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Steve sits down with guest Kerry Lutz to talk all things finance. From how to pay the minimum amount legal taxes, to tax incentives that motivate Kerry, and even some hot predictions about inflation. You’ll want to make sure to listen to every minute!
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Episode Transcript
Intro:
You’re listening to the Practical Tax podcast with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz LLP, a tax law firm.
Steve Moskowitz:
Hello and welcome to everyone out there. We’d like to thank you for joining us today. And I’m Steve Moskowitz, the host and I’d like you to go ahead and introduce yourself and tell the audience about yourself.
Kerry Lutz:
Okay, well, I’m Kerry Lutz, recovering attorney, podcaster, communications consultant, work in alternative investments and have got a podcast, the “Financial Survival Network” that has been running since 2011, over 7,500 episodes.
Steve Moskowitz:
Very nice. And tell us what your thoughts are when you think about this time Lutz, the favorite time of the year, tax season.
Kerry Lutz:
My favorite. My thoughts are how can I pay as little as possible and stay out of trouble? Legally, ethically, pay the least amount of taxes possible. As judge Learned Hand said “It’s every Americans duty to minimize their tax burden through legal means.”
Steve Moskowitz:
I remember many moons ago studying that case in law school. And there’s so much to that. And that’s what we’re all about in our firm. Where you say, “Okay how do we legally save taxes?” And what everybody should realize is that the tax laws are two purposes. Everybody knows one purpose. They know extracting taxes from us but the other purpose is a system of incentives. Because in a democracy, the government can’t order us to do something. But how do they get us to do something they want us to do because it’s good for the economy but they can’t order us? They give us tax incentives. And tell us what are some of the tax incentives that motivate you to make an investment or do something differently?
Kerry Lutz:
Well, obviously when it comes to conventional investments, real estate really has no equal. And I look at that tax deductibility of interests and non-cash outlays like depreciation, bonus depreciation section 179, all of that. When I look at it I like real estate, I like assets that have cashflow that can be leveraged. Different types of assets because not only the tax advantage but they do well in inflationary times.
Steve Moskowitz:
Excellent. And we have a lot in common. I see we’ve graduated from the same law school.
Kerry Lutz:
Oh, hey, the best little law school on Worth street. We used to call it.
Steve Moskowitz:
Indeed. And we’re talking about real estate. Just yesterday in The Wall Street Journal, I was quoted about the value of DSTs, Delaware Statutory Trust. And most people are familiar with 1031s but DSTs, Delaware Statutory Trust provides such an additional benefit for clients. How do you feel about ’em?
Kerry Lutz:
Well, very familiar with trusts. I have several of myself. The benefits of trusts. So many people really don’t have a clue but that’s how the super wealthy manage to hold onto their wealth and pass it on to success of generations without devastating taxes, asset protection, so many different benefits accrue to you. The ability to buy things in the trust and basically deduct all expenses that you wouldn’t otherwise be able to, had you not owned an asset in the trust. Meaning, well, you’re the expert Steve, but the list goes on and on and on.
Steve Moskowitz:
Well, one of the reasons you do it is for asset protection ’cause today in our society, a lot of people feel that if you have something it’s unfair and the only way to make it fair is to take it away from you. And so we talk about trust and of course when we do estate planning, we talk about trust.
Kerry Lutz:
Yeah.
Steve Moskowitz:
And also you’re very interested in real estate investments and there’s so much that we can do here. Most wealth is through real estate and that’s basically what you’re doing in your show and your podcast. And tell our audience more about the podcast.
Kerry Lutz:
Oh, well we try to get a handle on what’s really happening, what’s going to happen, the trends.
For instance, when the pandemic hit and the government started basically giving out helicopter money, stymies, as they become known in the vernacular, I told all of my listeners, this is a golden opportunity for you to really become wealthy. Because knowing that inflation’s baked in the cake, you can buy assets that are going to appreciate substantially because of inflation. And I said, you should take your PPP money, even if you don’t need it, you are legally entitled to it. The government has shut down your… Either shut down your business or injured it in such a way that your income potential has diminished. Take that money because for the simple reason, you’re paying for it anyway, in the form of higher inflation. And that’s just one call who’ve called. Well, many years ago when I first started the peak and gold, peak and bitcoin several times, can’t say I have a crystal ball. I’m not always right. I didn’t anticipate that precious metals and mining stocks would be in this recession for eight years but I knew eventually they’d come out of it.
Following trends of government prof legacy of the inability of the government to manage its fiscal house to keep it in order. All these things have brought us to where we are today. Energy. I knew exactly what was going to happen with energy. Just a lot of times, you know what’s gonna happen, Steve, you just don’t know when. So they always say, you should either predict what’s gonna happen or when it’s gonna happen. But don’t do both because that’s when you run into troubles
Steve Moskowitz:
But you did predict about the inflation. A major part of your career was dealing with inflation. Tell us how you’ve benefited from the inflation and the people that listen to you and how you get, especially out when we see the inflation’s really taken off. And may go even higher based on the current world situation.
Kerry Lutz:
Oh, it will no doubt. So you and I were both alive during the seventies. The majority…
Steve Moskowitz:
Small boys, of course.
Kerry Lutz:
I remember it well. I remember the US going off the gold standard you know, I was only 14 years old then, but I do remember it and followed the events closely and really came to an understanding of inflation. Finally, when I saw Milton Friedman’s special “Free To Choose.” And then the whole thing that he said is that inflation is first and foremost always a monetary phenomena. And we’ve had inflation since the dollar… Basically the less the connection of the dollar to gold, the more inflation we’ve had. And the past to 40 years of lower rates, lower interest rates and managed or controlled inflation probably higher than what it was stated but it wasn’t like it is today. But knowing that we just created $6 trillion out of thin air in the past, like in 08 and 09, the government gave all the money to the banks. The banks then deposited the money with the fed for are guaranteed 25 or 50 basis point return. And thus that money was sterilized. But when you give the money out to individuals, businesses, they’re going to spend it. And when they spend it, especially in a situation with the pandemic where your production of goods and services goes down 30, 40, 50%, you have to have inflation based upon the quantity theory of money. Meaning the more money you have, fixed number of goods, the higher the price of those goods. Here we had lots more money chasing lots less goods and services.
So personally I was literally desperate to find a home. And I didn’t wanna just buy a home for the sake of just buying one. I wanted the right home. And it took me a good year to do it. But in that time the nominal price of the house has jumped though its also in Florida, the nominal price is up probably about 70%. And that’s just one example. So buying assets, getting rid of dollars. But buying assets that have cash flow, obviously your home doesn’t, but you have to live someplace. Also, my clients I knew would be beneficiaries of the inflationary scenario that was about to erupt and really did a full court press to acquire more clients. All of these things worked out amazingly well and pick up a little, I have my core precious metals holding. So far junior mining stocks have not been the beneficiary of this inflation, but I expect that to change shortly
Steve Moskowitz:
Kerry, we have an awful lot of Californians that are joining you in Florida because they have to put up with a state with no state income taxes and how nice that is. You know, another area that comes up now, especially with the pandemic. Tell us about your work with the distressed assets.
Kerry Lutz:
Well, that was two careers ago but we used to buy and sell charged off credit card debt and other distressed assets. And look, Warren Buffet says, “Basically I like to buy assets at a discount.” And to do that, you need to be in markets that are not rational. All right? Like for instance, housing is a rational market. You can pretty much figure out what, or real estate, what any given piece of real estate is worth with a little bit of research. You don’t need an appraiser. You can figure it out on your own. But assets that have lost their value, assets that their value isn’t easily ascertainable. That’s where your knowledge can really pay off.
Steve Moskowitz:
Excellent. And tell us more about “The Financial Survival Network.” You basically gave up everything else you were doing for that. Tell us more about it.
Kerry Lutz:
Well, I became a full-time podcaster, professional podcaster June 7th, 2011. So in two and a half months, it will be exactly 11 years but I was doing it prior to that. And just the ability to be able to reach a lot of people without having to own a traditional media outlet was really appealing to me. And I just found it very fulfilling educating people. I view my role as a messenger. I get experts on in every aspect of markets, economics, real estate, trusts, you name it. Investing, et cetera. And you know, the ability to pass that information on without a filter, you know, when I was doing it at first the big tech companies basically didn’t really care what I was doing. But now over time, the big tech companies have tried to become a filter. But we still have tens of thousands of people every month Steve, who tune into the show to find out our views, my views on what’s happening now. And to listen to the experts that are kind enough to donate their time to the show.
Steve Moskowitz:
Maybe someday you’ll invite me onto your show.
Kerry Lutz:
Hey, absolutely. Anyway, taxes are a big deal because most people don’t really think about it but it really is your largest single expenditure.
Steve Moskowitz:
Absolutely. And speaking of that one of the things that you’re very into which is that my heart and soul is maximizing write-offs. Tell us what you advise in this area.
Kerry Lutz:
Well obviously you wanna own your own business because a lot of expenses that you could not legally write off, once you own your own business, they become easier. Like for years I haven’t done any travel other than business related travel. And I might combine a trip with business and pleasure but the primary purpose will be business. Whether it’s going to conferences around the globe, Canada, US, UK, all these things, looking for real estate opportunities, et cetera, the use of your vehicle for business purposes, the ability for retirement planning and expenditures that you get from having a business that you wouldn’t otherwise have. You’d be limited to whatever your company as an employee provides you with. Plus maybe an IRA, if your income’s not too high. So all of these things, there’s a plethora of business expenses, necessary business expenses that can legally and ethically be deducted from your income, tax credits that are available. All these things that really many of you who are employees, or even sole proprietors, maybe you’re a business rep, but you’re not taking full advantage of what the incentives as you put it Steve, incentives that the tax code provides for you.
Steve Moskowitz:
Speaking of the tax code, If you make this, exactly what you’re saying, if you make the same amount of money as a business person, as opposed to employee, you have the opportunity to pay so much less taxes. The tax law is set up to go ahead and favor business people. Tell us about your concept of keeping it in the family. That’s an old and honored concept all through the world. But tell us about your interpretation of it.
Kerry Lutz:
Yeah, well, I kind of discovered it by accident but I started a new business.
Steve Moskowitz:
What kinda business was it?
Kerry Lutz:
Well, it was a partnership investing in assets both distressed and otherwise. And basically the business when I started it wasn’t worth anything. And my children were limited partners or limited members in the business. And just that alone, I had to pay the same tax rate. They had to pay the same tax rate as myself but they were minors so I controlled it and paid the same rates but it lowered my income, put me at a lower bracket. And back when the alternative minimum income tax was raging, it took me out of the so-called AMT. It took me out of that for many years. So the savings, hundreds of thousands of dollars over the course of the 1990s, early two thousands, that it saved me.
Steve Moskowitz:
Excellent, excellent. And on a personal level, tell us how you enjoy the broadcasting because I’ve done a lot of TV and radio broadcasting. Tell us how you enjoy it.
Kerry Lutz:
Oh, well it is kind of what I was born to do. I found that my background as an entrepreneur and as an attorney and as a startup junkie and my my father taught me about tax planning. You know, when we used to go to work, I’d get a receipt at the New Jersey turnpike, get a receipt at the Lincoln tunnel. Now you have easy pass and it tracks all that stuff. Way back away and you paid cash. And you know, so being able to impart my experience and I don’t buy any stretch know everything. I’m learning things every day as you should be as well. But all that experience just really and my I inherent distrust of government. Not that I think we don’t need one. I’m afraid that there is no way around it. You’ve gotta have a government. You gotta have a monetary system for modern life because I can’t go trade you chickens for accounting service. Even if your family loves chickens, you probably don’t have a chicken coop in your backyard. I guess I could give you sliced chicken but barter is very inefficient. That’s why we have a monetary system. So all of these things combined kind of made me realize that this really was my calling. It’s not just a job or a career or anything else. It’s really what I was meant to do. And I had to go through all these different businesses, all these different experiences, lawsuits, everything else to really be where I am today, where when I get questions, many times I don’t know an answer to it but as an attorney expert researcher, I’m in a position to get an answer. Whereas many people don’t even know the right question to ask.
Steve Moskowitz:
Tell us about some of the lawsuits you were just talking about.
Kerry Lutz:
Oh, well, I don’t wanna get into the specificity of it. But I only been sued once in my life. Unfortunately, that was the biggie had my… It was just a bad lawsuit with some partners that did some things that I was on the hook for. And it cost me mid seven figures, but, yeah it hurts, but you know, that’s all experience. And I got so much out of the partnership before everything hit the fan that I really have no complaints, sent my kids to school, paid for weddings, bar mitzvahs, bought mitzvahs. All of that. I realized that there has to be a better way to protect your assets. Even though my strategy was asset protection friendly, I realized there’s a better way to do it.
Steve Moskowitz:
With 7,500 podcast under your belt. Tell us some of your favorite topic you areas in those.
Kerry Lutz:
Well, I could never talk enough about inflation. Okay. Inflation, having lived through it and been acutely aware of it and understanding how to profit from it. The old saying the Chinese character for crisis. Its two characters, opportunity and danger. And understanding that inflation is bad but it’s an incredible opportunity. So you can never talk enough about that. I love extractive industries, industries that take dirt out of the ground and turn it into wealth and create companies with major value. All of these companies that are out there today, and that goes for any company really, but I just happen to like companies that take stuff out of the earth, ’cause to me, that is true wealth. All these companies around started out like DeBeers with a guy on a beach who made a discovery of diamonds. And now it’s a multi-billion dollar company or Newmont Mining or Barrack. All of them started out small, mostly. And they grew into these behemoths.
And I love business. I love understanding what advantages businesses can obtain in the market. And that in addition brings in the part about how I kind of distrust the government and that a lot of businesses today don’t really have a competitive advantage or a product market advantage. What they have is a government advantage. And I think that’s a lot of what ails our country and our world today is excessive government involvement, picking winners and losers, just like the government did during the pandemic. Biggest winners were Pfizer and Moderna. But there were plenty of others. The hospital in industry benefited enormously from the pandemic by getting bonus payments effectively for every aspect of treating the coronavirus. So I’m really kind of against that type of thing. But when you understand how it works, you can still profit from it if that’s what you decide to do.
Steve Moskowitz:
Absolutely. And in our waning moments here, what lasting thoughts? What final thoughts would you like to leave our audience?
Kerry Lutz:
Just that you’re never a failure unless you believe you are. That every successful person failed their way to success. I’m sure you did. Sure I did. You know, it looks like you’re in elementary school, you fail a spelling test and they let you take it again. And you’re so rattled by the failure that you go and you study your ass off and then you get a 100. Well that’s exactly the way it works in life. And that’s what I hope… You know, life is a roller coaster, there’s ups and downs, but you don’t have to put your internal state of happiness held. You don’t have to allow it to be held for ransom based on what the economy’s doing, what the government’s doing, whether there’s war or peace, seems like there’s always wars, your personal happiness. Yeah. You need a certain amount of economic prosperity to maximize it. But once you have it, there’s nothing making you unhappy but yourself. Abraham Lincoln, I think Steve said it best when he said, “People are generally as happy as they allow themselves to be.” Obviously he was a kind of unhappy character throughout his life, but that doesn’t mean he didn’t have wisdom and didn’t understand that happiness is internal state of being.
Steve Moskowitz:
Kerry, I’d like to thank you so much for being a great guest with us. Folks, this is Kerry Lutz. Kerry, how do our listeners get a hold of you?
Kerry Lutz:
Yeah, you can just go over to financialsurvivalnetwork.com and you can sign up for free newsletter. I’m on Facebook, I’m on Twitter, not like the greatest social media personality ever but we can connect through there. Or you can always send me an email at kl@kerrylutz.com.
Steve Moskowitz:
Thanks so much. And again, I’d like to thank our audience for listening to us and keep tuning back.
Outro:
You’ve been listening to the Practical Tax Podcast, with tax attorney, Steve Moskowitz. To hear more podcasts, go to Moskowitzllp.com/practicaltax. The information contained in this podcast is based on information available as obtained at the date of it’s release. MoskowitzLLP and it’s affiliates are under no obligation to update this information as changes occur. Applying this information to your specific situation requires careful consideration of all factors, which may be applicable, and any information is not to be considered tax advice or legal advice. Further, this is attorney advertising and the facts and circumstances displayed in this case are dependent entirely on the facts of that particular case. Please consult your tax advisor before acting on any matters discussed.
Check out Kerry’s website and podcast the ‘Financial Survival Network’ https://bit.ly/3s5UhwF
Kerry’s Twitter: https://bit.ly/3LCWVlb
FSN YouTube Channel: https://bit.ly/3KATkCR