Pod Insights Money Guy Show Financial Advisors React to the BEST and WORST Tax Advice About this episode Death and taxes, everybody's favorite subjects, right? There's plenty of tax advice online. Some is brilliant, some is dangerous, and some is just hilarious. We react to the internet's best and worst tax advice, from W-4 withholding formulas to Monopoly kids crying about taxes and more.
Discover which strategies actually work, which are too good to be true, and which could land you in serious trouble with the IRS. Remember the critical difference between tax avoidance (Okay!) and tax evasion (NO way!) when planning your financial roadmap.
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Transcript 3,337 words · 13 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Speaker 00 Death and taxes, everybody's favorite subject, so why not make it as fun as possible?
0:06 Speaker 01 I am so excited about this. Is death really people's favorite? Okay, whatever. I'm so excited about this because right now, the internet is going to tell us what we need to know about our tax system. Let's dive right in.
0:19 Speaker 02 Is there a magic formula or some way to figure out how many you can claim on your W-4? So you get the smallest tax return back?
0:28 Speaker 00 There's a formula, but it's not based on the number of dependents because the IRS tables are wrong. Of course.
0:34 Speaker 02 Okay.
0:34 Speaker 00 So, thus you, you know, you can claim, like for instance, my daughter, when she first got out of college, claimed six dependents. She didn't even have one. And it's still got her a refund, okay? So she still didn't have enough coming out. So that's how bad the tables, they're not minorly off, they suck. The way you would do it is one of two ways. The most accurate way is to actually do a fake tax return for the year. Actually prepare your tax return and let it tell you exactly what you would owe in taxes, your total tax bill. And then divide that by the number of months and that's what needs to come out of your check per month. And so if your actual tax bill is $4,800, then $400 a month needs to come out, right?
1:14 Speaker 01 Dave said that when his daughter graduated, she had like-
1:16 Speaker 00 Six dependents. And it's still got her a refund.
1:19 Speaker 01 Well, yeah, the more dependents you claim, the less taxes they withhold. She should have claimed zero dependents if she didn't want to get a refund. So it makes sense that she still got a refund because I think she likely did it wrong. Now, I know W-4 forms, they'll, they'll kind of walk you through, okay, answer this question, answer this question, answer this question. And I do think that Dave is right, you can do a tax projection. You can arrive at what you think your tax bill is going to be and you can reverse engineer your withholding. But a lot of people don't know how to do that. So what I would say is this year, when you do your taxes, pay close attention. Do I owe a big amount? If that's the case, I probably need to increase my withholding. Or if I get a big refund, maybe I need to decrease my withholding.
2:01 Speaker 01 And I would do it that way rather than try to go out and figure out, okay, well, how do I do a tax projection? How do I do, if that's not something that's sort of in your wheelhouse?
2:09 Speaker 00 The hassle factor is high for the way Dave laid this out. I think it's the right way, but it's, I wouldn't do it this way. Here's what I would do.
2:17 Brian Preston? First year you get a job, actually fill out the form the way it is. If you're married, put married and you can still check a box that says, hey, but I want to be treated as single because I want to have the maximum amount withheld. If you think you're going to get a refund, you don't have to check that box.
2:31 Speaker 01 That's right.
2:32 Brian Preston? And then claim both. And then when you do your taxes in that first year, pay attention, if there's a huge refund, you immediately know you need to go do a new W4, change the numbers, and then grip and rip and let it go until the next tax season.
2:45 Speaker 04 Where's all your money gone daddy?
2:48 Speaker 04 Taxes.
2:49 Brian Preston? Uh oh, he's crying.
2:50 Speaker 04 Let me fix my houses. But it's okay. It's part of the game.
2:55 Brian Preston? Is it monotonous?
2:58 Speaker 04 It's not fun to what?
3:01 Speaker 04 It's the worst part of the game. Oh, it's what? Taxes.
3:07 Speaker 01 Amen, brother. He got it. How many times, Brian, have you sat down with a small business owner? They launched their first business, they start their first side gig, and maybe they're not laying in front of the couch crying, but it's same realization. Holy cow, why on earth do I owe so much taxes? I finally just made my business profitable. It is something that if you do not plan for it and don't know that it's coming, you may also find yourself in tears.
3:31 Brian Preston? Probably a proud parent moment, though. Like, okay, he's going to be a hard worker and not want to pay taxes. He's an American.
3:39 Speaker 05 Here's how to never pay tax again. So this is what I would do if I was solely basing my decisions off of tax and nothing else. First, I'd become a real estate professional under IRS definitions because they receive by far the best tax advantages.
3:52 Brian Preston? Yeah, they got the best lobbyists.
3:53 Speaker 05 Two is I would purchase real estate. And third is whenever I sell the real estate, I would only do 1031 exchanges so that the capital gains is deferred. And finally, what I would do is you could borrow against that property to use that cash to live off of, and then I would only transfer the real estate by leaving it in my will or in my estate, not by gifting it while I'm alive, so that the people that receive it get a step up in basis. And as long as you're under that estate tax threshold of 11 million per person, that's your tax-free formula.
4:22 Speaker 01 Look, it's true. What she laid out is accurate. Now, one of the things, if you're going to perpetrate- The strategy, you have to be, you have to be comfortable always being in debt. Cause you heard where her cash flow comes from is borrowing the equity out of the properties that she has. And then she does a 1031 and she exchanged, then she borrows the equity out and borrows the equity out. So you're never actually going to have like a really impressive looking net worth statement. Cause your liability column is always going to be substantial, but she is correct. That is a way to not pay tax.
4:53 Brian Preston? Here, here's the thing. She did say something that's very true and I have often thought this is like the lobbying arm of the real estate professionals. It's pretty spectacular because a few years ago, when they came out with the small business exclusion, was it the 120?
5:07 Speaker 01 The QB, the QBI.
5:08 Brian Preston? QBI business exclusion where essentially 20% of small businesses doesn't get taxed of the income. They excluded most professionals. Like if you go out there and look at your, you know, your CPAs, your attorneys, your financial advisors, your doctors, they, they don't get the small business exclusion on their stuff. Cause they're considered professionals, but guess which professionals somehow got carved out of it. It was real estate professionals. It was architects. It's amazing. It's almost like they helped write the legislation.
5:43 Speaker 06 Here's how you can avoid 100% of your income taxes every single year. We call this strategy, the paper loss strategy. In order to use it every single year, you have to understand the rules. The very first thing that I'm going to need you to understand is you're going to need to buy an investment property. When you buy a rental property, it could be an Airbnb or it can be a long-term rental. But as soon as you purchase the property, I want you to write off everything that's on the inside of the property. This could be appliances, bathrooms, tubs, cabinets. And when you write off everything that's inside of the property, it creates a big expense. We call this the cost segregation study. Once you do the cost segregation study, it creates a big enough loss to offset your W2, your 1099, your stock and your crypto income, making you tax free.
6:26 Speaker 01 Not.
6:27 Brian Preston? He left out a huge.
6:28 Speaker 01 You left out a big thing.
6:29 Brian Preston? A huge thing. I don't see a lot of people doing cost segregation on residential, but on commercial property for sure. We've even done cost segregation on, on real estate that we've bought. But the thing is, is you have to be a real estate professional to, to be able to take it against W two and ordinary income. It's not the easiest test to pass. You can't just on your tax return and say, hey, I'm a real estate professional. Give me all these, these benefits. I think a lot of people are gonna be like, uh oh, because the IRS is gonna call you on that.
6:57 Speaker 01 Yeah, I think Carlton, what happens for most folks is they buy the property, they do cost seg study, they get all those expenses front and loaded. And what you have is you have losses against the passive income on that property for a few years, which is great, but it likely is not going to offset the other income sources. If you do have W two income or investment income, it's only going to serve to offset the income applicable to that type of property, that type of investment.
7:25 Brian Preston? Yeah, I mean, most people, it's just gonna be a big carry for it. That's, that's what especially, you know, a lot of people get into residential rental thinking they're gonna be able to write off everything and then you, you find out, wait a minute, I make more than like, what's a hundred and fifty thousand dollars? You're like, oh, I'm gonna have to carry this loss forward until I actually sell the property. Like, well, what the heck did we even do this for?
7:42 Speaker 07 Hello? Hey, I can't come into work today. Is everything okay? I can't see. You can't see? Something wrong with your vision? No, I can't see myself working today. Bye.
7:54 Speaker 01 So I think it's great. A lot of people, they get a big tax return, they get a big tax refund and they're like, boom, I'm rich. Look at all of this free money the government just gave me. I'm loaded now. And I think what they don't recognize is the government didn't give you money. They didn't say, hey, you know what? Congratulations on filing your taxes. All they did was give you back money that was already supposed to be yours. So if you're someone who's getting a big refund and that money comes back to you, I would not treat it as found money. I would treat it as money that you loaned the government interest free for the last year.
8:29 Brian Preston? All that video did was make me feel old.
8:31 Speaker 01 Elaborate.
8:32 Brian Preston? I was trying to pay attention, thinking I was actually gonna hear something and then I was like, oh, is this what, is this like a video meme? You know, because it had tax return, big refund, and then, okay, enjoy it. Then your voice, put the voice, so there was just a lot going on that I just, I didn't completely get. I guess it's like a joke came and I just, it wasn't funny to me. I'm sorry.
8:52 Brian Preston? I can tell you, it was funny to you though. So it's alright, it's a generational video meme.
9:00 Brian Preston? Maybe we should just-
9:01 Speaker 08 Is the problem with earning six figures as an employee? At a hundred K, you're in the top 3%.
9:06 Brian Preston? Nice.
9:06 Speaker 08 But after taxes, that higher earned salary can leave you with just 65K. Instead, imagine earning six figures as a business owner. You can write off expenses like the latest gadgets and business trips abroad, allowing you to keep more of what you earn. That's why owning a business beats earning six figures any day.
9:23 Brian Preston? Well, okay. Look, I feel like I've got it on both sides. Is that we have lots of employees, but I've also been an employee and then I've been a business owner. It is true, there's a few more things that are more deductible, but there's also a lot more things that cost.
9:35 Speaker 01 That's right. Entrepreneurship is wonderful and it's a great thing if that's something that makes sense for you, but it's not for everyone. And I would argue that there are a lot of people out there, if you compared someone who makes a hundred thousand dollars of a W2 salary versus a business owner that has a hundred thousand dollars in revenue, depending on the business, that W2 salary might actually have more money than that business owner. So just because you're a W2, just because you collect a paycheck, doesn't mean that that's necessarily a bad thing. You should try to figure out how you could go, how to go out on your own.
10:06 Brian Preston? I think entrepreneurship is somewhat of a calling. If you're doing it because of tax savings, you're probably not starting a business for the right reason. Believe me, it takes more than just tax savings. You need passion, you need cash reserves. You need to have talent that actually is so marketable that you get rewarded for bringing this out to the public.
10:26 Speaker 09 Here's a quick way to shelter 66% of your income legally. I'm Tyler, I'm a former financial advisor and portfolio manager. Now I make financial content for free so that you don't have to pay for it.
10:34 Brian Preston? 66%.
10:35 Speaker 09 Let's say I make seventy-five thousand dollars a year pre-tax. Number two, I would start by putting four thousand one hundred and fifty bucks in a health savings account, above the line deduction. Number three, next I'd put seven thousand dollars into a traditional IRA, above the line deduction, and we're rolling. Number four, next I'd put twenty-three thousand dollars into my traditional 401K, pre-tax contribution. Number five, then I'd cap it off by taking the single file or deduction of fourteen thousand six hundred bucks. Number six, and I'd turn around and tell the government that I officially made- Twenty six thousand two hundred and fifty bucks of taxable income went from the twenty two percent to the twelve percent tax bracket. And at this rate and projected to be a millionaire in just under fourteen years.
11:10 Speaker 01 And there was one thing I would change, and I have to think through this, and I'd want to look at the taxes, but.
11:14 Brian Preston? I'd rather do a Roth.
11:14 Speaker 01 I'd rather do the Roth IRA than the traditional IRA. That's exactly where I was going. I love maxing out the 401k. But because, because imagine if he did Roth IRA contribution and imagine if he did a Roth solo 401k or Roth 401k. Imagine those dollars going tax free. I'd want to know more about what his income trajectory over the long term looks like.
11:33 Brian Preston? If you were just doing this as a thought exercise on how you minimize income as much as possible for taxes, then boom, yeah, it's kind of cool. That you you made sixty six percent of the money disappear from a taxability. What I like is because it's just like it's right here on the screen. Is that you'd be a millionaire in under fourteen years. Imagine if you're a tax free millionaire. And the other thing is, is because you did it with, you funded it with after tax money, you're actually getting more of the money into that, that account. That's growing and compounding that won't have the headwind of taxes in the future.
12:01 Speaker 01 One of the beautiful things about financial planning is a lot of people focus on how can I save the most amount of taxes today? But if you have a really good financial plan, you're not thinking about how can I save the most amount of taxes today? You're thinking about how can I save the most amount of taxes over my entire lifetime? And that's why these lower income thresholds in the twelve percent bracket or even twenty two percent bracket, we love building Roth assets.
12:21 Speaker 10 And we're going to take a call from a client who hasn't filed taxes for many years. Most people, once they don't file for a lot of years, usually they're too scared to file. Also, they get in the process of if I didn't file for that many years, why should I file now and I have to pay somebody to do it? So let's talk to him and see if he's different than everybody else.
12:38 Speaker 11 Here's a guy from Shell, and one thing led to another. So I have not filed taxes in the last eighty, which is not good.
12:45 Speaker 10 Why haven't you filed?
12:46 Speaker 11 I couldn't afford to file.
12:47 Speaker 10 When you don't file, the IRS can charge you criminally, but if you don't pay, then there's so much you can do. But it's usually worse if you don't file than if you file and not pay. And how old are you?
12:59 Speaker 11 Fifty two.
12:59 Speaker 10 Okay, married?
13:00 Speaker 11 Yes.
13:01 Speaker 10 And children? Who files with the children?
13:05 Speaker 10 I think it was a good idea for a wife to file separately. This way she's not responsible for your tax debt. Do you own any real estate?
13:11 Speaker 12 I have a mortgage on my main residence. The mortgage is for 150 right now.
13:15 Speaker 10 How much would you say the house is worth?
13:17 Speaker 12 230,000.
13:18 Speaker 10 It's easier to deal with it now because the more equity you have, the more the IRS will expect you to pay. I'll send you some documents. We'll contact the IRS and see what we need to file. And we'll just file the bare minimum. Sometimes they only require us to file a few years. Usually the last six years. And if we owe money, then we'll figure out how we're going to pay for it. We'll set up a payment plan, see if you're qualifying for any of the tax relief programs.
13:42 Brian Preston? There are programs where the government will let you get on an installment plan with them. Now, I will tell you that that kind of puts you on the naughty list with the IRS. So you kind of really need to be careful when you, before you go that route. It's better to do it now than to let this just continue to build up in the background and create a huge tax bomb for the future.
14:01 Speaker 01 Yeah, I always wonder where the mindset is. Someone, you know, I don't file this year and like, okay, I didn't file last year and I kind of got away with it. So then I don't file the next year and the next year and the next year. If you are someone with income and assets and you have things that the government could come take away, like your assets, like your income, I don't think operating under the assumption, oh, they're just not going to catch this. I'll just fly under the radar. I don't think that that's what likely happens. And when you do get that letter, whether it be a year, three years, five years, eight years from now, they literally have the authority to come take your stuff, to come garnish your wages, to come repossess your assets. You do not want to be on that side of the federal government.
14:39 Brian Preston? Pay your taxes. If you get nothing else out of this video, pay your taxes. We've, we've covered it earlier in the show is that tax evasion is illegal. And that's when you don't file your taxes, when you purposely exclude stuff, that's tax evasion, that's going to get you put in the clink. But if you are smart and you actually keep up with what's going on with the financial world, the tax policies, you can actually use tax avoidance completely legal and maximizing your wealth journey. And that's why we love covering this type of content. But who would have thought coming in here, talking about death and taxes could have been this much fun? I'm your host, Brian, joined by Mr. Bo, Money Guy Team, out.
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