TVL_E210_joshua_sheats_interview_part_2
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00:00:15.200 | You're listening to The Voluntary Life, where you can hear ideas for finding freedom in an
00:00:23.760 | unfree world. Visit thevoluntarylife.com to connect with the show and hear all past episodes.
00:00:30.640 | Here's your host, Jake. Hi, it's Jake here. Welcome to The Voluntary Life. This is part
00:00:37.040 | two of an interview with Joshua Sheets, who is the host of the Radical Personal Finance podcast.
00:00:43.120 | Joshua and I are discussing how to think about tax, both for entrepreneurs and employees,
00:00:48.560 | and for anyone interested in gaining more financial freedom. In the first part of the
00:00:53.200 | interview, we talked mainly about employees. And in this episode, we go on to talk about tax and
00:00:59.440 | entrepreneurs. So here's part two of the interview. We talked a while there about issues relating to
00:01:05.760 | employees and thoughts about using tax-deferred accounts as an employee. But you did say that
00:01:10.480 | you had some thoughts about the tax strategy and entrepreneurs. And I wanted to give you a chance
00:01:15.200 | to share any thoughts that you have about that. I really appreciate what you're saying about the
00:01:20.160 | opportunities for entrepreneurship in terms of wealth creation. I totally agree with that. I
00:01:24.640 | mean, there are definitely limits to what you can do as an employee. And although entrepreneurship
00:01:30.320 | is a lot scarier for some people to consider, it's the opportunity for generating wealth that
00:01:36.000 | has way, way more power than being an employee. But there is a question of tax too. So what are
00:01:40.560 | your thoughts about tax strategy for entrepreneurs? So let's go back to the three strategies. And this
00:01:45.920 | is a direct way of answering it as far as the timing strategy. So we talked about deferring
00:01:50.320 | income or accelerating income as the first example of a timing strategy. And one strategy for
00:01:55.760 | employees in doing that is to be able to use retirement accounts. But there's another concept
00:02:02.320 | of timing, which is deferring deductions or accelerating deductions. And this is one of the
00:02:08.000 | unique things that's primarily available to entrepreneurs. As an entrepreneur, you have the
00:02:13.120 | ability to take business deductions and to either bring them forward under limitations in each
00:02:18.320 | country that are different, but to bring them forward or push them out. And this can have a
00:02:21.520 | substantial impact on the amount of tax that you're paying. So best example here would be
00:02:29.920 | something like buying advertising. You may be in a business that is going to be well-served by
00:02:34.960 | purchasing advertising space of some kind. Well, you can get to December. You can sit down in the
00:02:41.360 | beginning or middle of December and you can figure out, let's say that you know that for every dollar
00:02:46.000 | you spend in advertising, it has a return of $2 of profit to your company in the future because
00:02:52.320 | you figured out a way to satisfactorily invest the money in advertising and has an actual return.
00:02:57.360 | You can sit down in December and you can look at the amount of profit that your company has
00:03:02.320 | for the year. And you can say, "Well, do we need to go ahead and take some of this profit out now?
00:03:09.600 | Or should we go ahead and expend some of this money on investing into our company? And so,
00:03:16.560 | could we benefit from the deduction being available in this tax year or would we benefit from the
00:03:22.960 | deduction in the next tax year?" And you might find that in December, you look and you say,
00:03:27.280 | "We don't need the money now, but we'll go ahead and we'll just plow the profits right back into
00:03:31.840 | advertising because we know that means next year we're going to have a much bigger customer base
00:03:36.320 | and much more income." Or you might decide to do the opposite. But the point is you can control
00:03:42.080 | your deductions. This is the biggest benefit of entrepreneurship is the ability to take deductions
00:03:47.440 | and to take some of your costs and turn them into deductions. That's a timing strategy.
00:03:56.960 | Now, the next two are also useful with regard to entrepreneurship. The next one is income shifting.
00:04:03.520 | And in an income shifting scenario, we're trying to shift income from a high-rate taxpayer to a
00:04:09.040 | low-rate taxpayer. And so, there are ways where we can shift income from parents who are earning
00:04:14.720 | income at a high tax rate to children who are earning income at a low tax rate. You need to
00:04:19.600 | be careful. In the United States, we have certain rules on tax doctrines, one of them, the assignment
00:04:24.960 | of income doctrine. There's also kiddie taxes and things like that. That'll vary within jurisdictions.
00:04:29.440 | But you can look to say, "Can I shift some of the income from the high tax rate parent to the low
00:04:34.160 | tax rate child?" You can also shift income between a business and you as a business owner. And this
00:04:42.160 | will go back and forth both ways depending on the business entity. In the U.S., you can have a
00:04:47.120 | business structure that's taxed as a separate entity from the owner. And you can also have an
00:04:53.120 | owner taxed as the same entity as the business. And so, in some cases, depending on the type of
00:04:58.640 | tax that you're planning for, you'll wanna go ahead and have the tax flow through the business
00:05:02.960 | to the business owner. On the flip side, in some other cases, you'll wanna go ahead and have the
00:05:10.400 | income taxed first at the business level, at the entity level, and then flow through to the
00:05:15.760 | business owner. And you can also shift income between counties, between states, and between
00:05:22.080 | countries. And let me go with the third one and then I'm gonna apply a bunch of these examples
00:05:26.800 | of 'cause the most powerful benefits is when you stack them. And you can stack them as a business
00:05:31.920 | owner. The third and final strategy. So, we've got timing was the first one, income shifting was the
00:05:36.320 | second one, and conversion is the third one where we convert income from a high rate activity to a
00:05:41.760 | low rate activity. And so, there are a few different aspects of this. One of them would be
00:05:46.720 | changing the structure of compensation from our business from wages, which are usually taxed at
00:05:54.480 | the highest rate, to dividends, which are usually taxed at a lower rate. Or by converting some type
00:06:01.680 | of personal expense that would generally be a non-deductible personal expense into a business
00:06:08.000 | expense. And you can use the simplest, most straightforward example or the most exotic
00:06:13.280 | example. I'll give you an exotic example first. Let's say that I have a real passion for racing
00:06:17.920 | expensive race cars. And this is a real, something I really love doing. So, I'm gonna buy an expensive
00:06:23.680 | racing car and I'm gonna go to the track and I've got all this gear that's associated with it.
00:06:28.000 | Well, if I'm a high income earner and I have a high tax rate and I'm in a high income tax rate,
00:06:34.160 | let's say that I expend $150,000 a year on my hobby. Well, under this scenario, I have to earn
00:06:40.560 | much more than $150,000 a year. Let's say that I have to earn $200,000 a year, pay $50,000 of tax
00:06:47.760 | to be able to spend $150,000 on my personal hobby. The simplest thing that I would do would be to
00:06:53.280 | convert that personal hobby into a business. Now, you have to do this appropriately and you have to
00:06:59.440 | run it as a business. As long as you're running any business like a business, and there'll be
00:07:04.640 | rules that'll vary in different countries, but in the US, that's the key thing. You have to run it
00:07:08.480 | in a business-like manner. Then you can convert all or the majority of those expenses into business
00:07:15.280 | expenses. So, if I'm running a racing team as a profit-seeking enterprise, now the cost of the
00:07:21.200 | racing car, instead of it being a personal hobby that I'm out running just out of my own personal
00:07:26.160 | checkbook, becomes simply equipment for the racing team. Now, my trips, instead of being personally
00:07:31.360 | paid trips to the racetrack, become a key component of the business expense. Now, the mechanic,
00:07:37.600 | instead of my having to hire the mechanic out of my personal pocketbook, that mechanic's wages
00:07:42.480 | become a business expense. Now, if I want to go ahead and if I make money on my racing, which
00:07:47.920 | hopefully I can do that, and there are many ways to do that, but I might even make money on my
00:07:52.160 | racing and I might turn that hobby into a business. So, that's kind of the rich boy toy perspective,
00:07:58.320 | but that's exactly what wealthy people throughout the world do, is they always do something out of
00:08:02.720 | their business entity. Now, you need to be very careful to separate personal enjoyment and
00:08:07.600 | personal expenses from business expenses. If you're going to take the family on a personal trip in
00:08:12.400 | your private airplane, that must not be deducted as a business expense. But if you're taking a
00:08:17.200 | business trip in your private airplane, that is a business expense. That's at the rich boy or rich
00:08:22.400 | girl level. What about at the simpler level? Well, I run a podcast. And so, what that means is I have
00:08:28.800 | to invest in a certain amount of business equipment. So, I have a microphone, I have a computer,
00:08:34.720 | I have a certain amount of business equipment. I enjoy traveling and I like going to conferences.
00:08:39.600 | Well, what I do is I go to a conference and I take my podcast equipment and I record interviews
00:08:45.280 | while I'm there at that conference. And so, if I come over to London and there's some fascinating,
00:08:49.520 | well, maybe it's some fascinating Bitcoin conference and I'm going to go and interview
00:08:54.960 | the global leaders of Bitcoin and I'm going to be there in London, I've now turned that trip
00:09:00.000 | into a business deduction. There are a number of careful rules that I need to follow. But as long
00:09:05.200 | as I follow the rules, I can convert a certain amount of those personal expenses into a business
00:09:11.200 | deduction. So, that can save me, depending on my tax bracket, we've established that there's a 15%
00:09:16.080 | employment tax rate. And if I'm in a 20% personal income tax rate, that can be a savings of say 35%.
00:09:21.920 | And if you expand this out and you think about the fact, I mean, did Peter Jackson, when he's
00:09:28.080 | filming Lord of the Rings in New Zealand, did he pay for all of his travel expenses to New Zealand
00:09:32.960 | out of his personal pocketbook or out of his movie production company pocketbook? Those are all
00:09:38.160 | business expenses. But did he have no fun filming that movie? Of course he had fun. And that's the
00:09:44.640 | power of entrepreneurship because when you start to stack these things together, and let's say that
00:09:49.360 | in here would be just, I like to use extreme examples to illustrate the point. But, so right
00:09:56.160 | now, my show is primarily crowdfunded and it's essentially crowdfunded through a Patreon campaign,
00:10:03.760 | which at the moment, without any advertising, I'm in the process of bringing advertisers on,
00:10:07.760 | but without any advertisers, it nets me after business expenses, somewhere on the range of say
00:10:12.800 | $1,500 a month. Now, if we were to use something like the rule of thumb that we use in financial
00:10:17.600 | planning, and we were to say, how much capital would I need in the bank to be financially
00:10:23.440 | independent with a 4% safe withdrawal rate at $1,500 a month? 1,500 times 12 for 12 months is
00:10:29.040 | $18,000. And divide that by 0.04, and we wind up with, I would need $450,000 of capital in the
00:10:36.720 | bank. Now, there's a big difference between having a passive portfolio of investments, paying me
00:10:42.400 | dividends to live on, versus having an active income. But I'm pursuing a lifestyle business
00:10:47.760 | that I would do even if I were fully financially independent. So, in my mind, there's not that big
00:10:53.440 | of a difference because my business is location independent. It allows me to teach, which I love
00:10:58.160 | to do. It allows me to meet all kinds of interesting people and gives me the personal gratification of
00:11:03.440 | being able to help people. And I love getting those emails. And whether or not I'm financially
00:11:07.040 | independent, I don't buy into this whole, I'm lazy and I sit around and do nothing idea. To me,
00:11:11.840 | that sounds like depression guaranteed. So, I like the work that I do. So, if I look at it from the
00:11:17.520 | perspective of the monthly profit from this little hobby business is $1,500 a month, I basically
00:11:24.160 | created a $450,000 asset for myself just simply based upon the work over the last year. I've
00:11:31.200 | built a $450,000 asset, but that asset is fully tax deferred and it's never taxed because there's
00:11:36.640 | no actual value to the company. That's just what I'm equating it to. Now, compound that with a
00:11:41.600 | timing strategy. I've invested a lot of money now and I'm deferring profits to the future.
00:11:46.800 | I invested a lot of the money during the years that I had a high income. So, that allowed me to
00:11:51.280 | bring forward some of my business deductions up front, which lowered my overall tax bill.
00:11:56.480 | I am also converting some of my activities that I'm interested in regardless into business
00:12:01.920 | activities. So, now if I go to a conference that I would go to anyway, it's not just a personal
00:12:07.040 | conference. I'm pulling a business use out of it and I can build in other businesses. So, now if I
00:12:12.400 | want to pursue a location independent travel lifestyle, I can go ahead and build that.
00:12:17.920 | And then at some point, who knows, maybe I'll change my tax jurisdiction. I'll get tired of
00:12:21.600 | US tax law being as confiscatory as it is and I'll say, "I might move to a country that values me as
00:12:27.040 | an entrepreneur a little bit more than they value me as a taxpayer." And so, now I've built this
00:12:31.920 | revenue that's coming from a global basis and at some point, I could convert that. Excuse me,
00:12:37.440 | I could shift it from a high tax rate country to a low tax rate country. And so, here I'm
00:12:43.840 | converting instead of earning wages, I'm building value and dividends. I'm shifting it from one tax
00:12:50.560 | jurisdiction to another and I've accelerated my deductions in the years that I needed them
00:12:55.760 | in order to create a lifestyle business. And there's a certain component of my personal expenses
00:13:00.720 | that are now going to be properly allocated over to a business checkbook because I'm pursuing a
00:13:04.720 | business that I love. I can't do all that stuff just simply working as an employee at one company
00:13:10.720 | in one place. Absolutely. I think that's a really helpful example. There's a lot of useful content
00:13:16.320 | that you've shared there. And I think the two points that really come out for me as number one
00:13:21.200 | is that if you compare your opportunity as an employee and as an entrepreneur, as an employee,
00:13:27.120 | your tax strategy, I mean, it's kind of a one-trick pony basically. You've got the timing
00:13:31.360 | question of do you put your money into a retirement account or do you take the tax now and put it in
00:13:36.080 | to tax-exempt savings? And again, those accounts in the UK, there's a limit on how much you're
00:13:40.400 | allowed to put into those each year too. So, as an employee, there are strategies but they're
00:13:46.080 | very limited. And what you've just described, Joshua, is that as an entrepreneur, you just have
00:13:52.320 | way more options for looking intelligently at how to minimize your taxes exactly within the law,
00:13:59.520 | but taking into account all the different ways that you can adjust what you're doing in order
00:14:04.320 | to have a really efficient tax strategy. And so, there's just way, way more opportunity to do so,
00:14:09.840 | as well as generating way more value in the process. The one thing I would say about it
00:14:14.160 | though, the second thing that comes to mind is that I think everything that you're saying is
00:14:17.520 | absolutely true and great for entrepreneurs. There is a difference between a lifestyle business and
00:14:22.960 | a startup that is being built with the intention to sell in the end. And a lifestyle business in
00:14:29.280 | the way that you describe it, you can really go crazy with making full use of all these different
00:14:36.080 | opportunities to create an enjoyable life for yourself using your business in that way. And
00:14:43.440 | some of those strategies won't really be applicable if you're building a business for
00:14:47.600 | sale because in the future, people who want to buy your business, they're going to want to see
00:14:52.400 | that you have generated an efficient money-making machine. This is where sometimes the opportunity
00:14:59.120 | to reduce tax can actually warp your business strategy a bit and lead you to do things that
00:15:03.440 | might not necessarily be in the interest of somebody who would want to buy the business
00:15:07.920 | in future. It's not an issue for you and what you're doing because you're building a lifestyle
00:15:11.600 | business and you're having a great time doing it. But I think for entrepreneurs who are developing
00:15:16.960 | a company where they actually want to sell it in future, it's a little harder to use some of those
00:15:23.200 | kind of opportunities. What do you think? You're exactly right. The thing that makes my show and
00:15:31.120 | my advice different than I think many other shows and many other people who deliver advice
00:15:36.880 | is I do my best to point out all sides of a situation because in financial planning,
00:15:41.440 | there is always another side and that is a very important point that you just made.
00:15:45.840 | There are two aspects that I've seen that a number of times. Number one is in the sale of a company
00:15:50.800 | and if you have a company that you believe you're going to be able to sell as an entity,
00:15:55.440 | it's very important that you are maximizing the value of it. In fact, that's probably one of your
00:15:59.920 | best ways to places to invest is to do the things that are going to make your business extremely
00:16:04.480 | attractive and that business is going to be judged based upon its profitability.
00:16:09.200 | So, you are absolutely right. My business at the moment, there's no sale potential. It's purely
00:16:15.520 | built around me and my brand and I don't see any potential of it being sold as a going concern of
00:16:22.160 | any kind at the moment. That doesn't mean I won't spin off businesses from it that will have that
00:16:27.440 | opportunity but at the moment, I've chosen lifestyle business first. The other flip side is
00:16:31.760 | even if you are running a business, it's a lifestyle business, there's always going to be a
00:16:35.200 | trade-off. It's the simple one. Many entrepreneurs are very good at lowering their taxable income
00:16:40.800 | and then they go to apply for a mortgage and find out that, wait a second, what they did to lower
00:16:45.360 | their taxable income didn't help their ability to qualify for a mortgage or I sold a lot of
00:16:50.800 | disability insurance in years past. Same exact thing. "Well, Joshua, I'm making $150,000 a year."
00:16:56.480 | Yeah, but your tax return says that you're making $50,000 a year and so you're only going to
00:17:01.760 | qualify for disability insurance based upon the $50,000 a year instead of the $100,000 plus.
00:17:08.080 | So, there are problems to that but the key thing is as an entrepreneur, you can actually control
00:17:13.840 | that. And so, if you know, "Okay, I'm building this business and I think my goal is to sell it
00:17:18.800 | in about five years." Well, five years of high profitability is going to get you where you need
00:17:24.000 | to go. And so, you actually have control whereas an employee, you don't. Yeah, absolutely. And it
00:17:28.960 | all depends on what you're looking for because there's nothing wrong with choosing to create
00:17:34.480 | a business that's a lifestyle business and totally making the most of that. And there's nothing wrong
00:17:39.920 | with deciding that what you're creating is a startup and that what you're aiming for is
00:17:45.200 | something that you can actually exit from. It's just, I think, with tax strategy as with all of
00:17:51.120 | these other things, you got to be aware of what you're doing and aware of what the consequences
00:17:54.800 | are going to be if you make certain decisions that might down the line impact on your ability
00:18:00.000 | to achieve your end goal, whatever that is. And for any individual, it's going to depend on their
00:18:05.520 | own preferences and how they see the opportunities in their particular marketplace. But the key point
00:18:10.320 | that you're making, Joshua, remains that you just have way, way more opportunity as an entrepreneur
00:18:16.320 | to look strategically at your situation and work out how to generate the most value with the minimum
00:18:22.960 | tax. And I don't think you can possibly get that kind of opportunity from the position of being an
00:18:28.480 | employee. This is one of the great benefits of entrepreneurship is that it opens you up to
00:18:33.600 | actually a lot more independence and a lot more opportunity to create value while still being
00:18:38.720 | really tax efficient. Could I add a few ideas that might be helpful to employees? Those three
00:18:44.800 | strategies, we've specifically focused on applying them to income tax. So timing, shifting, and
00:18:50.800 | conversion are applied to income tax, but they can also be conceptually applied to every other type
00:18:56.720 | of tax. And so my encouragement to employees would be to not just focus on income, do everything you
00:19:04.560 | can to control your income tax, but also look at some of the other taxes that you pay. And these
00:19:10.400 | will vary across jurisdictions, but let me give you some simple examples. Most of us will have some
00:19:16.720 | form of sales tax that we pay. Have you ever looked through and tried to figure out how much you're
00:19:24.160 | actually paying in sales tax? If you do that, and then you ask yourself, "How can I avoid the sales
00:19:30.560 | tax?" You'll be able to save yourself a substantial amount of money. Perhaps this would result in, for
00:19:35.600 | example, in the US and Florida where I live, we have a 6% sales tax on packaged food, you pay the
00:19:41.440 | sales tax. On groceries that aren't packaged food, you don't. So if you just simply make some simple,
00:19:47.520 | careful selections on your groceries, you can avoid much of the sales tax on the food. But if you
00:19:52.160 | start buying primarily packaged foods, there's a 6% additional cost for that. Or you can try to defer
00:19:59.280 | that. So for example, we have a store here that the store credit card gives an automatic 5% rebate.
00:20:04.480 | So anything we buy at that store credit card gets the 5% rebate. In my mind, that helps me if I'm
00:20:10.320 | going to buy packaged goods from that store versus the other store, that will help me to avoid most
00:20:16.320 | of the sales tax that I'm going to pay on packaged goods. Little things like that done over time add
00:20:21.680 | up. Another example would be something like real estate taxes. And so the county that I live in is
00:20:27.840 | a county called Palm Beach County. And in Palm Beach County, we have a higher tax rate on houses
00:20:33.760 | that we own. Comes out to be about 2% of the assessed property value. The county immediately
00:20:38.400 | to the north of me has a lower tax rate. It's called Martin County. They have a half the tax
00:20:43.520 | rate. What basically 1% of the assessed value of the property annually in property taxes.
00:20:49.440 | Now, I could move up there and I could save money on property taxes. And that might be a good
00:20:55.600 | decision depending on my scenario. Or I could live in Palm Beach County and I could pay the higher
00:21:01.840 | property tax rate. Here was how I made the decision. When I was formerly, I bought a house that's
00:21:07.200 | about four-tenths of a mile from my office where I maintained my financial planning practice.
00:21:11.280 | And one reason for that is because I'm able to deduct on my income taxes the cost of interest
00:21:18.480 | on my home mortgage under US tax law and also the cost of real estate tax. So I'm able to deduct
00:21:24.960 | those things against my income tax. But I'm not able to deduct any kind of commuting expenses,
00:21:31.200 | whether I'm a business owner or not. Even as a business owner, I have to drive to my place of
00:21:36.320 | work and then anything from that will be business mileage. But anything between my house and my
00:21:42.480 | place of business is not. It's commuting expenses. So for me, if I were to live farther north,
00:21:48.640 | I would have much higher commuting expenses, many more miles on the car, plus the cost of the time
00:21:54.720 | sitting in the car. And yes, I would have lower real estate taxes, but that would be offset with
00:21:59.840 | higher gas costs, higher fuel maintenance costs, not having to replace my vehicle more frequently,
00:22:06.480 | etc. Whereas if I just simply move closer to my office, I do pay more for the house such that I
00:22:13.920 | do have a higher mortgage balance. But the interest on that higher mortgage payment is a deductible
00:22:18.400 | expense and I'm paying higher real estate taxes, but those are deductible. So I'm able to leverage
00:22:24.080 | and this is actually a shifting strategy or conversion strategy depending, but I'm shifting
00:22:30.080 | some expense from the commuting category, which is non-deductible expenses over to real estate tax
00:22:36.480 | and mortgage tax, which are deductible expenses. So each individual type of tax that we pay has a
00:22:43.120 | strategy. As an employee, you might look and say, "You know what? I'm getting to the point where I'm
00:22:48.000 | earning some pretty decent income. Let me go to my employer and see if they will offer me some type
00:22:53.840 | of partnership arrangement where instead of constantly increasing my income in wages, which
00:22:59.200 | are going to be the highest tax, maybe I can negotiate a small share of interest of ownership
00:23:04.400 | and I can start to be receiving some dividends from the business instead of wages." So don't just
00:23:09.280 | set it aside because you're an employee. You will be more limited in your ability to use business
00:23:13.520 | deductions and use these strategies on income, but income taxes are only one component of your
00:23:19.840 | total tax bill and each type of tax will have a different strategy that can be applied to its
00:23:26.080 | planning. If you buy all your stuff secondhand and you avoid the income tax, excuse me, the sales tax
00:23:31.440 | on that, if you go back and you look at that over the course of time, that might have a substantial
00:23:37.120 | difference on your total expenditure given over time and that might mean the difference to being
00:23:45.120 | financially independent a year sooner when you look out over a 10 or 15 year plan. I think
00:23:49.680 | that's great and I just want to say for people listening to what you're saying, Joshua, because
00:23:54.080 | these are really helpful ideas and also you've mentioned a ton of useful things to think about
00:24:00.400 | and what I think would be really useful to take from it is also to come back to the point that
00:24:04.560 | you made at the beginning, which is that a lot of people are looking at tax from the perspective of
00:24:10.240 | almost total unawareness and not really even thinking about it. The one thing that I'd really
00:24:16.400 | like people to get out of this is not necessarily that they have to understand or implement every
00:24:21.040 | single one of these ideas because there's loads of content there for people to think about.
00:24:25.680 | The key thing I want people to get out of it is just to really be conscious about the opportunity
00:24:31.040 | to minimize your tax and think about how much tax you're paying. Try and be more aware of it
00:24:36.080 | so that you're going to be open to noticing opportunities to be more intelligent about your
00:24:42.080 | approach towards different tax strategies and that's really what I think is the starting point
00:24:48.400 | that will give people a much better approach because if you are more aware of it and if you're
00:24:52.160 | being more conscious of it then you're going to be more open-minded about really understanding
00:24:56.800 | some of these suggestions that you're making, Joshua. I think that's really helpful for people
00:25:02.640 | who have heard the suggestions that you've got. I really appreciate you sharing your expertise.
00:25:08.560 | For sure and the final thought I would leave with people is, unless you have anything else,
00:25:15.360 | final thought I would leave is you cannot view tax planning as the one big thing. There's a
00:25:22.080 | statistic that I like to cite that I read in one of my tax books that in the United States
00:25:26.720 | there are basically about 20,000 people who make in excess of I think it was $200,000 and pay zero
00:25:34.160 | federal income taxes on their money and there are a thousand people who make in excess of
00:25:38.160 | a million dollars and pay zero federal income tax on their money. That's in the lead in and
00:25:43.600 | there was an IRS statistic, our taxing agency statistic which was in the preface of one of
00:25:49.280 | the tax books that I have and that statistic has fascinated me for years because and when I tell
00:25:55.520 | it to people the first question they ask is, "How do you do that?" and what I looked for for years
00:26:00.960 | and what many people look for is they're looking for the one thing. Well, it might exist but I
00:26:05.440 | haven't found it yet. I've never found the one thing that makes a difference with tax planning
00:26:11.840 | but I've found many, many, many little things that might be able to be applied in your specific
00:26:19.360 | situation. So that statistic was in the preface to a book that was I think a 700 page very meaty book
00:26:25.600 | on tax planning strategies. The key is by starting with an awareness of your actual situation which
00:26:31.920 | is where when I teach people to make income statements, I teach them to start with their
00:26:35.760 | gross income meaning all of their income before every single tax and every single deduction
00:26:41.520 | and to put on there every single expense including all the ones that are on their paycheck or
00:26:46.000 | including all the ones that are getting pulled out of their business if they're just running
00:26:50.080 | things through their business. Put every expense on there. Then individually, you as an individual,
00:26:56.720 | you don't need me, you can sit down and you can look at your situation and ask yourself the
00:27:01.360 | question, "How could I save on this expense?" And the key is that many people get overwhelmed
00:27:07.360 | with financial planning is they don't know where to start and they don't know where to continue
00:27:10.960 | and so they try to do it all and they're looking for some outside expert to give them the one thing.
00:27:16.160 | There is no one thing but there are many things and you can coach yourself to being successful
00:27:23.840 | and effective with the many things if you'll take them one at a time. And so just pick one and if
00:27:28.720 | it means you make the decision and you're looking at your sales tax rate in your local community and
00:27:34.480 | you're looking at saying, "Well, wait a second. I've been in the US, we have different states,
00:27:37.920 | some states that do have sales taxes and some states that don't." But if you say, "You know
00:27:41.760 | what? I need a new lawnmower for my yard and I've been meaning to take my family on vacation. I'm
00:27:46.480 | going to spend a couple thousand bucks on this lawnmower. Why don't we just go ahead and go
00:27:50.000 | across the state border and buy the lawnmower in the state that doesn't have the sales tax,
00:27:54.640 | spend overnight there and take the family on a vacation and bring it home and you'll save a
00:27:59.120 | couple hundred bucks on sales tax. Do it." Now, that won't apply to somebody in London. I don't
00:28:04.080 | know what the jurisdiction is there but there's something like that that can be applied if you
00:28:08.480 | take them one at a time and then research each individual category and then track your results.
00:28:13.360 | And you might be able to assemble something like that listener of mine who said,
00:28:18.640 | "Our lifestyle is far better because of this planning." And that's the ultimate goal.
00:28:24.640 | A lot of people, one of my concerns and I love serving the early retirement financial
00:28:28.800 | independence community. That's a core part of my audience and a core part of my message.
00:28:33.360 | But my concern often is that people might place all of their hope on that future eventuality
00:28:39.680 | instead of enjoying and appreciating today. Because none of us are promised tomorrow.
00:28:45.360 | But you can live a better life now and you can work towards financial independence so that you
00:28:50.400 | have a better life in the future. Awesome. I think that's a great point to end on. And I mean,
00:28:55.920 | Joshua, it's been so great having you on. I have lots more things that I would love to ask you
00:29:00.720 | about. We'll have to do it another time. We'll have to do it another time. I'm thinking that
00:29:04.160 | it would be good to talk about investment and a bit more because we really focus on
00:29:08.640 | employees and entrepreneurs. So that's an opportunity for the future. I wanted to say
00:29:12.640 | two things quickly. One is just to make the obvious point that this isn't advice.
00:29:17.600 | Whatever you want to do with your money as a listener is up to you. This is just us having
00:29:22.400 | a conversation. I hope it's useful. But the purpose is to give you food for thought. So
00:29:27.520 | you have responsibility for your own money and do what you will with it.
00:29:30.560 | This is just us putting this out there as food for thought. And the second thing I wanted to say
00:29:36.000 | is that for people who are interested and who are thinking about this, Joshua, where can they find
00:29:40.320 | out more about you and what you're doing? Two best ways. Number one, RadicalPersonalFinance.com
00:29:45.600 | if they prefer just to browse on the website. The website is, I guess, a good way you can read my
00:29:50.480 | about page, but it's not a great fit for podcast listeners. The best way to listen to the podcast
00:29:55.680 | is just search the app store on your phone for Radical Personal Finance and you'll find our app.
00:30:00.240 | It's a free app and that app will have all of the episodes. There's over 200 at this point.
00:30:06.720 | My suggestion, pick one or two of the subject lines that seems interesting and see if you like
00:30:10.800 | the way that I do content. It's very different than many people. If you do like it, listen to
00:30:15.040 | a few shows and then if you want, go back and listen to the show from the beginning.
00:30:20.720 | My vision with the show is to present a cumulative curriculum over the course of a thousand episodes
00:30:27.680 | to try to deliver all of the content that I wish I had had at the age of 15 to be financially
00:30:34.720 | independent at an earlier age. So I generally don't repeat topics. I do my best to only cover
00:30:39.760 | a topic if there's an additional aspect to it, but it's across the board. It's pretty hardcore.
00:30:45.360 | Some of it is very technical, but we talk about the financial planning lessons you can learn from
00:30:49.840 | dumpster divers and vagabonds and hobos. I talk about trust planning for advanced
00:30:54.400 | trusts. You've got to like pretty hardcore stuff, but if you do, the best way, just search the app
00:31:01.840 | store for radical personal finance and dig into a couple episodes that seem interesting.
00:31:05.280 | Thanks so much, Joshua. It's been really fun having you on the show.
00:31:09.520 | Thank you, Jake.
00:31:10.080 | Thank you for listening to The Voluntary Life. If you have feedback about the show,
00:31:15.200 | please email jake@thevoluntarylife.com. If you enjoyed this program,
00:31:20.000 | please share the podcast with your friends or click the donate button on thevoluntarylife.com.
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