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204: Wealth and Tax During a Meltdown: Tom Wheelwright, CPA

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Buck: Welcome back to the show everyone today my guest is no guest, is really not a guest he’s practically family on this show at this point. He’s my CPA. He’s a celebrity CPA. He’s sort of the Michael Jordan of CPAs. Robert Kiyosaki uses him, etc. He is Tom Wheelwright of Tax-Free Wealth. Tom welcome back.

Tom: Hey thanks Buck. Always good to be with you, always good to be with your people. You know we have so many clients that are you know subscribers of yours and members of yours and they are absolutely our favorite clients.

Buck: Well I appreciate that. That’s very kind of you. And we were just talking offline I mean these these are crazy times and I’m trying to you know get some of the smartest people out there to talk about what’s going on coming up with some strategies now you have a unique position Tom as a tax and wealth adviser as a small business owner yourself as an entrepreneur what are you seeing from each one of these perspectives out there right now?

Tom: So it’s fascinating. The CPAs are truly on the front lines I mean we’re like the healthcare professionals of the financial industry right now. I’m not kidding. I was joking with one of our members you know we have 35 members in our accounting firm network and I was joking with them the other day he said he said I said you’re an essential service because he’s in Connecticut and and they’re getting hit hard like New York and he goes yeah I says we’re saving the world one tax return at a time, but the reality is our clients are all talking to us about these loans in this new new bill that the house just passed you know we’re looking at our clients are talking to us about the tax issues the new tax provisions and the new bill which by the way are stellar we talked about a little later. And then on the other hand you know I’m being with clients, I’ve got a client who you know a lot I mean some of Europe some of your people frankly duck yeah that are really struggling I have a client that is a very successful position and told me the other day that he took an 80 percent pay cut, 80 percent. And through no fault of his it’s just that because we don’t have gowns and masks that they’ve shut down you know what they call non-essential medical which is just ridiculous because we should have had gowns and masks you know months ago I mean the whole you know I mean if you ever wanted to complain about the government now would be the time but the bigger question I always think is okay I can’t control the government I have no say over government so what do I do, I can’t do anything about the economy but I sure can’t about my economy.

Buck: Yeah and and so what are you you know what does it look like I mean at least from from what you’re seeing when you look at the business small businesses out there, how long are most businesses equipped for this kind of total freeze on the economy I mean when I look at it and obviously I’ve got small business activity myself and fortunately I have more than one business and you know while one or two of them are getting completely decimated the other ones fortunately are you know shielded to a certain extent but what are you seeing like you know in your typical small business what is the threshold of like complete catastrophe?

Tom: Well so the reality is I think it’s two or three months you know maybe four as a general rule.The biggest challenge is that you can’t wait. We found this in 2008 right because 2008 was another financial crisis very different because that was a banking crisis this is not a banking crisis this is a Main Street crisis but what what we what we found back then is that people waited too long to lay people off they waited too long to read salaries they waited too long to pay attention and what we’re seeing now is that businesses are being much better about that so I’m seeing in the last two weeks I would say any business that’s struggling has been laying people off or saying okay or at least reducing their you know pay I’m saying look you know when it’s good we’ll be good but right now it’s bad and we’re trying to stay afloat so you know that I think those are the two choices right now for the businesses are struggling. On the other hand you have businesses that are absolutely booming right now. Think about it well bicycles roller skates or you know I mean if you’re selling things that that people really want to need right now you’re in great shape but if you’re you know like us I mean our CPA firms I mean we’re in such high demand right now our struggle is that we have clients that are struggling so they’re gonna pay us yeah you know so that’s the ripple effect. The ripple effect is your business might be fine but are your customers able to pay you for what they need from you? So it’s quite the balancing act I think.

Buck: So along the lines we were talking a little bit you know you were kind of telling me the congressional plan, the bailout. You’ve read it and you know what’s going on with it? What does it look like to you?

Tom: In a word what it looks like to me? Can we be honest? It looks like pork that’s what it looks like. So I think it does help the worker and particularly unemployed worker because the unemployed worker there are going to be unemployed workers I talked to my son who’s a bartender and he had to choose between unemployment or to retain his health insurance and the bar let him keep his health insurance because the bar can you know they’re okay they were prepared they can handle a you know a month or so but the reality is he would make more money being unemployed than he ever did as a bartender because of this new bill I mean not only do you get your regular unemployment you get an additional six hundred dollars per week. So there’s actually and this was the complaint that some of the Republican senators had right on Monday and that’s why they were concerned about it is that it does look like the Democrats are trying to buy votes here that that’s all it looks like. To me it looks like the Democrats are trying to buy votes and the Republicans are trying to take care of their basically cronies right because when you look at the small business funding and yeah there’s small business loans out there but the way the bill is written it appears to me that is a small business because they’re looking at location by location so while while the franchises may indeed be struggling right now. I don’t know if they are but they may be. It looks to me like the big companies are gonna have you know they’re really going to go out and of course they’re going to attack these loans and the question is will there be anything left for truly the you know Main Street business.

Buck: Yeah and I think that’s the real fear right because so many people are employed by those businesses and you know yes people need money right now they need to eat they need to you know in some cases you know pay rent although there’s you know some optional holiday.

Tom: That’s in the bill. You can’t evict. So here’s an interesting one. Like you can’t evict for 120 days and you can get your mortgage taken care of for 90 days. So if you’re in multifamily, you’ve got 120 days you can’t evict but you’re only gonna get relief for 90 days so that’s a little disconnect on the timing there. I think there are some multifamily people. I know you do a lot of multifamily if you are well prepared for this, multi families gonna be fine cuz it’s not like you know you’re not gonna lose tenants they’re just gonna not gonna be able to pay. On the other hand if you are kind of thin in the first place and not paying attention I think we’re gonna see some bargains out there in the next year on those multi families.

Buk: Yeah and then just from my perspective kind of fill you in. Now I don’t know if the bill changes what we knew of even yesterday but basically the idea was, if Freddie and Fannie if you have agency debt if you were willing to say you’re not evicting anybody they’re willing to do forbearance up for up to I think ninety days yeah but here’s the catch: in order for you to ever evict somebody you have to go back and pay and catch up so it’s not really a true forbearance right? Now in our case luckily everything that we’ve done we have a really good we’re capitalized really well and we we’re really in a position to okay if we have to we’ll just pay it, pay expenses for you know the next ninety days but you’re right people who have been struggling with cash flow operators that have been struggling for cash flow they’re toast because to me, one of two things happens right they can either just have people not pay rent and they walk away from the beginning or they take up Freddie and Fannie in which case they get into this you know bargain with the devil that they’re never gonna get out of. It’s gonna be impossible.

Tom: Well that’s the same thing so for example one of the action I think one of the nice provisions of this bill is businesses under five hundred you can defer your payroll tax. So you actually got two different provisions in here and we don’t know exactly how they’re gonna apply but one is that the employer side of payroll tax you can defer and you defer it all of your all of the employer side of payroll tax so that’s all of the employer side of FICA and and Medicare can be deferred for the entire rest of the year and then you don’t have to start paying it back until December of 2021 you pay back 50% in December 2022 you pay back the other 50%. So that’s one that actually I think is a good provision because everybody gets it, you don’t have to apply you don’t have to talk to your bank you just get it so good always that.

Buck: But you still got to pay it right?

Tom: Right no you just you just don’t pay that’s just an expense you don’t have right all right and you’re gonna owe it okay and you have to know that you know when the economy rebounds you’ve got to set that money aside but for now that’s actually you know it’s fairly serious I mean if you have 50 employees or 100 employees you know you’ve got some serious payroll you may have a million dollars of payroll easily in a month and you know 7% it’s you know 7–8% sprit serious money on that payroll I’m you’re talking about $80,000 a month that you’re able to defer and you’re able to basically take eight months worth nine months we’re sorry April through January nine months worth of you know so that’s you know nine you know nine times 80 in that case you’re talking about seven hundred grand so that’s some pretty serious money that’s available that’s available right away, also there’s a payroll tax credit for certain, not everybody but certain really hit hard small businesses and so that credit is available as well. So there are some good things in the bill don’t get me wrong I just I don’t love that really more than half the bill goes to I think you know people who probably could survive without it.

Buck: Yeah so let’s emphasize a little bit more on the tax side. So what are we gonna come out of this on the positive side of things?

Tom: So there’s some great stuff here Buck. So thank you very I mean actually today is exactly the right day to have me on because the bill just passed the house which means that the president will probably sign it later today is my guess cuz he’ll sign it during prime time right right. So here’s a couple of big things first of all you remember in the 2017 act on real estate they made a mistake with respect to tenant improvements, restaurants, what they called qualified improvement property and it turned out that that ended up being 39 year property or 27-year property instead of 15 year property and remember of course the reason that’s so important is because if it’s 15 year property you get bonus depreciation. So you’re talking about the difference between two to three percent depreciation a year and a hundred percent in the year you do it. Okay they fixed that and they fixed it retroactively. So if you capitalize your tenure you’re qualified improvements which means your tenant improvements and you know if you’re a restaurant etc if you were under that and you capitalize those for 2018 you can file an amended return and get that money back. So you should be able to go back and get that bonus depreciation I’m sure they’re gonna provide for that mechanism. So that’s one big one. Another one is and when I saw they talked about it’s not as big as what media thinks it is remember we had this loss provision where you can only use up to five hundred thousand dollars of losses from business against really non-business income now non-business income is very restricted right none business income includes retirement income and portfolio income dividends interest etc so you know they’re they’re talking to the news yesterday this is a big giveaway to real estate developers and I’m going I don’t know any real estate developers who get dividends real right that’s not where they make their money their income is all business income and they don’t have that limitation anyway I just I don’t have any clients limited by that $500,000 sure exception. However I mean you know if that is an issue for you I mean it’s a nice benefit sure right I mean you get to use that loss another one is net operating loss carry back. So in 2017 they moved it to carry forward only now you’ve got a five year carry back so if you had a loss last year okay now of course this year you have to wait till the end of the year so this is not a provision that helps them very many people immediately but you’re allowed to carry back five years now so losses for you know for a couple of years here in this period are going to be able to be carried back for five years and you can get a refund so if you did have a net operating loss last year instead of carrying it for 2020 to 2020 you can actually carry it back and get your taxes back from prior years so that’s actually something that people ought to be talking to their CPAs about. Another one is and this is I think a big one for probably you know it’s really a middle income provision and that is that if you’re hit by this virus crisis that what I want to call the virus crisi,s if you’re really hit by this either your sales have gone down or you have people that have you know gotten the virus or you’ve gotten the virus or whatever, you actually can take out up to a hundred thousand dollars from your IRA without paying any tax this year, no penalties and you can spread it over three years. So that hundred thousand that’s something that people ought to be looking at if they qualify for it but again you’re gonna want to sit down with your CPA to see if you qualify for it. The other thing they did in the same vein was with 401ks you know historically you’ve been able to borrow fifty thousand dollars from the 401k now you can borrow a hundred thousand and if it was due on the at the end of this year let’s say you already have one out and it was due at the end this year you don’t have to pay it for another year. So just some deferral provisions in there that are good.

Buck: So the retirement income was it for the IRA too was that also just a loan?

Tom: What that means is you can take that hundred thousand dollars out early right from your IRA you can take it out early not pay the 10% penalty and then you can spread it over three years so you spread it over 2020 2021 and 2022. So instead of picking it all up in one year we push your tax rate up, you get to spread it out and you don’t have to pay tax on it. Now let me tell you about my favorite tax provision in this and there’s one more I want to talk about for the real estate people because I know you got a lot of your state people and that’s the interest question so we’ll talk about that in a minute. But the other one is not only do we all know that we got an extension to pay and a file to July 15 right that was announced a week ago. Now what we have is a deferral of our estimated payments. So if you’re an entrepreneur you know you make an estimated payment in April you make one in June and you make another one in September. Those three payments are not due now until October 15th.

Buck: Okay well that’s great because that’s usually pay anyway.

Tom: But here’s the window of opportunity. You could just defer but if you were to and you and I’ve been working on on this and you know I’ve been working on this with some of you know some of our clients that that you’ve referred over to us if you create a tax strategy between now and October 15th you may not have to pay that at all because you may be able to to reduce your taxes so much by creating this plan of action that instead of paying a huge payment October 15th you may be able to pay you know half as much on October 15th or a lot less on October 15 so I think that’s a huge window of opportunity now we have that instead of having to worry about okay do I make my April payment because that’s in two weeks right do I make my April 15th payment and then okay but now I don’t have money to you know to hire a CPA to help me with my taxes to help me with my strategy okay no now I have that money so the money that I would have spent you know on my payment I have available to me in order to prevent future taxes to me that’s a window opportunity very few people are talking about yeah sure no when you consider that so let me ask you a question Buck do you think we’re gonna see some bargains in the market later this year?

Buck: Yeah I do I think particularly probably I would say q4 you’re gonna really see the fall out of what we’re seeing right now.

Tom: So if you think about this from a timing standpoint. I think you for maybe even they even maybe even q3 yeah we’re gonna see some pretty big bargains and multifamily and and commercial and other real estate okay so I know people who are prepared for this. I was talking to I was talking to my friend who’s a commercial attorney he says his clients because he works with you know a lot of real estate developers he goes his clients are prepared for this they’ve been waiting for this I mean they literally have been waiting for this opportunity and he goes they’re gonna make more money this year than they’ve made in ten years and if you think that you know there’s that opportunity for you towards the end of the year well okay now that can create some tax opportunities as long as you plan now. Here’s the challenge people say well well okay well when I do that then I’ll then I’ll just get the tax benefit no it doesn’t work that way. You know very well with the passive loss rules that if you don’t plan ahead of time you don’t get those losses. So we have to do the planning now so that you can get those losses in October November December. And so that’s to me the big window opportunity that I find that people aren’t quite connecting the dots on that and you know work we’re doing everything we can to help people connect the dots and I know you are too so I appreciate what you’re doing Buck.

Buck: Yeah well you guys actually right now you’re running I mean to encourage that and I think well let’s listen one of the things I’ve been telling people is that right now well this is all kind of shaking out it’s a good time to go back to basics you know make sure that your asset protection your estate planning insurance all that stuff is in place but also good time to get your tax planning strategies done once and for all I mean if you’ve been thinking about doing things with Tom with Wealthability now would be a perfect time and and you guys actually have you know you have some promotional things going on to that effect is that right?

Tom: We do actually so okay you’re the first okay I’m gonna go ahead and announce this for the month of April what we’re going to do is that anybody signs up for you know to do that tax strategy with us during the month of April we’re gonna do their personal return and their and one of their business returns for free the first year.

Buck: Whoa hey wait a second. This doesn’t have one of those going back ten years thing?

Tom: It’s from date of enactment. We’re gonna do this one month we’re only gonna do it one month because it’s obviously it’s a big deal yeah you know you’re talking about a personal return that you know with with people that you know Buck you know those are not simple personal returns and you’re talking about a business one of the business returns so you know not all the business returns that would put us under, but yeah one of the personal return one of the business returns we’re gonna do that anybody who signs up during the month of April. So we’re actually pretty excited about that we think it’s a you know it’s part of what we are giving back frankly I’m true you know I mean we think it’s a good business decision but from a how can we help the community right now to me that’s a way we can help is look we want to reduce your taxes we all we also know that you’re concerned about your cash flow and so we’re trying to help with that cash flow by giving this really this special offer that we have never even considered before because we’re in this crisis frankly.

Buck: So Tom just for clarity there’s a lot of people I know and you know certainly listeners of our show and stuff who have you know probably connected with you guys that Wealthability have said yeah this is something I want to do I just don’t know what the timing is, those people who have already connected with you have not signed, are those people qualify for that promotion?

Tom: Absolutely. Anybody who signs in April is gonna get that promotion so yeah I mean now would be the time if you’ve been waiting and you’re going oh when do I do this etc. Here’s the other thing we and this is something I’ve seen I don’t know if you’ve seen this but people seem to have a little more time. I’m not commuting right one of our members was telling me yesterday that he did a forum group on zoom like we’re doing he did a forum with all of his dental clients well they’re not working at all right now they’re out of business because of the virus and so they’re working on their planning they’re working on a plan for what what do we do when we come back cuz we know we’re gonna come back right and so you know we look at this we go alright we think there’s a window here yeah we think there’s something special we can do here and we just want to do what we can do to contribute to that.

Buck: That’s awesome. So if people are interested in that and if they have not been in touch with somebody they go to wealthability.com.

Tom: So we’ll go and we’ll do a free consultation. So the initial consultation and the reality is we actually have some pretty sophisticated tools it’s not just our people who are looking at it but we accept tools to look at your tax return and their brand new tools Buck by the way we have not shared those with you yet we’re working out some of the bugs in them but those tools basically will tell us can we help you or can’t we help you and they’ll really give us a very quick analysis of your tax return from last year okay now granted this year may be a little different so we’ll kind of look at that too but they’ll look at your tax return from last year and say ok if you had been with us last year and we’d had a strategy in place how much money could you have saved? And so we don’t want to take a client that we can’t help. I mean the reality is as you know buck I you know I love words of affirmation right I like people telling me they like me. I’m very open and honest about that word and I don’t want clients who don’t like me yeah you know you don’t want a happy customer you know every so we’ll only take you on if we are really clear that we can actually do something for and we think our experiences that within three months we can reduce seriously reduce people’s taxes. I know you saw it when we started working here and we’re pretty confident in that brand promise.

Buck: So that’s a huge opportunity folks certainly if you are already you know in queue and and ready to pull the trigger it’s probably a good idea to do that otherwise you know be in touch with Wealthability and one thing I’ll just mention is is whoever you speak to there do mention that you’re a listener of the show because we do have a certain kind of philosophies and we have certain ways we talk and think and sometimes it’s nice to pair up with somebody you can talk to over there who is familiar with our show as well. You have you know, you’re a young lad I know.

Tom: I’ve learned just last week that I’m elderly.

Buck: I do want to say that but you’re an experienced guy you’ve seen a lot of stuff happen, I mean I don’t think anybody’s seen anything like this happen.

Tom: Not unless you live through during the Depression.

Buck: Right, the people that you’ve seen go through 2008, through you know some of the other major setbacks in the economy, you’ve seen them. What do they do differently in this type of setting what are the attitudes that they have that are different than everybody else?

Tom: Yeah good question. Number one is they don’t panic, that’s number one they don’t panic. You know it’s okay to have a meltdown one night and you know I mean we’ve probably all been through that in the last couple of weeks going Oh My heavens the whole world is falling apart and you know you’re gonna have those moments don’t worry about that, but you don’t panic you don’t panic sell okay and you don’t panic buy you know I mean, I love it I love that when Costco the other day came out and said we’re not going to accept returns of toilet paper because people were hoarding it they were buying hundred rolls of toilet paper and cleaning the shelves off or baby wipes and and you know we have grandchildren that they need baby wipes great right so you know if you don’t don’t panic sell but also don’t panic buy, right? And so that’s that’s number one. Okay second of all tech now it’s the time of all time to sit back and say okay the world has changed. To think that this is a you know we’re gonna be done with this in a couple of weeks is you know you yeah you also believed in the Easter Bunny right? So that’s just not gonna happen this is going to cause some permanent changes to the way people do business. You’re gonna see a lot more video like this right and a lot fewer people actually go to conferences because people are gonna get used to it yeah okay they’re gonna be comfortable we actually do all of our team meetings now of course like this right video conferencing and we’re liking it I mean we’re really enjoying it we can we can connect more often we can connect for shorter periods of time we don’t have to travel I mean so when you think about your business or you think about your investing one of the things that the smart people are doing right now is they are planning for their life three six nine months from now okay, so I would say that’s number two is they are planning now they’re not saying I’m just gonna sit tight and watch Netflix okay I’m gonna actually take this opportunity because I do have more time because I’m not driving okay I’m not going to grocery store and not doing these things and they’re taking the time to get education. The third thing is to see education so what we found with 2008–9 is we did have some really smart real estate people go out of business. They came back of course with a vengeance in two thousand eleven and twelve right, they’re not in the same place they were in 2008 because they learned okay wait a minute like you were talking about we need to be well capitalized. The companies who are well capitalized are fine because they go this is not when last forever they are working diligently on vaccine they’re working diligently on a cure okay so both of those are actually with generally possible I talked to actually one of your people yesterday who’s a client of ours and they said you know what a cure or a maybe not complete cure but something that would keep the people from dying from it is really possible within the next two months yeah okay a vaccine he’s thinking it’s possible even as soon as the fall okay. So you’re not talking about a really long period of time you’re not talking about years and years of this right you’re talking about six months a year maybe 18 months, I think at the outset and so what are you gonna do and the biggest thing you can do right now of course is really what what you and I basically spend our lives doing which is getting educated and providing education. If you have something I did a podcast this morning with Tom Rath who you all know from his books are like the best-selling books of all time on Amazon, you know you Strengthsfinder 2.0 that’s his book okay. So you all know that book and he said you know what you do have to look at your strengths and look at what can you contribute he actually came up a came of this great word I’m looking at it right now to contribufy you know and I love that you know he’s talking about what can we do right now to serve other people and the biggest thing we can do I think is educate people with what is useful for them but we know right now and the other flips the flip side of that is okay then we need to get educated. So I’m looking at it I’m going okay I’m reading the bill right I’m reading the new bill I’m reading things and I’m doing that but I’m also reaching out to colleagues and friends and saying who do you know what do you know about this I mean I’m talking to a guy on Monday that is an SBA loan broker. So I mean I’m gonna send my clients to him and say look you’re an expert in this, I’m not. I can help I’ll put the package together but as far as actually getting it done I need help with that. So the other thing I would say but that the really successful people do and I’ll end with this is they get help right they they’re they’re you know do-it-yourself three most expensive words in the English language. They get help and they have they build their team they get help they find mentors they find people who can do things that they can’t do and teach some things that they don’t know.

Buck: Yeah it’s like the old saying that never let a crisis go to waste right and that’s kind of what we’ve got right now we’ve got a situation where in in many respects it’s a dry run for something that could could be could be a lot worse I mean I’m not saying this is not bad that that’s for sure but as you mentioned this has got sort of a defined beginning and end to it whether that’s you know a few months to a year or whatever the case may be, you may find that you’ve got you know things that you’re contrast test right now and you can look at what happens if you know that the dowel falls off the cliff like it did are you prepared for that what are you hedged in you know what’s your other plan? So not only the you know the opportunities the business opportunities etc but also the defense of stuff and so again great time to sit back and think about that and part of that is your tax planning which again I will tell you as everyone listening to the show knows, to me you can’t you can’t be a good investor without having a good tax plan it just doesn’t make any sense right it’s like only looking at your top line and not looking at your bottom line. So Tom once again wealthability.com. The offer is spectacular one free return along with doing your planning, great opportunity. And I want to thank you again as always for being on Wealth Formula Podcast today.

Tom: Always happy to be here but thank you so much and I want to thank all your listeners because I know a lot of them are medical professionals and you guys are frontline thank you for that.

Buck: We’ll be right back.