EP 140 - Why Tax Savings Alone Won’t Make You Wealthy | Dave Wolcott

We challenge the idea that cutting taxes is the finish line and lay out a more durable way to build after-tax wealth. Dave Walcott shares how a family office mindset, investor DNA, and systems thinking can help high earners stop chasing shiny objects and start compounding with purpose. 
• why tax savings without a plan can increase risk and waste time 
• the difference between tax preparers and proactive tax planners 
• using an investor DNA framework to match strategies to lifestyle and goals 
• comparing active strategies like short-term rentals with passive options like oil and gas 
• common mistakes in alternative investments and why an investment policy statement matters 
• thinking in after-tax terms, including capital gains, retirement account taxes, and depreciation recapture 
• how scenario planning tools can model future tax liabilities and liquidity events 
• infinite banking basics, including tax-free growth, policy loans, asset protection, and estate planning angles 
• why private credit is often misunderstood and how it can fit into a passive income strategy 
Go to Holisticwealthstrategy.com for a free copy of Dave’s book. 
Go to taxplanningchecklist.com for an introductory course on foundational to advanced tax planning strategies.

Ready to Get started with advanced Tax Planning? Go to Prosperlcpa.com/apply
Watch the educational video at https://wwww.contrarianwealthbuilder.com and check out the software at https://www.pantheonwealthos.com

Transcript

Beyond Tax Savings Mindset

SPEAKER_00 0:00

So a a lot of people here focus on how to save in taxes. And I know that's what you guys listen to me a lot about. But it's not just about w the tax savings, it's about what you do after the tax savings. And there are so many other things consider in addition to just the tax reduction. And that's why it's a really great opportunity that we have Dave Walcott here. And he and I have a common interest. I talk a lot about holistic tax planning when we're looking at all the different assets, family relationships, time periods, and potential strategies and how it all comes together. And Dave talks about wealth, holistic wealth plan. And so we're gonna have a great conversation about how you can combine all these concepts and look at it high level. And also we'll talk about maybe since the last time we chatted about some strategies for high incomers, maybe some of the things that he's working on and we're changing and things that you can do to make sure that you're mastering these wealth-building strategies, looking at everything in a holistic manner. So Dave, I know you've had we've had you on the show before. Uh it was a really good conversation, but why don't you reintroduce yourself in a couple uh in 60 seconds or less?

Tax Preparers Versus Tax Planners

SPEAKER_01 1:26

Yeah, thanks, Mark. Appreciate that. Yeah, so essentially, um, you know, I I started my journey in the traditional, conventional sense of, you know, building wealth uh in Wall Street through 401ks, you know, maxing those out, investing in 529 plans for my kids, you know, and in 2000, I completely, after the uh the tech bubble back then and starting a family, uh got completely burnt out on that. And so I transitioned into really understanding how the ultra-wealthy make money. Um, you know, how are the top 1% actually building and mastering wealth? So I started investing in private assets, everything from real estate to oil and gas, actually back in 2000, um, and a lot of alternative assets. Um, and now I've built uh a business pantheon to really help other investors uh learn what is the blueprint, what is the roadmap for building true uh holistic wealth and living your best life? Right.

SPEAKER_00 2:32

So a lot of people focus on just how to save money in taxes a lot of times because they're getting hit, a lot of high-income owners are getting hit in the head with taxes. But, you know, let's talk about, tell me about your thoughts on why that might be a mistake.

SPEAKER_01 2:46

Well, the first thing is it's all about education, Mark, right? So it's great that you have a show like this and you're actually being a thought leader in the industry. Um, I literally fired actually five CPA firms in the course of, you know, running my business. We kept doing better and better every year and we thought things would get better. Uh, and we just ended up paying more and more in taxes. So I'd just go up the ladder and hire a bigger, more prestigious CPA firm. Uh, but what I learned later on is that they were tax preparers, they weren't tax planners, right? And so we weren't actually strategically looking at my taxes in terms of, you know, how I could actually create a proactive plan to reduce my tax liability overall.

SPEAKER_00 3:33

Yeah, you know, it's funny. We had um one of the big four companies, which I had interned interviewed for in the past, uh they had a group of partners that came to me. This group was uh filing their taxes, they're not doing anything besides what is like commonly known for tax reduction, which is just tax deferment vehicles, very limited. And while they were so big and prestigious, they weren't doing anything to really help them in tax reduction. And these guys were paying six figures in taxes, just getting hit in the head over and over again, and in spite of having access to so many professionals, nothing to do uh to reduce their taxes. Um what I want to know from you, what are your thoughts on? You know, we have a lot of clients that are high W-2s, especially high W-2s with RSUs, so not as much liquidity. And how should these folks start looking at wealth outside of what you can put into the 401ks and money into the public markets?

SPEAKER_01 4:33

Yeah, so great question, Mark. And, you know, it's interesting. I really think there's a great analogy, right? It's really like a Rubik's Cube, right, is the way I see it. Because you've got tax is one dimension, you've got investing is another dimension, uh, you've got your time, right, which is actually really important. Um, and then you have risk tolerance, right? That's in there too. And so all of these things are really kind of baked into this kind of complex dilemma that we face in terms of, you know, how do we actually maximize our investment yields? How do we really minimize, you know, our tax burden? And I think it all really starts with, you know, education and understanding, first of all, what's in what's possible uh with proper tax planning, but also understanding yourself and your investor DNA. So let me give you a great example, right? You know, typically end of year, uh, a lot of people are throwing around all kinds of different strategies. And let's say, let's talk about a short-term rental, right? Uh great opportunity for to offset active income. Uh, however, you have to understand that you're going to be now managing an active business. And most people I know are either completely short on time as entrepreneurs or high-income business owners, and they don't want to take on another business. The other thing is it increases your risk because if you buy wrong in the beginning, you could potentially lose that equity that you put into that. You also have to finance the property, right? And then you have all kinds of other risks, right? Now, there's other opportunities like investing in oil and gas, for instance, where it's just a passive investment, right? And you write a check and then you get that tax offset and you get passive income tied to it. So those are just two examples of things that I think it's really important to really think through and not just, you know, choose an investment based on the inherent, you know, nature of the tax benefits of a strategy, right? But it's also about how can that actually align again to your D your investor DNA, how can that align to your lifestyle? Um, and I'll throw out one other example, which is a great thing that people can really think about, but often don't really talk about. And that's actually creating a business, right? So if you're a high-income W-2 earner, right, I'm sure you don't have much extra time, but potentially you you are doing a lot of investing, let's say, and you can create a business outside of that investing. And now you can start to create some deductions for yourself. You're traveling to destinations. Maybe you're going to look at an investment property. And oh, by the way, you take your family there for vacation as well. And you got them into the business as well, right? So there's different opportunities like that. Like we actually have an international property uh that's a rental property, and we've been able to enjoy uh taking our family there on vacations uh internationally. And now there's even a strategic byproduct, which is we've gotten our kids involved in that business aspect, right? So that's why I think this is really this multi-dimensional thing, Mark. And it's not just about the tax benefits, it's not just about the actual investment return, but you really want to think about these things comprehensively.

Alternatives Mistakes And Investor DNA

SPEAKER_00 8:02

It's funny because we use such similar language. We just did an episode uh on what we call your tax planning DNA. And some people want to take an aggressive stance and pay as little of the government as they can. Some people have more time and want to build some sort of ex some sort of side business. And we like that for high W-2s because it gives them access for right to write-offs for the first time. And then they're if you do it big enough, then you can add in all these other features, maybe bring in fringe benefit opportunities out of the sole proprietorships or create management companies and so even solar panels on top of the short-term rentals. But at the same time, you have these busy surgeons that get so seduced by the savings, unless they get help from their spouse, a lot of them quickly realize their time is not very well spent managing a rental property because they're so good at what they do in their day jobs. So it just it's so uh custom to each person. Um, so you know, we get a lot of our questions from our our clients in our audience about you know where to put their money in and where, you know, there's all these sort of ways to invest in different things, right? Like oil and gas, passive real estate syndications, all these passive funds. What are some of the biggest mistakes people make when they start moving money into alternative investments?

SPEAKER_01 9:24

Yeah, I think that is the biggest mistake, Mark, is really not understanding your own investor DNA and having a clear wealth strategy plan. So inside of our family office, we help people, you know, really create this investment policy statement that's really thorough and comprehensive, right? It's a blueprint that helps you identify, you know, what is your risk tolerance, right? What assets do you like, right? What is your, what are you uh innately uh aligned to, right? There might be some asset classes, you know, maybe at real estate, real estate is a people business, right? If you're not a people person, right, maybe you would be better off in, you know, a day trading, you know, or a crypto or something like that, right? So it's really understanding yourself. And we've had many sentimillionaires uh come on our podcast, right, and really talk about that. And it's one of the most common things they talk about is really self-awareness as actually the biggest trade. So once you can understand yourself and your preferences, you can now start to align your investments and your tax strategy that support really what you're trying to accomplish. So is it passive income? And then why passive income? Is it to try to create freedom in your life that you don't have today? Okay, well, how can we look at maybe some, you know, tax effective ways to be able to do that? Or like, you know, there's also multiple ways, like you can make chess moves, right, that are multiple moves. So for instance, we have a private credit fund that has strong double-digit yield, which is great for income. But some people who don't want the income, what you can do is actually pair this with, say, an oil and gas investment, right? So you can kind of have your cake and eat it too, right, by leveraging multiple strategies together and do that all in a passive way, right? That doesn't take up your time. But I think the, you know, the first step is people should really just, they really need to create a strategy, Mark, right? And and as much as I love, you know, what CPAs do and the tax planners, you also have to work, you know, with your financial uh, you know, team, you know, it's an overall team and you should be thinking about it as a family office. You know, even if you don't have a hundred million in net worth, it doesn't matter. You got to be thinking about, you know, uh your asset protection, your estate planning, your um, you know, your tax planning, your investments, right? And so that way every time you make a decision, is everything actually aligned? You know, not just, you know, not just our tax strategy, right, but our investment strategy, our goals, and everything.

Risk Concentration And After Tax Wealth

SPEAKER_00 12:04

Yeah, you know, I see sometimes people get overzealous about the tax savings, and sometimes they actually find they're taking it a little too far where the money they're spending to reduce their taxes, whether you know they're financing the purchase of something they don't need or they're investing into some sophisticated strategy, they take them below the threshold where they even need the tax splitting. So, like the down payment is 15% of an asset, but they're already in a 15% bracket. They could just pay the tax and not taking on any risk. So certainly there has to be a holistic look at the impact of where you're putting your cash and thinking long term. And I'm wondering how do you look at the concentration of risk, whether you know we're balancing between stocks, retirement accounts, passive investments, real estate. How do we how do we manage the risk and the concentration of our investments?

SPEAKER_01 13:02

That's such a good question, Mark. And I've been trying to solve that for 20 years now. And we are literally just launching uh this month a software product called PantheonwealthOS.com. I think we actually have a few seats left uh if people want to get in on it. Uh, but essentially what we're doing is it's a you know complete personal financial statement uh that's you know basically running your investments like a family office. So you can put in all of your assets, all of your alternative assets, real estate holdings, uh crypto, you name it, everything kind of comes in through AI, right? We also have APIs into traditional investments. Um but you know what we're managing, Marcus, we're actually looking at tax liability uh and not only a given year, but let's say years down the road. So when you sell that syndication and now I have recapture that's potentially coming up, or uh I'm going to sell my business, you know, in six years, right? Am I proactively planning for that big liquidity event? Well, now we actually have a software tool that can actually, you know, forecast and do simulation modeling so we can say, okay, what if I put something into oil and gas? What if I do some section 179 on equipment, right? What how what if I do some of these things? How does it impact my cash flow? How does it impact my balance sheet? Uh, does it align with my risk or not? And you can do some scenario planning comprehensively so you can make a better decision.

SPEAKER_00 14:37

You know, and it's good that you you're thinking like this because it's really easy to be deceived as far as what wealth do you have and what's the financial implications of building your wealth. So you can look at your stock portfolio, for instance, and you can see that you have a million dollar in in value of your stock portfolio. Well, let's say you all had only invested about 700,000 in the stocks and had grown to a million. Well, sure, you could sell it all out and have access to a million dollars, but part of that is gonna be taxed. So in this example here, you have$300,000 subject to cap gains. So net of cap gains, how much wealth do you actually have? Same thing for your retirement accounts. Or are there tax mitigation strategies that align with that? Thinking about how much long-term wealth are we actually creating and having access to with all these different things we're putting our money in. And with syndications, it's really interesting. You get a really nice write-off usually with these real estate syndications, bonus depreciation. But you eventually have a recapture down the road. That's not the end of the world because you're buying time and using those losses to reinvest in other things. But if you don't plan for this, you can get hit in the head really hard.

SPEAKER_01 16:01

Yeah, completely. And that's exactly that's another use case we have in the software, whereas so many people don't realize this. But if you have all of your holdings tied up in 401ks and stock sponds and mutual funds, you know, that's 7% average that you're thinking that you're making over that long-term strategy after taxes, fees, and inflation, it's really like 2.5%, right? But you if you could get into, you know, true tax advantage growth that's compounding, you know, in some kind of syndication like oil and gas, for instance, or yes, and real estate, where you can look at either 1031 or things like that, uh, it's amazing, Mark, to literally see and graph out how much higher and faster your wealth will grow when you're in tax advantage vehicles. And I would argue it's probably one of the top two. Like that in yield is actually, you know, one of the most important things to look at uh when it comes to really growing and compounding your wealth.

Infinite Banking Pros And Cons

SPEAKER_00 17:03

Yeah, I'd be really interested to see how those numbers and projections come together. Because it sounds like a really uh valuable way of thinking about things that a lot of people aren't. Um, I got a question because I think you've you've done you've advised on infinite banking, right? Yes. What are your so I'm trying to understand because I've been thinking about this myself and where what we're gonna do with our liquidity and the cash on hand of the company. One idea would be to do infinite banking, put into a life insurance policy that you could borrow from, but what's the benefit of doing that as opposed to doing it by putting money into the stock market and borrowing from it? What what tell me about the advantages or pros and cons in this scenario?

SPEAKER_01 17:48

Yeah, 100%. So, for one thing, you know, inside of a properly structured infinite banking policy is that you have tax-free growth. You're not gonna have that in the market. You have the ability to borrow against it because your cash value is actually collateralizing a loan against that. So, yes, you could take a margin loan against your stocks, but what if the stocks drop? You know, you could be getting a margin call on that, right? So in this case, we don't have that. And you have partly a guaranteed return in infinite banking. And, you know, life insurance or mutual life insurance companies have actually been paying dividends uh since the Civil War, right? So you actually have some guarantee to that. And then another way to kind of look at the value, I I know this is hard for people to kind of get their you know head around sometimes with infinite banking, but again, it's a multidimensional uh type of strategy that when you look at it um and isolate some of the value points that it does, right? So we talked about tax-free growth. We talked about the ability to borrow against it, right, and be your own bank. Obviously, you have a death benefit, right? That's part of it too, that you get to, you know, give to your kids. It's also part of an estate planning strategy where you give it to your heirs and avoid uh taxes and probate, right? Um, and then you can also use this and you know, into your later years and then borrow against it and kind of create this income stream, right, that can be tax free because you're taking a loan against it. So that could be your passive income kind of plan, right? So there's just so many different things. The other thing is it's actually provides asset protection. So if God forbid one, you know, one of your teenagers gets in a car wreck and someone comes to try to sue you, the first place they're gonna go is your brokerage account and your house, right? And life insurance, they can't touch it. So what's the value of all those different things? You know, well, you know, that's that's really the cost of you know the insurance and kind of setting up that policy. And that's why I've been practicing that for 15 years versus keeping it in the market.

SPEAKER_00 20:03

So you've looked at you've done a lot of due diligence in different types of investment strategies and asset classes. Right now, what do you think is the most understood? Sorry, let me say that again. So you've evaluated lots of different investment strategies and asset classes. What do you think is the most under appreciated or misunderstood investment opportunity?

SPEAKER_01 20:28

I think it's definitely private credit, right? This has been something billionaires have been actually chasing for the past decade. And the now combined annual growth rate over the past 15 years is over 20%. Uh, and so therefore, we've created actually a fund uh with an institutional quality sponsor we've been working with for now three years. Um, that's literally, you know, it's got risk levels lower than what bonds are, but it's got equity-like return structure to it. Uh, because what we're doing is we're actually giving small businesses the opportunity uh to get access to funding as they grow their businesses because the banks continue to tighten regulations and not give funding to businesses in certain types of industries that are really growing. So we're seizing that credit gap and then being able to provide that. And so as investors, we're getting really handsome double-digit returns uh off of that. Uh, and then of course, it's serving uh these business owners as well who need access to capital.

SPEAKER_00 21:40

So I'm guessing here this is interest income in the K1 or correct okay. And that also means you could probably invest because it's a passive investor, you could probably invest with a Roth IRA into this.

SPEAKER_01 21:54

100%, Mark. We have so many investors that are coming in with self-directed funds, and the way I think about this is like, okay, look, you know, take any 20-year period in SP, probably a 7% return, maybe 8%, whatever you want to call it, right? Uh, but we're doing returns in the 20s. So you could literally, you know, 3x yield you're getting from, you know, a retirement vehicle and still get now the tax savings through that vehicle, uh, and then get the appreciation growth. And that, and not only is it is it 3xing it, but we're compounding, right? So we're in the 20s, and that's compounding each year, each subsequent year on top of that. So uh really great way to leverage a self-directed.

SPEAKER_00 22:44

Interesting. Very interesting. One area that I think people are I don't know why people aren't as enthusiastic as me about this is qualified opportunity zones. Even now, where you can't defer the gain, you if you have a profitable OZ fund and it can grow tax-free, that's pretty exciting. And then once July hits, we're gonna be able to defer it for five years, step off the basis, and there are some very resourceful facilitators that may be able to reduce the capital gain when it's recognized, to give you financing or refi when the capital gain is recognized, and then that's another way where we don't have to worry about the tax effect of the future growth of the fund. There's so much cool stuff out there. Yeah, agree. Yeah. Um, so tell me about some other things that you may so I mean this credit stuff, I I know I've heard about it, I've looked into it, and I've heard some interesting uh arguments for it. Uh, what are some other things that you think might be overlooked or some really interesting things that people may not be aware of in the investment space?

Avoiding Shiny Objects With Focus

SPEAKER_01 23:58

Yeah, I think Mark, it's really all about creating a strategy, number one. And and we find too often people are kind of chasing shiny objects, or you get to the end of the year and you find out, wow, I've got this massive tax bill due. Um, so again, people then are chasing these, you know, tax opportunities. And it seems like every day there's more and more kind of shops opening that are like some kind of you know tax deferral strategy, but they're really just trying to position, you know, uh opportunities, right? But if you have that comprehensive strategy, right, and you know, what we call as an investment policy statement, which you'll find in any type of family office, you're gonna create boundaries for yourself, right? And you're going to be greater aligned into your goals, right? Are you looking for income? Are there asset classes that you want to target, right? Most people, again, they're going after all kinds of different asset classes, and therefore you can't get better. Our belief in following so many different family offices is that you focus on one to three asset classes because then you get smarter and smarter on each deal. You see better and better deal flow. Your due diligence increases more and more, and then you become focused, not diversified, right? Wall Street calls it diversification, but it's really diversification, right? Just spread, spread your capital across like a hundred different types of equities. In this case, we're having very clear focus on particular asset classes that align to our investor DNA, align towards our goals. We're looking for tax efficiency, uh passive income, and some type of upside potential.

SPEAKER_00 25:44

So do you help them run the due diligence or are they involved in any of the due diligence when you're evaluating these opportunities?

SPEAKER_01 25:54

Yes. Uh we we provide that. And it was one of the things I missed out as an LP is you know, how do you do due diligence, right, on these types of opportunities? Uh but at Pantheon, we're able to, uh we actually, uh our chief information officer comes from an institutional background. He was managing families of millions up to billions. Uh so we do very comprehensive due diligence on the opportunities we look at. Um, this is a relationship-driven business, right? So we spend a lot of time uh with family offices and ultra-high net worth communities trying to find the best of the best uh types of opportunities. Um now we're using AI as well to really accelerate our due diligence, uh, how we look at opportunities, um, how we vet them, and how we can bring those uh to our investors. And we're also using uh as part of our investor committee, uh our mastermind community, so we get direct uh investor participation on the opportunities we bring to investors.

SPEAKER_00 26:58

So if someone's listening to this and they say, well, this sounds really cool. Like I want to learn more about oil and gas. I want to learn more about credits, and I I know I I have I gotta put my cash somewhere so I don't lose it to inflation. What's what's the best first, like how do they get started? What's the next step, the first step they make in in taking action here?

SPEAKER_01 27:20

Yeah, the next best step is really, you know, it's all about creating that plan, Mark. Um, and we, you know, we're happy to provide a free consultation for clients in terms of uh starting to create that plan and get some clarity on what that actually looks like uh before you start deploying capital, before you start really moving things around. And then once you can kind of have that plan in place, you can understand do I have a gap in my tax strategy? Right? Um, do I have a gap? Maybe I should be looking at infinite banking because I have a liquidity problem, right? A lot of people are talking about passive income all the time. But, you know, it's it's quite fascinating, right? And we spend a lot of time actually on the psychology of money and wealth, right? And what does it really mean? People are looking for freedom, but freedom of what, right? You could simply put a year or three years worth of capital into your infinite banking policy and let it grow tax-free, and you'd have access to capital. And now you can now deploy other capital towards growth opportunities, right? And turn that income into, you know, when you need it later on down the road, right? So there's really a lot of ways to do that, but not until you actually have a well-thought out plan that aligns, you know, with your goals and your actual vision, uh, can you really accomplish it? Yeah.

SPEAKER_00 28:43

And I think um, going back to what you said about investing in what you know, um, because what we've seen, we have a lot of clients who are who have the flash, you know, the flashy object syndrome, and they will change their investment strategy. They'll do a multi-film here, a short-term real year, commercial there, and they never spend enough time to actually understand the uh the market and the the environment that they're investing in. And I find that those are the ones who don't really succeed as much, but the ones who are more focused and dive deep into understanding their market and what they're doing are the ones who see the greatest profit and the most freedom and the most success.

SPEAKER_01 29:25

Yeah, Mark, it's all about creating a system, right? This is what we want to do, right? Wealth is not a one-time event, it's about creating a system. And the more you can automate this, systematize things, you can actually create this compounding flywheel of your capital.

SPEAKER_00 29:44

So if someone wants to learn more about how you look at things and discuss some of the topics today that you touched on, what where can they go? What's the next best step for them?

SPEAKER_01 29:54

Yeah, well, I'd like to offer a free copy of my book uh to your listeners called Holistic Wealthstrategy.com. Uh would probably be a great place to, you know, kind of learn a little bit more about these concepts, and then really free feel free to reach out.

SPEAKER_00 30:08

Awesome. So say that link again.

SPEAKER_01 30:12

Holisticwealthstrategy.com.

SPEAKER_00 30:15

Holisticwealthstrategy.com. And if you guys want to get started with some advanced tax planning, uh, one place that you can go is uh taxplanningchecklist.com if you want an introductory course into foundational to advanced tax planning strategies. Dave, thank you so much for your time.

SPEAKER_01 30:33

Yeah, you bet, Mark. And let me throw out uh two more just for their another, we do have an educational video that might be of interest for people as well on these concepts. That's at contrarianwealthbuilder.com. Um, and then if they wanted to check out the software, it's pantheonwealthos.com