EP - 039

Pay $0 in Taxes...Legally?

With Guest Tom Wheelwright

A strategic approach to taxes can transform them from a dreaded expense to a tool for sustaining and expanding one's business empire.

The How To Sell More Podcast


December 6, 2023

Join us for this episode of ‘How To Sell More’ and discover how smart tax strategies can do more for your business than just saving you money. Tom Wheelwright, a wizard with numbers, teaches us that taxes aren't just about what you owe. They can be a map to riches if you know how to read them.

  • Learn why spending on the right tax advisor is like putting money into your business's future.
  • Find out how to build wealth and reduce taxes at the same time by choosing smart investments.
  • Understand how to make taxes a secret weapon in your business's arsenal.

Meet Tom Wheelwright, a tax genius and advisor to the stars of business and finance. As the CEO of WealthAbility and a bestselling author, Tom turns the maze of tax laws into clear paths toward wealth. He's not just about numbers; he's about changing lives with better tax strategies.

Links to This Episode

Key Takeaways

  • The Importance of Strategic Tax Planning - Tax laws are designed with numerous incentives that can benefit business owners if leveraged correctly. Understanding these incentives, which often promote certain investments and business activities, can lead to both tax reduction and wealth accumulation
  • The Relationship Between Wealth Building and Tax Efficiency - Building wealth and minimizing taxes are not mutually exclusive goals; in fact, tax strategy can be an integral part of wealth creation. By identifying and investing in assets favoured by tax laws, such as real estate or renewable energy, entrepreneurs can grow their wealth while enjoying tax efficiencies.
  • Leveraging Tax Knowledge for Business Advantage - Utilizing tax knowledge in marketing and sales can be a unique selling proposition, especially if a product or service offers tax benefits to customers. Highlighting these aspects can resonate with the common desire to minimize tax burdens and may drive sales and customer loyalty.

Top 3 Reasons to Listen

Integration of Taxes into Business Strategy: Listeners will gain valuable insights on how integrating tax strategy into business and marketing efforts can lead to greater success..

Strategies for Legal Tax Reduction: Tom Wheelwright discusses legal ways to reduce tax liabilities, providing valuable strategies for listeners..

Understanding Government Incentive: This episode offers insights into how governments use tax laws to influence behaviour and economic activity.

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More About Today's Guest,Tom Wheelwright

Best Selling Author, Entrepreneur & Worldwide Authority on Tax

Tom Wheelwright, CPA, is the visionary and best-selling author behind multiple companies specializing in wealth and tax strategy. Tom is also a leading expert and published author on partnerships and corporation tax strategies, as well as a well-known platform speaker and wealth education innovator.

As a published professional, Tom is a regular commentator in the field of taxes and contributes regularly to major professional journals and online resources. His work has been featured in numerous media outlets, including Forbes, The Huffington Post, Accounting Today, CFO Magazine, ABC News Radio, and AZTV Morning News. Additionally, he has written columns for Entrepreneur Magazine and Inman News.

A Transcription of The Talk

Mark Drager: So Tom, this is, of course, the How to Sell More podcast. But I'm going to ask you and our audience to just imagine that, just for this episode, this is the How to Keep More podcast. Because you are an expert at all things tax. I mean, I've never heard of anyone who has a master's degree in tax, or has been the author of so many books the way you have, or even was a professor at Arizona State University. And so, you have, I don't want to age you too much, but you have decades of experience like you've dedicated your life to, quote-unquote, 'tax.' Is that right?

Tom Wheelwright: No question. I am officially full-on a tax nerd.

Mark Drager: So okay, I want to dig into this. But yeah, I've seen a presentation where you asked from the stage, you know, like, 'Hey, how many of us pay taxes?' And then the next follow-up question, of course, is 'How many of us want to pay taxes?' Nobody wants to pay taxes, but there are only two things that are guaranteed in life, right? Death and taxes? And so, how do you, after all these years, with the tens of thousands of entrepreneurs and business owners you've spoken to and worked with, approach this subject? We're not going to talk about how to sell more but about how to keep more.

Tom Wheelwright: Well, first of all, I'm pretty sure that death and taxes are not required. And death is becoming less and less required; we're seeing more advances. So death may not be required. And paying taxes is definitely not a requirement. Paying taxes is something we do because we don't know how not to do it, and we don't know how to not do it legally. It's like dying. I mean, if we knew how not to die, we wouldn't die, right? And they're working on that. The good news is we know how to not pay tax. So there's, you know, looking at the patterns in the tax law, looking at how the tax law actually works in every country, writing books, and actually speaking. I just got back from London and speaking engagements in London and Stuttgart, Germany, and seeing how similar tax laws are from country to country. The first thing we have to do is recognize that the tax law fundamentally is a series of incentives. And that's the first thing we have to look at: it's fundamentally a series of incentives, no matter what country you live in.

Mark Drager: So you're saying that the government, regardless of the region, only has so many levers they can pull to control the economy or control private practice or control people, and they use tax laws or incentives as a way to kind of redirect us?

Tom Wheelwright: The biggest lever they have is tax. That is their single biggest lever. If you think about what gives the US dollar, any kind of power whatsoever, it's because US citizens and residents have to pay their taxes in US dollars. So the only reason the US dollar has any value whatsoever is that we're required to pay our taxes in dollars. The reason the Canadian dollar has any value is not that these currencies are backed by gold, silver, or even Bitcoin, right? There's no backing; there's no 'there' there. The only thing that gives them value is the requirement that you pay your taxes in that currency, which I think is why the government is going after Bitcoin because then there's this idea of something else, other than their currency, right, whether it's the Canadian dollar, US dollar, British pound, whatever it is. And so, once you realize that the single biggest lever that the government has is the power to tax, plus, the government realized many years ago—I mean, Kennedy, really, John F. Kennedy was the first one to use it in a significant way—was looking at, well, wait a minute, if people hate paying taxes, then maybe a little bit of a tax incentive will go a very long way. So all we have to do is look at what the government wants us to do? If there's something they want us to do, there's probably a tax incentive behind it. Probably. I mean, that's just how it is. You can say it's out of control, but the horse is out of the barn here on tax incentives. And, you know, locking the door afterward is not going to help any. So we just need to know that the incentives, the tax laws, are primarily incentives, and then it's looking at what the incentives are. What are the incentives? And are they incentives for how we make money? Are they for how we spend money, or are they both? What are they?

Mark Drager: So I interrupted you because I think where you're going with this is that there are ways that we can legally not pay taxes?

Tom Wheelwright: Oh, for sure. I have tons of clients who legally don't pay tax. Think about it this way. So, Elon Musk, and Jeff Bezos, when they were starting their companies, the first 20 years of their companies, didn't pay any tax.

Mark Drager: They probably weren't making any money, technically, either, were they?

Tom Wheelwright: Well, they weren't in the earlier years; they were actually losing a lot of money. But you know, it's not just that. I mean, look at Elon Musk. In fact, both of them, both of them generated huge research and development tax credits. So it wasn't just that they weren't making money; they actually had big tax incentives that were extra tax incentives. Farmers, you can say, well, farmers don't make any money. Well, they do; they make enough money. You know, they actually do make money. They just don't pay any tax.

Mark Drager: I've known lots of farmers who make no money, who literally are scraping by, but damn, their trucks look good. Right? The barns look good, right? Harvesters, man. Have you seen the new harvesters? They're amazing. How are you guys not making any money?

Tom Wheelwright: Yeah, exactly. See? My point exactly. And the reality is, they pay the least amount of tax—pretty much anybody on earth—or are people in agriculture. Why is that? Well, it's simply because the number one goal of a government is to feed the population. If you don't feed the population, you have riots on your hands. You've got to start with feeding, then you've got to shelter them. So of course, there are huge tax incentives for real estate because you've got to feed them, then you've got to shelter them. Okay, then what do you have to do? Well, now you've got to give them jobs. So of course, there are huge tax incentives for business owners, why? Because they create jobs. Okay, then what? Well, we also have to move them from place to place; there's a thing called energy. And so, there are huge tax incentives for energy. Do you want to improve the world? Great, give tax incentives for technology. Now, the US is terrible at this right now. I mean, we are the worst country on earth when it comes to technology tax incentives. Every other country—literally just about every other country—I wrote a book on these incentives, and just about every other country has more technology incentives than the US. I mean, for example, South Africa—not exactly what you think of as the bastion of technology—South Africa, right? They give a 150% deduction for money spent on research and development. 150%. We don't give any deduction.

Mark Drager: Some might argue that America doesn't have to because you guys have all the brains and the brawn and the money.

Tom Wheelwright: Well, let me tell you what's happening right now. We had a weird change in the tax law in 2022, unfortunately, and what's happening right now is you're seeing a lot of research slow down in the US. Because the reality is, that every investor has to look at their return on investment. And if they're not getting the return on investment, they're not going to put the money there. So if you're looking at, 'Okay, do I do this research, or do I just sell what I've got, and I'm not getting any better tax benefit for doing the research than selling what I've got?' I'm just going to sell what I've got. So it does slow things down. Remember, the word 'tax' is to put the brakes on something, to slow it down. That's what the root word of 'tax' is, to slow something down. That's what taxes do. They slow down our wealth, they slow down our progress, they slow it.

Mark Drager: Taxes redistribute wealth to help cover civil services and the things that we need to operate as a society.

Tom Wheelwright: They do. They do. I mean, for sure, nobody's arguing that there shouldn't be any taxes. All I'm saying is, you get to choose. You get to choose whether you turn a blind eye and just say, 'I'm going to pay my tax, and I'm not going to get involved, and I'm not going to worry about it. I'm just going to pay my taxes and put my money in an ETF, right? That's how I'm going to live my life, I'm just going to forget about money, and hope that it works out.' And that's what I'm going to do. That's one choice. That is the choice of too many people.

Mark Drager: Too many people.

Tom Wheelwright: It's really probably 80 to 90% of the public. Then you've got the choice of it, because okay, so we're all partners with the government. You don't get to choose that. That is what happens when you're a resident of a country. You are partners with that country's government. You chose to be a resident there. That's your choice. But you don't get to choose whether you're a partner; what you do get to choose is what kind of partner you are. You can be a silent partner, like the 80 to 90% we've been talking about, or you can be an active partner and do things the government wants done. The government doesn't care, honestly. They'll go either way. If you put your money towards things the government wants done, like, for example, invest in your business, okay, reinvest in your harvester if you're a farmer, right? Reinvest in your employees, reinvest in technology—it doesn't matter where you reinvest. But if you're reinvesting the money, the government is saying, 'Look, you're reinvesting where we want you to reinvest, and you're not going to have to pay tax on the money you earned that went into that investment.' That's all they're saying. 'You're going to pay tax on money you save or you spend personally, but you're not going to pay tax on money that you reinvest.' And so, for example, you're always talking about selling and marketing, you know, lead generation, everything. Well, all the money you put back into lead generation and marketing, that's not taxable income. Remember, businesses get to pay tax on their net, not their gross, and so all that money you're funneling back in—so I have this weird profession called CPA.

Mark Drager: I'm not envious.

Tom Wheelwright: You know, there is a reason CPA stands for 'Cheapest People in America.' But this weird profession where literally, I'm talking to people a couple of weeks ago, I do this conference every year for CPAs. I don't know why because I'm somewhat sane, but we do. And I have this weird hope that we can actually make a change in the profession. But I kept hearing them complaining about this idea that they might have to spend 25 or $50,000 on marketing. Now, if I told you that, and you're going, 'Okay, how big is this company?' I'm going, 'Oh, let's just say they're a million dollars.' I'm going, 'Seriously, that's like 5% of their budget on marketing. I mean, how are you expecting to grow?' I've got to believe most companies that want to grow are spending 20 to 30% of their money on marketing. Look at one of the most successful private universities in Arizona—Grand Canyon University. They spend as much on marketing as they do on professors. And yet, CPAs are overwhelmed by the idea they might spend 5% of their budget on marketing. I'm going, 'Well, that would explain why you're just staying small.'

Mark Drager: And equally, which is where you're going with this, but my mind is already going to so many entrepreneurs, so many marketers, so many creative, I would say strategic but creative entrepreneurs spend next to nothing on legal and accounting. They don't have a bench full of people, they don't have the strategy. I was talking, gosh, last two weeks ago, I was at a board meeting for something that I'm a part of, and they were talking about the fact that this organization might liquidate assets, and it was coming out to something like a $200 million cash out. But there might be a way that it could be structured to save all the taxes. And I said to the people, I said, 'Well hold on, $200 million in assets and a way to work it? That sounds good to me.' I think it was like 35 or $40 million in taxes that might have to be paid if it didn't work out. I said, 'Seems like a win-win to me, right? Like, either you have $160 million in liquid that you can redeploy however you want, or you have 200 million in assets with zero taxes.' And I was like, 'It seems win-win no matter what.' But by the look on people's faces, when I said that, the thought of paying a 35 or $40 million tax bill was like heresy. It was like I was speaking the worst thing. I was like, 'But couldn't we redeploy this liquid cash? Couldn't we do something else with it? Like, it seems win-win no matter what.' That was the wrong approach. Never paying taxes was the right answer. Well, what did they know that I don't know?

Tom Wheelwright: Here's the thing, so you made a good point. You're laughing at the CPA profession because, as a profession, we won't spend money on marketing and sales and that kind of stuff. And yet, I'm looking at you guys, I see sales and marketing people all the time, they won't spend $5,000 on hiring a good CPA that could save them $500,000 in taxes. And then I'm going, 'I'm sorry, but my marketing dollars do not produce the same result that your dollars with me would produce from a cash flow standpoint.' And I'm just going, 'All it is is, look, you know, for years, I mean, I've learned marketing over the years, but for years, I thought marketing was just like magic.' Right? Which is how marketing people look at what I do. It's magic because, hey, poof, your taxes are gone. That's and that's what we do. It's poof, your taxes are gone. Now it takes work but it's proof your taxes are gone. And there's a system for doing it; it's a systematic approach. But the same thing is true with marketing. Marketing, what I've learned over the years is, it's not like it's rocket science. I mean, it's, you know, you do this then you do this thing you do this then you—

Mark Drager: Stop, you're ruining everything.

Tom Wheelwright: I know it's awful. I know, don't take the mystery out of marketing. I'm going to, probably, since they don't take the mystery out of tax, but that's kind of what I do for a living taking the mystery out of tax. So I kind of feel like I have to go down that road. But seriously, you know, you make a really good point. We'll spend all this money to market our products, to learn how to market, to hire people to market, we'll spend it on whether it's Google ads, Facebook, or wherever we're going to put our money. And yet, we're not going to spend the money on tax advice, which is our single biggest expense. Why not put a little money there and see what the return might be?

Mark Drager: I love it. Let me ask you. So making the news recently, a few weeks ago, this whole idea, I don't know if you saw it, but Warner Brothers wrote off the Coyote vs. Acme. So they produced this entire film, this animated film, they brought in all of this stuff, they had it completely done, ready to launch, and they were like, 'Now we need a $350 million tax write-off.' So they just wrote the project off. And this pissed everyone off, but it got me thinking, okay, so I have written off, I've been in business for 17 years now, and I've written off, I think, three projects. And each time it was only when my clients refused to pay or went bankrupt. Sure. But I've never thought of these types of investments that we could be making, where maybe even increasing my risk profile to say, 'You know what, maybe I will take a bigger risk on this investment. Because if it doesn't work off, I can write it off as the tax incentive.'

Tom Wheelwright: Yeah, I like that idea. I'm going to tell you, I'm going to stop you right there. Because I think it's always a mistake to have the tax tail wag the investment dog. Okay, it's a tail, it's not the dog. So this idea that they dumped it because they could write it off, that, I'm sorry, that's a dumb idea. Unless your tax rate's more than 100%, that makes no sense. So in the US, our top tax rate is under 40%. I mean, if you add California, it's 50. Okay, so let's say you're in California, you've got a 50% tax rate. Well, that means that if I dump a $150 million project, then I'm going to recoup 75 million. What about the other 75 million? That's out the window. I'm not getting that back from the government. So this idea that a write-off is somehow a good thing is, I'm sorry, it's a stupid idea. What a good idea is, is there something I could do to actually build an asset while at the same time reducing my taxes? Now, to me, that's a good idea. So, you know, I hear all these people saying, 'Well, I'm gonna go buy a new truck because it's a tax write-off, I'm going to go buy a new car, I'm going to go buy new equipment because it's a tax write-off.' I'm going,—

Mark Drager: No, it's amortized, though, isn't it?

Tom Wheelwright: And no, actually in some cases, you can write it off completely. But I'm going, 'I'm going to buy a new truck if I need a new truck. And if I have to decide between buying in December or January, I might buy in December.' Yeah. Because I'll get the tax write-off this year rather than next year. Okay. But I still have to pay, you know, the government's only paying 40% of it or 50% of it, I still have to pay the other 50 or 60% of the cost of that car. So if I don't need that car, yeah, I'm getting a discount from the government. But why would I buy it? Why would I spend money I don't need to spend rather—So there's a different way to look at it.

Mark Drager: Sorry, you're about to correct us. But isn't the mentality that most people think, 'It's like, I could give the money to the government, or I can buy myself something nice. Let's go shopping.'

Tom Wheelwright: But that's not true. Because you're still out of money. You're not giving it to the government, but you're still out money.

Mark Drager: No, I agree. My wife says, 'I got it on sale.' And I said, 'Well, it's not a savings if you just didn't buy—'

Tom Wheelwright: That is the best analogy ever. Because it's really you just bought it on sale, right? You just got a discount from the government. That's all it is, just a discount. You didn't get it for free. But if the bad... So one way I look at this is, look, if you earn money, the more money you earn, the more tax you pay. But the more wealth you build, the less tax you pay. So what we're looking for is, what assets does the government want me to have? The government is not really interested in me having a car. They're not really interested in me, frankly, investing in the stock market, except to the extent I'm in my RRSP or my 401(k). Right? That's, and there's a limit on that. Right? And they're pretty small limits. So they're not really that interested in me investing in the stock market. But what are they interested in me investing in? Well, they're interested in me investing back into my business. They're interested in me investing back into my farm. They're interested in me investing in solar or renewable energy or oil and gas, for that matter, in the US—huge, huge tax incentives for investing in oil and gas. So they want me there. I can build wealth and pay less tax. But most people, they're so focused on paying less tax, that they forget about the building wealth piece. Well, I think that's a dumb idea. I'm going, 'Why not do both?' Because the tax laws in every country are set up for you to do both. As long as you have the education, the information, and the proper tax advisors to help you actually go through the details to make sure you do it the right way. And so you don't end up being somebody's... girlfriend in prison.

Mark Drager: So in 3-4-5 minutes, can you give me a high level? What should I do next? Like, you know, I just... help me and the audience, like, what should we be doing? How should we be thinking about this?

Tom Wheelwright: Absolutely. Well, first of all, get a little background—read 'Tax-Free Wealth,' read 'The Win-Win Wealth Strategy.' These are my two books on how to do this. 

Mark Drager: We'll link these books to Audible, to Amazon, on the page. So if you're listening to us on [the platform], go down the page, and you can find the links.

Tom Wheelwright: Awesome. And then really, the key is going to be finding a tax advisor who isn't on their own. Okay, you don't want—I mean, you don't want one person doing this. You want somebody that's in a network, or in a system or franchise, somebody that has other people to talk to, they have a system that they can use, but they're not necessarily a big firm. Big firms, unfortunately, they're just like, a lot of garbage in, garbage out. So you really do—it's like...

Mark Drager: Anything for someone, we work in the audit space and with all kinds of different accounting firms. But if you're looking for someone with anywhere from like five to fifty employees?

Tom Wheelwright: Yeah, I think so. I think that's exactly right. I think you're spot on. Do they...

Mark Drager: Need? Do they need backgrounds in an audit? Do they need backgrounds in tax planning? Or what kind of accountant am I looking for?

Tom Wheelwright: I think they need a very broad background. Okay, so you want them with a background in multiple disciplines. But they need to specialize in tax, and particularly in whatever your area is. I mean, for example, we do a lot of—we do a lot of online resellers. So we have a lot of experience there. We do a lot of independent pharmacists. So we have a lot of experience there. We do a lot of real estate. So we have a lot of experience there. And there are specialties. Right? So there are specialties from the tax standpoint. But mostly, I think what you want is somebody who is a good communicator, who isn't going to do it on their own, that's going to bring in other team members. Because really, your accountant should be the one—I mean, if you're looking for a banker, you're looking for a lawyer, you're looking for an insurance agent, your accountant should know all these people, and they should be able to help you find these people. So your accountant should do a lot more for you than just reduce your taxes. But they've got to start by reducing your taxes.

Mark Drager: That is so interesting because when I was looking for a very specific type of lawyer, I did reach out to my accounting firm. I said, 'I have no idea where to look. Do you know anyone?' and they referred me to someone right away because, frankly, they're working on the same caseload all the time, but the other...

Tom Wheelwright: Yep, they're great. And really, a good accountant will be a great networker for you.

Mark Drager: Such amazing information. Tom Wheelwright, final question for you—I ask this of every single person. And I know that this is the 'How to Keep More' episode, as opposed to the 'How to Sell More' episode, but I'm going to actually ask you, what is your number one tip or strategy to help us sell more?

Tom Wheelwright:  Oh, well, I think people forget to use taxes in their selling. Remember this: the number one thing people hate is tax. The number one thing people hate is tax. So if you have something that might help them reduce their taxes, if it's tax-deductible to them if there's some tax aspect to it... I'll tell you what, you said it earlier in this conversation, you said, 'I just want to pay zero tax.' People do want to pay zero tax; you are absolutely spot-on with that. So if there's something... I find this with real estate people a lot, is that they forget that they are operating the biggest tax shelter on Earth. And in the US, and Canada—and Canada, but we don't hand over... I don't think... Oh, my heavens, yes, you do. You do, kids roll over to R.E.I.T.? Absolutely. Absolutely. You do. And you have cost segregation just like we do. So you've got... You have a lot of those things; you didn't even know you had those things. I know that. I don't even know... You've got a lot of things that you didn't know you had. And so there's a whole lot of things. Real estate is, outside of business, the biggest tax shelter in every country. Every country—so when 'Real Wealth Strategy' literally looked at 15 different countries, there're charts and tables, 15 countries regarding foreign real estate, we'll talk about those different... We look, we include Canada; Canada's in there. So take a look at it, and you'll see. But really, I think that you know, for me, it's all about education. So the more education—and this is what I think true marketing is, to get to your question—I think true marketing is education. I love David Sandler's book, 'You Can't Teach a Kid to Ride a Bike at a Seminar,' because one thing he says is, 'People hate to be sold, but they love to buy.' So make it easier for them to buy, and the way you make it easier is to educate them. This is why I write books, to educate people, to make it easier for them to buy.