The Ultimate Tax Optimization Guide | The Wealthy Accountant

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On today’s episode, Cody and Justin are joined by Kieth aka The Wealthy Accountant who went from a small town farmer to a multi-millionaire tax professional. Want to know how good he is? Well he’s good enough to have been selected by Mr. Money Mustache to do his taxes. That’s a heck of an endorsement.

Keith’s story is truly amazing. The way he self educated himself is as relevant today as ever with the access to training and the changing job landscape.

Hear how he started his business and became financially independent way before that was even a common phrase.

Episode Summary

  • Keith grew up in a farming family in small town Wisconsin
  • They didn’t really have anything to spend money on so they lived frugally
  • The family farm ended up going into bankruptcy when he was 18
  • In high school he started studying the stock market crash of 1929 and became really passionate about investing and he started investing at 18
  • He also started doing the books on his dad’s agricultural repair business
  • That eventually turned into fellow employees asking him to do their taxes
  • Before long he had 50 clients with no overhead
  • We talk about how different the interest landscape was in the 80’s
  • He talks about how excited he was to get a 10% mortgage
  • In totality he’s only ever worked for someone 14 months
  • At about 32 he realized he had accumulated $1M and he was married at this time
  • This being the late 80’s he had a $540/mo house payment and they lived on less than $10k
  • He spent all day outside of tax season just sitting around reading books and learning
  • In reality he never got a college degree but didn’t need one
  • Even though he didn’t have a degree he spent a decade just pouring over books
  • He was a financial independence guru before FIRE was even a term
  • The first blogger he really ran across was Mr. Money Mustache
  • In fact he even did Mr. Money Mustache’s taxes!
  • He points out that before you get to stressed out over tax loop holes and maximizing everything, to stop and realize you’re probably always going to make some kind of income and if you’re serious about this path you’ll likely end up with more money than you’ll ever need
  • We then swap this discussion to the tax specific tips
  • He talks through standard 401ks, backdoor roth 401ks and mega backdoor roths
  • We also get into things like Cash Balance accounts available to self-employed members
  • Keith also mentions that standard brokerage accounts get a bad rap and shouldn’t be overlooked but still recommends filling up your 401k and IRA
  • When coming up with a tax strategy for someone he talks about how important it is to look at a person’s scenario on a long term view and not just year to year
  • You won’t want to miss the deep dives into the mechanisms behind the different IRA contributions, cash balances, and profit sharing which can take you to many times the $19k 401k and $6k IRA limits
  • Then we get into the discussion of tax moves you can make with non-qualified accounts like your standard stock market account that’s not a 401k or a IRA
  • One thing Keith points out is that these non-qualified accounts are tax advantage in a way because when you die, you’re beneficiaries won’t have to pay capital gains tax on all those earnings. Your kids get to take over those shares at the price listed on date of death and all those gains are forgiven from any tax burden
  • From Keith’s standpoint most tax loss harvesting is ok but not worth paying for
  • On the flipside, he’s a huge fan of harvesting gains
  • Harvesting gains is when you’re in the 0% tax bracket and have some room to give so you purposefully sell some shares for a profit and capture those gains without paying taxes on the gains
  • Keith also urges you to consider what your retired minimum distributions can climb up to be if you just let them sit in the traditional accounts until 70
  • Stay out of debt, invest, hit your company match, start young, and don’t be afraid of putting money into those non-qualified accounts.
  • Keith points out how much powerful your impact can be on the world if you take care of your finances early and those non-qualified accounts will be a big part of that
  • We also tackle the ins and out of employing your children and setting up retirement accounts for them at a young age
  • Rounding out the show Keith’s biggest tip is simply to persevere and not to listen to all the negativity in the world

Key Takeaways

  1. Success comes from all corners: How cool was it that he started this from his dad’s agriculture repair business which came about due to a bankrupt farm? This is another example that you just have to keep your eyes open and never doubt yourself.
  2. Invest in yourself:Did you keep track of how much time he spent educating himself? He did all that at no cost. Investing in yourself is important but also don’t settle in on the idea that the only avenue is traditional college programs.
  3. A financially stable you, is a more powerful you: Here we have another example of someone explaining the power of giving that financial independence can bring. When you become financially stable you can make real impact on the world that surrounds you instead of always searching for solid ground.

Call to Action

Speak to a tax professional, research some tax codes, or at least read through some tax blogs and build out a tax plan that looks at your whole life and not just focus on your current year.

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