Putting Your Money on Main St vs Wall St

Posted at May 11, 2022 Posted In Main St vs Wall St

We discussed previously that the tax code functions like an incentive system if done right. Virtually anyone can put their money towards tax-incentivized investments and reduce their tax payout. But among our options, which investments bring in the best returns?

What Can Wall Street Do For Us?

Wall Street makes investing seem easy. They educate people constantly through their marketing about the ease of investing on their platforms. It’s common knowledge that most people invest this way. However, what isn’t said is that the vehicles they offer to invest in generally lead to higher taxes. Here are some examples:

  • Stocks — Dividends and Appreciation
  • Bonds — Interest and Appreciation
  • Mutual Funds — Interest and Capital Gains without Distributions

Now here’s another investment tool that’s widely popular but tricky: 401Ks. We’ve all been told to put money towards this fund. 401Ks are marketed as a way to save on taxes. You contribute now and don’t have to pay tax on those dollars. You invest and let the account grow.

But the theory that you pay taxes in a lower tax bracket when you retire is false. As the Wall Street marketers tell us, you pay taxes on the funds withdrawn when you retire and that presumably you will be in a lower tax bracket when you retire.

The only way that could be true is if you plan to live on less money when you retire. I don’t know about you but my retirement plan is to travel more, play more golf, and live comfortably until the end. I plan to need more money when I retire.

Overall, there really aren’t many tax benefits to investing in the products that Wall Street offers. All the returns described previously (primarily interest, dividends and capital gains) are taxed at various rates from 15% to over 40%.

How To Follow The Incentives to Main Street and Get Paid

The good news is there are many other ways to invest and the tax code will actually tell you the kinds of investments that get the most favored treatment. Remember that we shouldn’t only measure how much our investments make for us… we should really measure how much we get to keep.

  1. Real Estate — Residential and Business
    Real estate is probably the most well-known type of investment that gets good tax treatment. First, real estate investments are treated like businesses and are only taxed on what’s left after paying out all relevant expenses. Real estate also gets to use an expense that does not require an outflow of cash called ‘depreciation’. Depreciation relates to the cost of any improvements upon the land portion of the real estate. This is true even if you borrow the money to pay for the assets.
  2. Energy — Oil & Gas, etc.
    Oil and gas development investments also get many unique tax treatments. The intangible drilling costs of drilling a well (which are typically around 70% of the total drilling cost) can be expensed in the year the well is drilled. The rest is spread over the next few years.
  3. Clean Environment — Carbon Capture and Sequestration
    There are numerous regulations that incentivize us towards activities that help clean the environment or keep it clean. My company recently raised equity capital for some carbon capture and sequestration equipment that led to some great tax benefits for our passive investors. Because it involved the production of oil, it was considered “active” by the tax code and could reduce taxable W-2 income in year one.

Get Incentives Out of Your Investments

As Tom Wheelwright, a well-known tax code expert, says: If you use the tax code as your guide, you can make way more money and pay way less tax. Just the way it was designed to be.

At Match Real Asset Partners, we work hard to find investment solutions that can reduce your tax burden, protect your wealth, and produce passive-cash flow.

Are you ready to see what investments might work for you?

Fill out this Investor Questionnaire to get started.

If these principles are important to you and you’d like to discuss this further, please set up a call with me.

Disclaimer: Please note that I do not know your personal tax situation and you should not consider this to be tax advice for you. Take what you’ll learn here and consult with your own tax advisor to determine if any of these tax topics can fit your personal situation.

© Match Real Asset Partners - All Rights Reserved 2023