7 Minute Read: Tax Free Wealth Book Summary

tax free wealth

7 Minute Read: Tax Free Wealth Book Summary

I’ll admit. I’ve spent most of my life relying on other people for help in areas that I don’t know much about.

One of them is construction. My dad owns a hardware store, so you’d think I’d be handy with tools. Think again!

Unfortunately he didn’t pass down any handyman genes to yours truly.

That’s OK. It gives him an excuse to come over whenever something breaks (which we like!).

We’re in the process of undergoing a major home remodel. Again, I relied on people that were more knowledgeable in their area of expertise to complete the renovations.

To say that the entire process has been a disaster would be an understatement.

 

I guess I place too much trust in mankind. It’s a shame that there are so many unethical people in this world but hey, I’m not here to judge.

Let’s just say that I’ve learned some MAJOR lessons when it comes to home remodel so if and when it happens again, I’ll know what to ask and look for in a contractor and subs.

You might be asking yourself, “What does a home remodel have to do with tax free wealth?”

Similar to our home project, if you want to take control of your financial future, then you must obtain a basic foundation in that area.

If you give up TOTAL control your entire career to financial advisors and accountants without having a basic understanding of what they’re doing regarding your situation, then their decisions can have a HUGE impact on your finances.

 “Taxes are your largest single expense.” – Robert Kiyosaki

As a high-income earner, one of your biggest expenses will be taxes.

How much do you really know about the tax code?

Do you have a support team in place to assist you with one of your largest expenses?

Proverbs 15:22 –Plans fail for lack of counsel, but with many advisers they succeed.”

If not, then author and CPA Tom Wheelwright (part of Robert Kiyosaki’s Rich Dad network) could be just the person that could help you.

Let’s dive into to his fantastic, must-read book, Tax Free Wealth.

Forward by Robert Kiyosaki

rich dad poor dad

Tax Free Wealth’s forward was written by Rich Dad Poor Dad author Robert Kiyosaki.

He claims there’s ONLY two things certain in life: death and taxes and we should do everything in our power to put off both.

As healthcare providers, we understand in order to live longer we must maintain a healthy lifestyle by eating right with regular exercise.

But the difficulty comes when we try to figure out ways to severely lower our tax bill or even bring it to $0.

Kiyosaki loves real estate and has built his company teaching others how to permanently reduce the amount of tax you pay.

Here’s a video of his explanation of how President Trump Pays ZERO in taxes:

The Cashflow Quadrant

cashflow quadrant

One of the MOST eye opening books I’ve ever read has been Kiyosaki’s Cashflow Quadrant.

Up until I’d read it, I thought I had it going on being in the “Self-employed” category as I own my on practice.

Usually becoming a small business owner is the American Dream, right?

I don’t have to answer to anyone. I’m the boss, until my wife walks in :).

So you have to realize my disappointment when I found out that being “self employed” put me on the left side “poor side” of his quadrant.

 

Image Courtesy of Wealthfit.com

The four quadrants explain the various career paths along with our current tax system structure.
It explains how our tax system has been setup and how various professionals (myself included) view the world.
If you want to start paying less in taxes, then understanding the four types of people that make up the “Cashflow Quadrant” is a must:
  • E = Employee
  • S = Self-employed
  • B = Business owner
  • I = Investor

Active Income

Even though doctors are considered high-income earners, the majority fall on the left side of the quadrant as they’re either employees or self-employed.

This means that they wake up each day and trade their time for money.

For them…No patients = No Income $$

Also, those on the “poor” side pay the highest percentage of taxes even though they make much less money than business owners or investors.

That’s because they don’t understand the rules of the tax game.

Passive Income

The right or “rich” side of the quadrant is where we should focus our attention of landing on.

This is where passive income comes into play where we don’t have to be physically present in order to earn a paycheck.

How nice would that be?

Unfortunately, most doctors and other high-income professionals NEVER shift to this side which can lead to burn out.

With passive income, you’re able to leverage people and money to increase your wealth, even while you’re busy doing other things.

You’re literally making money while you sleep.

Now let me ask you, what side of the quadrant would you rather end up on?

Tax Free Wealth

2 Important Rules From Tax Free Wealth

One of the judges that served on the U.S. Court of Appeals for the Second Circuit, Judge Learned Hand (yes, that was his real name), once said:

“Any one may so arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury. There is not even a patriotic duty to increase one’s taxes.” – Judge Learned Hand

This goes against what we consider is success especially when talking amongst colleagues at cocktail parties.

Usually the conversation goes something like this:

Dr. T:Man, we had a fantastic year. I paid over $290,000 in taxes. I guess you got to make money to pay BIG taxes right?”

Dr. C:Yeah, that’s what I’ve always heard too. If you’re NOT paying taxes then obviously you’re NOT making any money.”

You’ve got to hand it to them. The government does a GREAT job training us to believe that somehow we owe money to the government no matter what.

In the book, Tom states that the IRS has written the tax code in a way to SAVE us money. That’s right. He states that the current tax code contains over 5,800 pages and only 30 of those address how to pay taxes.

What this means is that the IRS dedicated 5,770 or 99.5% of the code to help us AVOID taxes thus increasing our wealth.

The government encourages Americans to start businesses and invest in real estate thus to provide affordable housing.

By not taking advantage of tax breaks, you’re literally robbing yourself and your financial future.

There’s basically two main rules regarding the tax law:

Rule #1 – Focus on passive income

I understand that a portion of our taxes should go to Uncle Same to help pay for infrastructure (roads, bridges, etc.), schools and the military.

But ultimately, it’s your money and not theirs.

The wealthy pay very little in income taxes because they don’t earn their money as most people do. They know that the best way to legally avoid taxes is by generating passive income out of the right side of the Cashflow quadrant previously discussed.

Remember, passive income is taxed less, and it’s also a result of cash-flowing assets, not selling your time as an employee.

Rule #2 The tax law is written to lower your taxes

In the book, Tom states that the IRS has written the tax code in a way to SAVE us money. That’s right. He states that the current tax code contains over 5,800 pages and only 30 of those address how to pay taxes.

What this means is that the IRS dedicated 5,770 or 99.5% of the code to help us AVOID taxes thus increasing our wealth.

The government encourages Americans to start businesses and invest in real estate thus to provide affordable housing.

By not taking advantage of tax breaks, you’re literally robbing yourself and your financial future.

Taxes are based on your facts and circumstances—changing your facts will change your taxes.” – Tom Wheelwright

Entrepreneurs and Investors Get the Breaks

Tax Free Wealth

It’s safe to say that those that those uneducated about our tax code find it hard to believe that well known real estate investors such as Donald Trump and Warren Buffet pay little to no taxes.

The general public typically complain that businesspeople get “unfair” tax advantages but if they knew the rules then they’d play by them too.

Literally anyone can start a business and receive the tax benefits provided by our country’s tax code.

In Tax Free Wealth, Tom Wheelwright explains that some of the most generous tax incentives are given to real estate investors.

It’s a true way to generate income, build wealth, while at the same time permanently lowering taxes.

Why does the right side of the quadrant (business owners, entrepreneurs, and investors) pay much less tax than employees and the self-employed?

The author states that it’s what Congress intended in the first place.

Bottom line

The bottom line is that the government wants:

  • business owners and entrepreneurs to create jobs
  • real estate investors to create housing

Think about it, most of the tax breaks that real estate investors get act as subsidies to encourage more housing. This helps local economies by making it easier to attract employers and provide good paying jobs which helps stimulate a strong population growth.

Doctors Need Tax Help

Whenever we hear that the IRS is making tax law changes, typically doctors aren’t on the receiving in.

When tax breaks are put in for business entities and investors (right side of quadrant), rarely do doctors take advantage of those breaks.

Focus on getting on the “right”

Actually, most of us dread any changes as it usually equates to a larger tax bill.

But it doesn’t have to be that way.

Tom Wheelwright has dedicated his career to finding ways to teach us how to pay the LEAST amount of taxes legally.

This book should open your eyes so you can better understand the benefits of having a good knowledge of tax law and how those returns are the single biggest thing that accelerates your journey toward financial freedom.

Conclusion

Tax-Free Wealth by Tom Wheelwright covers key concepts about taxes, tax law, and real estate investing including:

  • How tax law is written to encourage certain types of economic behavior, and not to create tax revenue
  • Why tax planning should be a daily activity instead of an end-of-the-year rush to find receipts and generate reports
  • Four types of income earners and why the government wants wealthier people to pay less tax
  • Five types of income buckets and which one leaves investors with more money in their pockets
  • Why businesspeople, entrepreneurs, and investors get all the tax breaks
  • What real estate investors can do to never pay tax on their cash flow or capital gains

The Wealthability Show

As an avid listener to Tom’s The WealthAbility Show, I was honored to be interviewed where we both discussed investing for high-income earners with special emphasis on tax advantages.

The WealthAbility Show: Investing for High-Income Earners

Want to watch a 5 minute book summary?

Check out this YouTube video:

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