Back in the dark days when I was a conventional investor, I didn’t have a business partner. It was just me, my 401K administrator, and my brokerage account. I’ll readily admit that life was easier and less complicated than today, but it was also much less profitable and less interesting. With the click of the mouse and a keystroke, I bought and sold conventional investments, received a 1099 every year for my tax return, and received the average equity investor’s returns in the stock market, approximately five percent before taxes and inflation. I was on a slow path to the land of financial mediocrity and a retirement that was so far away I needed a telescope to see it.

Today as an alternative investor, things are very different. I have an incredible business partner whom I’ve amazingly never met. He has very specific rules for the deals he participates in, but we do great things together and make a lot of money as long as I follow his rules.

Here are some of his rules:

• Treat your investing like a business by forming an entity through which you make investments and follow the customary corporate formalities
• Hire a bookkeeper to keep accurate financial records and produce the typical financial reports
• Hire a CPA and file timely and accurate tax returns
• Invest in assets that benefit the country and economy

At first glance, these don’t seem too difficult to follow. However, those are only the highlights as my partner’s rules are detailed and lengthy, so much so in fact that they fill volumes, and sometimes it takes an expert to decipher them. This is the one downside of my business partner; he is very legalistic. Actually, there’s one more downside; break the rules, and the penalties are severe!

What are these assets that benefit the country and economy? There are many, but I’ll mention two, housing and energy. My partner believes everyone should have a roof over their head and that we need energy to run the country and the economy. His current requirements for energy investments are coal, natural gas, and oil, but that may soon be shifting to greener energy investments.

So, in exchange for following his rules, what does this business partner do for me?

• He cosigns on loans
• He gives me approximately twenty-four percent of the money for our deals and receives nothing in return

He contributes numerous other things to our partnership, but for simplicity’s sake, I’ll stop at these two. If I say much more, you might be able to determine who he is, and I want to keep his identity a secret. After all, how many people will give you twenty-four percent of the cash for all your deals and expect nothing in return? Unfortunately, not many, and I don’t want to share this guy with you for fear that he might run out of money for my investments.

Ok, enough silliness on my part. I will tell you who my business partner is because he’s available to everyone and never runs out of money. In fact, you already know him!

He is the United States Government, more specifically the Internal Revenue Service!

Amazing, isn’t it? Most of us fear the government and certainly the IRS. We don’t think of them as our partners, but they can be. Who doesn’t want a partner who will cosign on your investment loans and put up twenty-four percent of the money on every deal, and you never have to pay the money back or share the profits. Everyone right? Not true; most people, particularly conventional investors, don’t avail themselves of this business partner who is there for the taking.

If you’re a follower of mine, you know I always try to give real-life examples to make my point, so here goes. In 2019, I made a $100K investment in an apartment building. The loan obtained to purchase the apartment was backed by a government-sponsored entity, Fannie Mae. The first-year bonus depreciation on this apartment was $100K. That means that I paid no taxes on the next $100K of like-kind income, which in the 24% bracket equals $24,000.

What did I do?

• Followed the rules and invested in housing, an apartment building

What did the government do?

• Cosigned, backed, bought (whatever you want to call it) the loan
• Put $24,000 towards my deal, taxes I would have paid if I had invested in mutual funds or some other asset that the government doesn’t consider a priority for the country and economy

Why aren’t you making the government your partner, thereby increasing your returns and making the land of retirement and financial independence visible with the naked eye instead of only with a telescope? It’s a mystery, but ultimately, the choice is yours.

For more on reducing or eliminating taxes, see Blogs #29, #28, #20, and #6.