Today’s topic is about taxes, President Trump’s taxes, my taxes, and taxes in general.  According to The New York Times, President Trump paid $750 in Federal Income Taxes in 2016 and 2017.  Now before I get started here, I need to say this is not a political or partisan article.  This is about taxes and financial education.  This article wouldn’t be any different if it had been Vice President Biden who paid $750 in taxes.  With that out of the way, let’s get started.

I grabbed some comments from online articles that I believe are typical of how many people feel about this.

• From the BBC on September 28, 2020, Many wealthy Americans use loopholes to reduce the amount of tax they are legally bound to pay.
• From CNN on September 29, 2020, Who pays more in taxes than President Trump?  Basically every American who works hard and plays by the rules.
• From MarketWatch on September 30, 2020, We already know we have two tax systems…One for the wealthy and one for the rest of us.

Before I address these comments, I need to clear up some misconceptions about the tax code.

According to The Tax Foundation, actual tax statutes constitute about 2,652 pages.  Why so many pages?  Why is it so complicated?  It’s because the government uses the tax code to influence behavior.  The government rewards people and businesses who undertake activities that it feels will create jobs or stimulate the economy, and it does so with tax breaks.  If the government thinks owning a home is good for the country and economy, it gives homeowners a tax break by allowing them to deduct mortgage interest.  If the government thinks we should produce our own energy, it gives tax breaks to people and businesses who discover or produce energy.  According to CPA Tom Wheelwright, over 95% of the tax code is not intended to raise taxes but to stimulate the economy.  Translation, 95% of the tax code tells you how to pay less taxes by doing things the government thinks is good for the country and economy.

Now on to the new excerpts and my commentary on each of them:

Many wealthy Americans use loopholes to reduce the amount of tax they are legally bound to pay.
While that might be true in some cases, you don’t need loopholes to reduce taxes when 95% of the tax code is telling you specifically how to reduce taxes.  You don’t need to cheat either.  Honest and ethical people who reduce their taxes, do so legally by utilizing the incentives, not loopholes, set forth by the government.

Who pays more in taxes than President Trump?  Basically, every American who works hard and plays by the rules.
Not true!  President Trump did nothing more than play by as many of the rules as he could, that 95% of the tax code devoted to instructing us all on how to pay less taxes.  For those who didn’t do that, you chose NOT to play by the rules, or at least chose to only play by a few of them and therefore paid more taxes than legally required.

We already know we have two tax systems.  One for the wealthy and one for the rest of us.
Again, not true!  We only have one tax system, and it’s the same for everyone.  Some people choose to partner with the government to stimulate the economy, which reduces their taxes.  Others choose not to.  If I had to stick with the author’s words, I would say it like this; there are two tax systems, one for those who choose to educate themselves about it, and one for those who choose not to.  It has nothing to do with wealth.

According to The New York Times, President Trump paid $750 in taxes in 2016 and 2017.  IN 2019, I PAID $0 FEDERAL INCOME TAXES!  Let’s think about that for a minute, me, just a regular guy, paid no Federal Income Taxes in 2019.

Let’s look at my situation:

• I’m not a billionaire.
• I don’t have an army of lawyers and CPAs on retainer.
• I didn’t come from a wealthy family.
• I spent most of my adult life as an employee earning a middle-class salary.
• I don’t have a post-graduate degree; my undergraduate degree is in Aviation Technology.
• The cost to prepare my 2019 tax return was $1,750.

So how did I do this?  I chose to educate myself.  I read books, listened to podcasts, attended seminars, and networked with other serious investors who were also interested in partnering with the government to reduce or eliminate taxes.  How much did all this cost me?  The podcasts were free.  The cost of the books was minimal.  There were expenses associated with travel and seminars but nothing outrageous.  The membership of one particular networking group costs me $2,364/year.  The biggest expense was my time, the hours spent every week listening to podcasts, reading books, and networking with other investors.  In the two tax-savings examples I cite in Blogs #6 and #28, I saved a total of $62K in taxes.  That seems like a pretty good return on the time I invested in learning about the tax code!  It’s also why I don’t sweat the small stuff, like a $4 cup of coffee and clipping coupons.  The return on the investment of my time associated with these activities isn’t high enough.  See Blog #18 – Do You Have a Scarcity or Abundance Mentality.

The truth is, the truth about taxes is not taught in schools, and you certainly won’t hear about it in the mainstream media; you’ll hear the following:

• Only the wealthy with armies of attorneys and accountants can pay less taxes.
• Those who paid less taxes cheated or used loopholes.
• There are two tax codes, one for the rich, and one for the rest of us.

Hopefully, by sharing my personal situation with you, I’ve dispelled those myths.

Most Americans are completely ignorant about this topic just as I was for most of my adult life.  But now you know; 95% of the tax code is telling you how to pay less taxes.  So, what are you going to do?  Your choices are basically two, get educated, partner with the government, and pay less taxes, or don’t and pay more taxes.

But if you CHOOSE to pay more taxes, don’t complain about those of us who choose to play by the IRS’ rules, stimulate the economy, and pay less, whether it be a middle-class, average guy like me or the President of the United States.  If you believe it’s your patriotic duty to pay more taxes, do it.

For those of you who want to get educated, here are three easy steps:

1. Read Tax-Free Wealth:  How to Build Massive Wealth by Permanently Lowering Your Taxes by CPA Tom Wheelwright.  Reading Tom’s book opened my mind to see taxes in a completely different way, a way I had never heard before, and seldom hear from anyone else.
2. Listen to Tom Wheelwright’s Wealthability Podcast to continue your tax education.
3. Call Anderson Legal, Business & Tax Advisors to get an assessment of your tax situation and what can be done to improve it.  I currently use Anderson, and they have helped me significantly improve my tax situation.  You can also call Tom’s company Wealthability, and they can connect you with a tax professional in their network.  Obviously, you can go to any tax professional of your choosing.  I can tell you from experience; however, that most of them don’t look at taxes the way Tom and Anderson do.

As always, when you make better financial decisions (including how much you choose to pay in taxes), you can make work a choice instead of a necessity.

Finally, I’ll leave you with a quote from Judge Learned Hand, an American judge and judicial philosopher.

Anyone 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 pay the Treasury.  There is not even a patriotic duty to increase one’s taxes.