the story of his life. But can you have a small business on the side that has no glass ceiling where you can build wealth, possibly tax deferred or tax free? Can you save taxes writing off things that you can't write off with your day job? The list goes on and on, and those are strategies. But it's under the concept of having some entrepreneurship in your life.

Yeah. And if you think of the trifecta, too, I just want to make another point on this. We talk about our trifecta.

Explain the trifecta for the new.

Okay, the trifecta has three parts to it. It has you and your trust at the bottom here, which just coordinates your estate plan. This is for estate planning purposes. But up top, you got two sides. You got day job and operational businesses. Could be a side hustle, too. On the left and on the right, you've got your assets. Now you see what Bezos has done and what many wealthy people do. This is a rich dad, poor dad concept, okay? It works for everybody. Again, another set of zeros. They're. They're moving. When they make money, they move it over into assets. They buy appreciating assets. They're not buying a car, the fanciest car. They're not wasting it on luxury vacations. They're buying an asset that appreciates rental property probably being the easiest and one of the most obtainable. And so what Bezos was doing, though, I mean, he has a ton of Amazon stock that moved over into an asset for him.

Right.

That has been one of the best performing stock of all time. Just happened to be. That's how you turn into one of the wealthiest people in the world. And so he's got this asset appreciating. And I've had, I had a client, a very high income client, talk about that, Matt. How do I know where to put my assets in the trifecta? And it's like, remember, assets are on the right. If you're making money over here in your business, your day job, all that savings is getting pushed over into the asset side to build an asset for long term wealth that you don't pay tax on until you sell, but you're building wealth.

Yeah. Another point in this is that that right side, now Corey's created a little image for those that are watching on YouTube. There's a little image that'll that you can see here. We're on the right side. There's two parts to that. Not only has Matt talked about building wealth on that right side, but if it does generate income, which it will, it'll be passive income, which is taxed less than the operational side. That's why everybody gets upset each time it's talked about that Warren Buffett pays a lower tax rate than his secretary. That's because passive income is at a lower rate. Now. Did he pay more taxes than his secretary? Absolutely. But his secretary had a W2 and that's taxed at a higher rate. So when we start focusing on rates and not the amount of the tax, that's really where the play is in the Game of Thrones. The winner, you know, this is it. And so over on the right side, when your assets are over there, they're building wealth and also passive income.

And

that's, I don't know. So many people are like, how do I save taxes? Don't show me your small business. Well, I don't want a small business. Well, do you have a rental? Well, I have a rental property.

Well, that's a small business. That's it.

Yeah, we're halfway there.

Yeah. And you know, and I, you know, as an attorney, I've worked with so many clients that it's maybe a couple. And they make 150 grand a year. All right, one of them makes 75, the other makes 75. They're not high income people, but they've saved and they put their money into assets like rental properties. They've maxed out their retirement accounts. We'll talk about here. And those are all assets appreciating and growing in value that they're not paying taxes on. They have a couple million over There now because they've been good at just earning income, saving, and converting that money that they're making into appreciating assets.

Now, here's an interesting point that'll come, that'll evolve throughout this podcast. We're focusing on Jeff Bezos as the best example of entrepreneurship in the media right now. And his tax rate has been fabricated by Politica and it's, it's in the news. But what's interesting is he's also using the other two concepts we're coming to. All three. People generally are going to be using these three strategies in concert.

All strategies.

I know. You caught me. Now we're even. All three concepts at concert. So Jeff Bezos is. Got it. So in summary, let's get all three on the table. So, number one, Jeff Bezos. Yeah. Anything we can encourage you to do. If you come to our tax law firm for analysis, you can schedule an hour, talk to one of our tax lawyers and say, build my trifecta. Let's go through my tax return. Tell me what I'm missing. You don't have to fire your accountant or fire your lawyer. Just come get a second opinion. And then you may say, oh, my gosh, why aren't my professionals talking about this? Whatever. But we're, we're just getting the info out there. But one of those key concept is our team's going to say, do you have a small business? Are you writing off travel? Are you writing off the home office, the computer, the cell phone, all these little things? I just was at the Apple Store today buying a present, and it's for a family member that is on the board of directors in my small business. I don't, I don't want to say too much because sometimes my family listens to the show. Most of the time they don't. But they might get this present and, but this present is also got a business purpose because they help in the business. I wrote that whole thing off. Everything I buy at the Apple Store is a write off because we're going to use it in the business as well as for personal use occasionally. Note that irs that I said that. So anyway, that's Jeff Bezos. Okay. Number two.

Yeah.

Okay. Tell us about Donald Trump.

Number two, Donald Trump. It seems like his tax disclosure, you know, just seems so long ago. It was like 12 months ago. So if you remember the story on Donald Trump's taxes coming out, the big story was how he has so much debt and he pays so little tax.

This guy's an idiot.

Yeah, he's an idiot. Okay, what do we know about Trump? He's a real estate guy, right down to his. At the end of the day. Sure. He had a TV show, sure. He sells suits and stakes that aren't that great.

Miss America, Miss World this, and beauty

pageants, whatever things you might know him for. But at the end of the day, where's his wealth? It's in real estate. Okay. It's an appreciating asset. He owns a lot of famous real estate out there that people know. But is he selling that real estate? No. No. Okay.

He's that real estate.

Yeah. Hell no. He's not paying cash for that real estate. Okay? He's using debt. Trump is. If he's a master at anything, I mean, he may be masters at many things. I don't want to get in the politics there, but he's definitely a master of debt.

All right.

And how to leverage his real estate portfolio to buy and build more properties and to suck out equity in the properties when he needs money rather than selling the property. If he needs money, I'll just take a loan out. If real estate's appreciating in the last few years, it's been an excellent appreciation. But if debt's only at 3.5percent, real estate's appreciating at a much higher rate, not to mention the cash flow he's probably making on it. So he's using these assets and the debt on it as a way to strip out the equity. Because when you take debt against an asset that's not income, you don't sell the asset. You've not realized a gain, but you're getting the benefit of that value and appreciation that you can use today in your life.

And this is where we have to address the word debt. Now, Dave Ramsey has saved the lives of, I would argue, millions of Americans. He's affected my life and Matt's life in a positive way. We as a firm took our team through the Financial Peace University course, gosh, five or six years ago, and we loved it. I had all my kids do it and his now. But. But what we're saying is not. Does not fundamentally go against Dave Ramsey's teachings. Dave Ramsey is against debt. That's useless debt for personal use or travel or emergencies or personal property. Going into debt excessively, that's his first real message. Don't get into debt. Pay off your debt and then save. I mean, that's really Dave Ramsey's core principle. Then he took it to a new level and said, all debt's bad. And all credit cards are bad. Cut up your credit cards, never worry about a FICO score again. Now, I thought that was a little extreme and I've argued against that point, but only in this way. Debt that makes you money and debt that is entered into very cautiously and strategically calculated and it produces cash flow is not always a bad thing. Now, we could debate all day long about debt on your primary residence or student, debt or debt for that first vehicle, a reasonably cost vehicle that's used to get to work and all that. There's. We could debate those issues and we have before on this podcast. But once you get over that hurdle, how am I going to build real wealth? You're not going to do it without entering into some debt, and that's okay. Good debt to start a business, to buy rentals. We'd like you to be open to that concept in a very cautious and careful manner. Not doing it willy nilly, learning the principles before you do it. That is what Trump and thousands, if not millions of other real estate investors have done around the country for years. But Matt, how does he not pay taxes either? It's almost kind of a one, two punch. Almost like Bezos.

Yeah. I mean, you just don't sell the asset. Why sell it? Or maybe if you sell it, you can do a 1031 exchange. There's all these, you know, buy a bigger property. There's a lot of strategies in there and that's on the chopping block and in the apparently in Biden's tax proposal. But, but this is a tried and true method. And even. Bezos.

Yeah. Before we go on too far, and I was setting you up and you didn't go there. I know you've got a point that I know where you're going and we need to talk about it. But what I was hoping you were going to say is the real estate professional, he's exploited that strategy that's been around for years. What? Because some of you may say, well, he made money with the Apprentice, he's made money with all these beauty pageants in his jewelry chain, his store chain and blah, blah, blah, blah, blah. Well, yes, but the depreciation from that real estate offsets income from other sources. If your primary occupation is as a real estate developer, a real estate investor, a contractor, and he is. So not only is he building that wealth, he's using the depreciation and the losses from that real estate that he leveraged with debt to offset his other income. So he ends up paying zero tax. Everybody in America's pissed Off all my real estate clients are like, let's not make a big deal about this because I'm doing it too. You know, that's sorry my being. It's good for the economy. It doesn't hurt the America. Should I start whispering into the economy

Benefits everybody hurts no one.

I've given Matt the heebie jeebies the economy.

This is the Biden reel. If you don't. You didn't see the Biden clip on this. But yeah, I think, you know, the other thing I was going to say is. And we are big real estate fans, of course, and you know, many of you listening know and it's. It's kind of been a. For every ordinary American trying to get to the next level and build, you know, go from zero to a million. Real estate's the number one way people really do that. You know, get a good job, get a good income, start a good little small business. That. That's how you really become the millionaire. Now what does Bezos do? He was also taking debt out against stock, his stock portfolio and leveraging that. He's not going to sell his Amazon stock. That thing's been a awesome performer. Why would he do that? He'd be crazy. A bank will loan him money on his stock, just like the bank alone on your other assets, like your real estate, you know, your rentals, your second home, your residence, your primary residence, even. And again, there's a caveat of the dangers of debt. Don't over leverage. But if you're doing it to grow your assets, to create more income, to build wealth, you know, that's an awesome concept to consider.

Yeah. And I would. Let's add just one last. Or I'll throw out one more caveat. Or Matt. And then Matt, you can. Or you can introduce our third player in this series, Peter Thiel. But I was having a conversation with someone the other day that they're in their 60s, late 60s, and they were going to go into more debt to acquire more real estate. And they already had a pretty darn good portfolio and they had passive income and they had. They were doing okay. And I, and I drilled down on them and said, why are you buying this? Well, I want to leave it for the kids. And I think it'd be a nice legacy to have this property. And I said, you know, there's a point we're going into debt. As you get older, we do taper off because we want to really die. Closing the coffin and flipping out our last quarter. I don't want to go be Leveraging and going into debt at age 75. You know, there's a. So the older you get, the more your debt load will go down and your passive income will go up. So there's kind of this crescendo through life. We're going to acquire, acquire, use debt strategically. Build cash flow. Build cash flow. And then maybe it's in your 50s or 60s, maybe it is in your 60s or 70s whenever it works for you. But there's a point when you start to want to really focus on paying down that debt so you have less concern as you get older, which is a typical apprehension and fear of older folks. And I know my parents went through that. And so we're not saying die with a ton of debt either and everybody's different. But be open to it. That's.

Yeah, okay. Yeah, love it. Okay. All right, player number three, concept Player number three, Peter Till. All right, this one we're going to call opportunity shifting. This is a little term Marks used that I think is perfect for Peter Till. There's a number of investments he made in his self directed Roth Ira. My book in 2018 talks about it. Okay, I talk about this in my book. And now ProPublica has got some stuff out there and everyone else is talking about it, but when he. Let's, let's talk, tell the story. And if you've seen the Social Network, the movie Social Network with like Jesse Eisenberg that plays Mark Zuckerberg and there's a scene in there where they're this, you know, the startup, they're, they've been bootstrapping it. Eduardo Savron's family had been funding most of it. Like, okay, we need a real investor now to do this, take this business to the next level. They run into Peter Till, who would have been a well known tech person, one of the co founders along with Elon Musk and a lot of other famous people of PayPal and they said, we want you to invest in Facebook. We want, we needed like a half a million bucks. I forgot how much it was. But it's like we need to really make this a legit real company and we need real money to do this. We can't just get our college friends and have them program for pizza and stuff on the weekends. Like we need to be a real company. All right, know, okay. So they get Peter Till and they say, and he's like, apparently he loved the idea because he puts in money. But he didn't just put in any money,

he shifted the opportunity. In fact, Peter Thiel didn't do it. Now his IRA did it.

He shifted. Even better.

Oh, I know. I was going to say not even this IRA and then that. Matt, you were supposed to say his Roth ira. You know, I'm trying to create some suspense. You're not. We should really script the show, you know?

Yeah, we should. We should like rehearsal. Do rehearsal. And like, you know, we need makeup, obviously.

I need one of those trainers to like go in this episode. You're going to be shirtless. So let's make sure we, you know, really work towards that date and get ready.

Yeah.

And yeah, now they're just like, hey, we got donuts today and it's the shirtless day. I'm like, really? Anyway, okay, so the timing of this was, was to the big reveal. And I love Matt, how you told that story because the Social Network is a must see. I love the story of founder with McDonald's. Joy, the infomercial queen.

Yeah, KDC.

That was great. That was so good. There's so many good entrepreneur type movies now. But the one that you should all see, this is your homework is Social Network. And when Peter Thiel does the deal, realize that in the show they didn't highlight the fact it wasn't him, it was his Roth ira. And can you do that? Yes. And so can you. It's good for the economy,

hurts, nobody benefits, everyone.

So.

And that's true. I'm, I'm really like. And this is one thing I, you know, I put out in social media about. This is, you know, a lot of the media is saying this is, you know, this self directed Roth IRA thing is for the, for the rich. No, it's not. Our average account size here is under 100 grand.

Robert Baron. That's the word I was thinking of earlier. Oh, you know, Robert Baron. You know, like these. I'm sorry, I didn't mean. Okay.

40 minutes ago on the podcast, something popped into your head. It just came to me. I had to yell it out.

You're like, I'm Mark. I'm going up for a layup here. I don't need you running onto the court with no clothes on. Know this is not helping. Okay, okay, you know, you know what, my fine sir? Let's back off. Start that crescendo again. I apologize. This is unedited, so just take us there again.

Okay. Yeah, the. I don't even remember what I was talking about. But, but here's the thing I want to say. Okay? I was on the. I was on the. This isn't. This is for everyone, the average account at directed IRA is Roth IRA is under a million. And we have lots of clients that are $50,000 accounts because that's the average private investment. If you're investing in a startup or a VC deal or one of these things like it might not happen to be Facebook like Peter Tills, and you might not be the first one in at the angel round. You're coming in later at some later round where they're raising money, but it's something everyone can do. You can invest in a startup with your Roth IRA and invest in what you know. That's the other principle. Peter Till, new New Tech, right? He had a, he had a good vision for where the Internet was going and how social media was going to work. And he put his Roth IRA money where his mouth was. And now he's reaping the benefits because after Amazon, Facebook's probably the second most successful company in our lifetime. You know, is that insane returns and growth, obviously, that is built up in Peter Till's Roth ira. Tyler's Roth IRA became a billion dollar Roth IRA instead of a million dollar Roth ira.

You just keep going on. Okay, are you done with your point?

Okay, yeah.

Robert Barron. Robert Barron. Robert Barron. Okay, so now Matt's saying he's reaping the benefit, but in the media he is not. And so at the beginning of the show, I was trying to remember that term that. What's sad is these three examples now that we've covered. Jeff Bezos, Donald Trump and Peter Thiel, on one hand, they're really villainized as these robber barons that are exploiting the code. And the worst example of capitalism, and it's terrible what they've done and all this stuff. But people, on the other hand, they're doing the same thing you can do. And that's the American dream. Now, if you don't take advantage of it, and millions of Americans don't, but they still go to bed at night feeling the comfort of that warm flag, if you want to call it that, hey, I could do it if I wanted to. And that's a special feeling. And so I think even if you don't like any of those three individuals, probably Donald Trump getting the most animosity directed at him, at least realize he's a good example of a real estate investor developer that has mastered that now. He could still go bankrupt someday. I get it. I don't have a complete picture of his financial portfolio and this and that, but we know the wealth that he's built, the far, far majority of it. He hasn't paid taxes on it yet, just like Jeff Bezos hasn't. He's holding it in stock and that's okay. Anyway, so Robert Baron.

Robert Baron, thank you. I'm gonna think of some random word to throw out next time you're in a little. You're in a little.

Boy. Well, those are good concepts. Opportunity shifting. There's a lot you can do. I have so many clients that go call up and go, hey, Mark, I got this new deal. Let's help me. In fact, oh my gosh, I'm supposed to be on a phone call five minutes ago and they're gonna tell me about this new deal and I'll say, don't do it. Let your IRA do it. Let your Roth IRA do it. Let your Roth 401k do it. Shift the opportunity. Yeah, that's really what we're trying to get at.

So, yeah, we do that all day long helping clients@directed ira. Direct ira.com we got the directed ira, our sister podcast. Or maybe it's the brother podc, I don't know. But sibling podcast, directed ira podcast you can find too.

Yeah. And please, if you find this helpful, give us a like or a share. We hope that you're continuing to listen and study on these topics. We've now are over 500 podcasts deep, millions of downloads and really array of YouTube videos. If you can't find a video, an answer that you feel you can rely on on YouTube or in your podcast history of some other podcast, just type Kohler or Sorensen at the end of your search terms and you're going to see probably a comment or two from us that might be really helpful, whether it's a blog article or a video or a podcast. And get a second or third or fourth opinion if you have to. But be careful forum shopping for the answer that you really, really like. But it's not someone that's going to actually sign your tax return. There's not really license to talk about this. It's, it's, it's, that's the dangers of

the web, you know. And when you're like, you know, an hour deep in Reddit forum, you know, you might want to, might want to be careful on who you're relying on. But thanks of course, for being here. Make sure you're signed up for the newsletter as well, which you can do at Main Street Business. Stay in touch with us on what's going on articles going out. I just wrote an article on PPP forgiveness window. Be up on Entrepreneur soon. Just a heads up on that. For those of you that got first draw loans in 2020, you were part of the first round. You know your payments are going to start being due if you haven't gotten forgiveness yet. Like you're going to start paying payments next month. So make sure you got your ducks in a row on that and you've got forgiveness requested.

I would just propose, Matt and I think our listeners are asking this. We need to do a webinar dedicated to the PPP loan forgiveness deadlines approaching. What did you say the numbers were? How many millions of Americans still haven't gotten forgiveness?

Yeah, this was the SBA last reported at the end of May their numbers and they're still 1.7 million borrowers of PPP loans that have not requested forgiveness. Now that's only 30%. So 70 have actually requested and received forgiveness, which is pretty awesome. Yeah, but there's still 30%. And this is of the first round, 2020. All the people that have the new second round loans and stuff in 2021, they're a different animal. But this is just the first round people. And they kind of got. You got your loan in like, you know, April, May, June of 2020.

Yeah, well, we'll need to get on that and so stay tuned. Please sign up for our newsletter@mainstreetbusiness.com and then you'll be informed on when we're doing webinars, new blog articles and. Did you already say that?

I did say that, but sorry. But you know what? That's, you know, repetition. That's how you learn. Yeah, you know, it's okay.

Well, we appreciate all of you. Thanks for sharing your time, your valuable time and with us. And we will continue to try to bring you cutting edge information that'll be well worth the time and money spent being here with us each week. So see you next week, everyone.