As you probably already know, I’m a huge advocate for making the most of your time. It is my firm belief that you should primarily focus on doing the things you love with the people you love.
One of the only exceptions I’ll ever make to this rule is learning about how to better manage taxes. I’ll be totally honest; if taxes were something I could completely outsource, I’d do it in a heartbeat and never look back. However, I’ve realized that if you truly want to take control of your financial future, you need to have a basic foundation of knowledge on this subject.
It’s kind of like trying to outsource your health to your physician. Sure, you can fully rely on your doctor to tell you what to do, but you need to have your own basic understanding and make smart daily decisions. Often, those decisions can have a huge impact on your future.
I’ve already explored some of the basic fundamentals of why certain asset classes, like real estate, are beneficial when it comes to taxes. However, I’m often asked if there’s a good comprehensive resource on the subject. For situations like these, I almost always recommend the book Tax-Free Wealth – How to Build Massive Wealth By Permanently Lowering Your Taxes.
What's the Book About?
Tax-Free Wealth is written by Tom Wheelwright, a veteran CPA who has spent most of his career focusing on tax strategies to reduce taxes, particularly for real estate investors and small business owners. It’s not about simply avoiding taxes, but how to utilize current tax law to your advantage.
His core belief is that the government creates tax law not to penalize you, but to incentivize you into certain actions – again to primarily consider becoming a real estate investor and/or a small business owner. This is because real estate investors provide housing, and small business owners ultimately create jobs and grow the economy.
Wheelwright’s recently released second edition of Tax-Free Wealth will teach you the fundamental principles of this country’s tax laws so you can best direct your investments (and your life) to take advantage of them.
I should also note that a full understanding of Wheelwright’s book links directly into the idea of the cashflow quadrant, and I highly recommend reading up on that subject as well.
Core Principles in the Book
As a quick summary, here are some of the basic principles discussed in Tax-Free Wealth:
- Tax law is written as a set of incentives; a way that the government “encourages certain activities that benefit the economy and promote social policy.”
- The vast majority of the tax code is not written to raise money, but to stimulate growth.
- It’s not about what you make, but what you take home at the end of the day.
- Everything you do either increases or lowers your taxes.
- Tax planning is not an end-of-the-year activity, but a daily one.
- The people who benefit most from the tax code are business owners/entrepreneurs and investors.
- Certain types of incomes get taxed at higher rates when compared to others, such as passive income.
- Estate planning is extremely important and it helps to be strategic in this area.
- One of the best ways to take advantage of the tax code is to be a real estate investor.
- There are some powerful tax strategies when it comes to real estate.
- You should protect your assets from liability through proper entity creation.
- How to choose the right tax advisor and preparer.
Physicians Need Some Help with Taxes
As is so often the case, every time we hear about changes in tax law, physicians are very rarely the beneficiaries. When tax brackets rates are raised, we’re usually in those top tax brackets, so we’re taxed more heavily. When tax breaks are put in for business entities, rarely are physicians in a position to take advantage of those breaks.
But it doesn’t have to be that way. We can be smarter investors, we can have side hustles, and we can create businesses to take advantage of those breaks. You never want to make your decisions purely on taxes, but planning for those breaks should definitely be a component.
My hope is that we can begin to better understand the benefits of having a good understanding of tax law – not only for the savings but because it can alter your returns, and those returns are the single biggest thing that accelerates your journey toward financial freedom.
And ultimately isn't that what we all want? A life of financial freedom and the choice to practice as we choose.
If all of that sounds good, then Tax-Free Wealth is a fantastic resource that can help you along that path.