I’ve had the most exciting topic in the world on my mind the last few days:
Taxes.
(I know, I know – stay with me here).
It started when I was reading a Wall Street Journal article about potential tax changes with the new Trump administration, and it got me reflecting on some interesting conversations I've had with investors recently.
But here’s what really hit me: Even really smart, successful people often misunderstand how taxes actually work. And that's potentially costing them big time.
The Simple Truth About Taxes
A few years ago, my buddy Tom Wheelwright (brilliant CPA, by the way) shared a simple but insightful concept that completely changed how I think about the tax code. Ready for it?
CPA Tom Wheelwright and I discuss “running the numbers” during the 2024 Investor Summit
The IRS basically says two things in the tax code:
All income is taxable
...unless we say it isn't
That's it. And it forms the foundation of our entire tax system.
Sure, people love to complain about how the tax code is longer than War and Peace. But here's the thing – most of those pages? They're literally just explaining all the ways you can legally pay less in taxes.
Think about that for a second...
Flipping the Script
Instead of seeing the tax code as this overwhelming monster…
…what if we saw it as a playbook?
Because that's exactly what it is – a detailed guide from the government saying, "Hey, if you do these specific things, you'll pay less in taxes."
It's not about gaming the system. It's about understanding the rules and playing by them strategically.
Not All Income Is Created Equal
You've probably heard that whole thing about Warren Buffett paying a lower tax rate than his assistant.
People often point to this as proof the system is broken. But there's actually a fascinating reason behind it.
The government strategically uses tax incentives to encourage behaviors that benefit the broader economy.
Think about it this way:
When you create jobs → Tax benefits
When you build housing → Tax benefits
When you invest in businesses → Tax benefits
When you solve problems at scale → Tax benefits
Why? Because the government knows that it's cheaper and more efficient to incentivize the private sector to solve certain problems than to try to solve them directly.
Real Estate: A Perfect Example
This is one of the reasons I'm so passionate about real estate investing.
The government is pretty terrible at providing housing (just look at any public housing project). So instead, they incentivize private citizens to do it through the tax code.
One of my favorite concepts from Robert Kiyosaki captures this perfectly: he says it's actually selfish to only own one house – you're being more generous when you own multiple properties and provide housing for others.
And the tax code reflects this exact philosophy.
The Real Takeaway
If you're frustrated with your tax bill, the solution isn't to complain about the system, or lament that all the tax breaks go to billionaires.
As Tom says: “if you want to change your tax, you’ve got to change your facts.”
So the solution is to understand what sets of facts (like how you earn your income) the government is trying to incentivize and align your wealth-building strategy accordingly.
The playbook is right there in black and white. The government is telling us exactly what they want us to do and offering to reward us for doing it.
What Are Your Facts?
Take a fresh look at your income sources. Are they primarily from activities the government incentivizes (like real estate investing, business building, job creation) or from ones they don't (like pure W-2 employment)?
Take five minutes and list out your income sources, labeling each as either "incentivized" or "not incentivized." This simple exercise might reveal some interesting opportunities.
This isn't about making dramatic overnight changes. It's about understanding the rules of the game and making strategic decisions about how you build wealth going forward.
Remember: The tax code isn't your enemy. It’s one of your best wealth-building friends.