Rich Habits Podcast - Episode 127: How to Pay Less in Taxes with Carlton Dennis
Release Date: July 21, 2025

Introduction to the Episode

In Episode 127 of the Rich Habits Podcast, hosts Austin Hankwitz and Robert Kroke delve deep into effective tax strategies aimed at helping listeners retain more of their hard-earned money. They are joined by Carlton Dennis, a seasoned tax strategist with a substantial following on platforms like YouTube, Instagram, and TikTok. Carlton brings his expertise to the table, offering actionable insights for both everyday earners and high-net-worth individuals.

Notable Quote:

[01:24] Robert Kroke: "In this week's episode of the Rich Habits Podcast, we're joined by my friend and tax strategist Carlton Dennis."

Understanding Tax Strategies Based on Income Levels

The discussion begins by addressing the varied needs of taxpayers based on their income brackets. Carlton emphasizes the importance of a proactive approach to tax planning, rather than the traditional reactive method of merely filing tax returns.

Key Points:

• Under Six-Figures Earners:

  • Focus on Wealth Building: Carlton suggests that individuals earning below six figures should prioritize growing their wealth through tax-free investment vehicles like Roth IRAs and Roth 401(k)s.
  • Quote:

    [05:17] Carlton Dennis: "If you're making 65 or 70,000, your tax bill is going to be less than $12,000. Focus on wealth building rather than just reducing your current tax bill."

• High Earners:

  • Advanced Tax Strategies: For individuals earning significantly more, strategies shift towards actively reducing taxable income through business structuring and strategic investments.
  • Quote:

    [07:16] Austin Hankwitz: "Someone making 400,000 as a surgeon should think deeper about lowering their taxable income."

Recent Tax Law Changes: The One Big Beautiful Bill

A substantial portion of the episode is dedicated to dissecting the recently passed One Big Beautiful Bill, highlighting its implications for taxpayers.

Key Takeaways:

1. Reduction and Extension of Tax Brackets:

   • Lower Tax Rates: The top tax rate has been reduced from 39% to 37%, with subsequent brackets also seeing reductions.
   • Inflation Adjustments: Tax brackets have been extended to account for inflation, benefiting the average taxpayer.
   • Quote:

     [15:40] Carlton Dennis: "The highest tax rate is now 37%. All brackets have been reduced and extended due to inflation."

2. No Taxes on Tips and Overtime:

   • Tip Deductions: Up to $25,000 in tips can be deducted for individuals earning below $150,000 (single) and $300,000 (married).
   • Overtime Pay Deduction: Single filers can deduct up to $12,500 of overtime pay, with higher limits for married couples. This provision is temporary, expiring in 2028.
   • Quote:

     [18:55] Carlton Dennis: "Now if you're single, you can make up to $12,500 of overtime pay and deduct this on your federal tax returns."

3. Auto Loan Interest Deduction:

   • Personal Vehicle Deduction: Up to $10,000 of interest on auto loans for personal vehicles can now be deducted, effective through 2028.
   • Quote:

     [20:17] Carlton Dennis: "You can deduct up to $10,000 of your United States assembled vehicle's interest every year."

4. Increase in SALT Deduction:

   • SALT Cap Increased: The State and Local Tax (SALT) deduction cap has been raised from $10,000 to $40,000 for eligible taxpayers.
   • Quote:

     [22:58] Austin Hankwitz: "At $40,000, that one’s really cool."

Specific Tax Strategies

Carlton delves into tailored strategies for different taxpayer profiles, emphasizing legal avenues to minimize tax liabilities.

1. Active Losses Through Investments:

   • Real Estate and Oil & Gas: Investing in short-term rentals or oil and gas can generate active losses to offset W2 income.
   • Cost Segregation Studies: These studies accelerate depreciation, allowing for substantial first-year write-offs.
   • Quote:

     [10:41] Carlton Dennis: "Investing in short-term rentals... can generate active losses on the tax return."

2. Business Structuring: LLC vs. S Corporation:

   • Transitioning to S Corps: For profitable businesses, transitioning from an LLC to an S Corporation can significantly reduce self-employment taxes.
   • Salary vs. Distribution: Allocating a reasonable salary subject to self-employment taxes and distributing remaining profits as dividends.
   • Quote:

     [12:34] Carlton Dennis: "By splitting the LLC to an S corporation, the taxpayer only pays self-employment taxes on the salary portion."

3. Qualified Business Income (QBI) Deduction:

   • 20% Deduction: Self-employed individuals may qualify for a 20% deduction on their qualified business income, subject to income thresholds.
   • Quote:

     [28:14] Carlton Dennis: "If you're making $100,000 self-employed, a 20% deduction reduces your taxable income by $20,000."

4. Bonus Depreciation:

   • 100% First-Year Write-Off: Qualifying equipment or vehicle purchases can be fully depreciated in the year of acquisition, thanks to recent tax law changes.
   • Quote:

     [25:30] Carlton Dennis: "You can take a 100% write-off on qualifying equipment or vehicles in the first year of ownership."

Investment Strategies Combined with Tax Strategies

The conversation highlights the synergy between smart tax planning and robust investment strategies to maximize wealth accumulation.

Key Points:

• Roth vs. Traditional Accounts: Prioritizing Roth accounts for tax-free growth versus traditional accounts for taxable retirement savings.
• Solo 401(k) and SEP IRA: Maximizing contributions to these accounts can significantly reduce taxable income while fostering long-term growth.
• Building Tax-Free Wealth: Leveraging multiple strategies to convert taxable dollars into tax-free assets over time.
• Quote:

  [27:09] Carlton Dennis: "We have to look at the sacrifices that we're making to build money tax-free."

Listener Q&A Highlights

1. Sarah's Concerns About Her Brokerage Account

Question Summary: Sarah, a 55-year-old freelancer, feels her inherited brokerage account hasn't grown as expected and seeks advice on her relationship with her financial advisor.

Responses:

• Robert Kroke: Reassures Sarah that her account's 365% growth since 2007 is on par with the S&P 500's 320% return over the same period. Emphasizes the importance of active management and increased communication with her advisor.

  Notable Quote:

  [36:03] Robert Kroke: "You've done all the right things... but your advisor might not be actively managing your portfolio."

• Austin Hankwitz: Provides tactical advice on auditing expense ratios, ensuring investment in major indices like S&P 500 or NASDAQ 100, and setting up regular quarterly check-ins with her advisor.

2. F's $30,000 Inheritance and Real Estate Investment

Question Summary: F plans to use $30,000 from a lawsuit to invest in real estate to avoid high rent during college.

Responses:

• Robert Kroke: Advises against immediately investing the lump sum into property. Instead, recommends maxing out a Roth IRA and building a financial base before considering real estate investments.

• Austin Hankwitz: Highlights the current high mortgage interest rates and the advantages of renting versus buying in the present market. Encourages building savings and considering long-term investment strategies like house hacking.

  Notable Quote:

  [42:55] Austin Hankwitz: "It’s currently cheaper to rent than buy... build your base first."

3. Mia's Question on Consolidating 401(k) Accounts

Question Summary: Mia, a 37-year-old nurse practitioner, seeks advice on consolidating five old 401(k) accounts into her Solo 401(k) without incurring tax penalties.

Responses:

• Austin Hankwitz: Recommends rolling over the old 401(k)s into a Traditional IRA via Public.com to receive a 1% match on the rollover amount. Suggests investing in diversified index funds for optimal growth.

• Robert Kroke: Agrees with Austin's recommendations, emphasizing the benefits of using Public.com for consolidation.

  Quote:

  [50:19] Austin Hankwitz: "Roll over all five of the values of those 401(k)s into your Traditional IRA and get a 1% match."

Conclusion and Key Takeaways

The episode underscores the essential principle in personal finance: "It's not what you make, it's what you keep." Through proactive tax planning and strategic investments, listeners can significantly enhance their financial well-being.

Final Thoughts:

• Proactive Tax Planning: Don’t wait until tax season; actively manage your taxes throughout the year.
• Diverse Investment Strategies: Combine various investment vehicles and structures to optimize tax savings and build wealth.
• Regular Financial Reviews: Maintain consistent communication with financial advisors to ensure your investments align with your goals.

Notable Quote:

[32:52] Robert Kroke: "It's all about understanding the tax code as the blueprint to legally build your wealth, just like the rich and ultra-wealthy do."

Additional Resources and Offers

• Tax Free Wealth Live Event: From August 4th to 8th. Visit www.the tax free wealth challenge.com for more details.

• YouTube and Instagram: Follow Carlton Dennis for weekly educational content on advanced tax strategies.

• Public.com Advertising: Earn a 1% match on IRA deposits, transfers, and 401(k) rollovers. Visit public.com and use code richhabits for benefits.

  Note: All advertisements and sponsorships are clearly disclosed during the episode.

Final Remarks by Hosts

Austin Hankwitz and Robert Kroke wrap up the episode by emphasizing the importance of continuous learning and proactive financial management. They encourage listeners to engage with the Rich Habits community, participate in weekly Zoom calls, and stay updated through upcoming episodes focusing on real-time financial headlines and strategies.

Closing Quote:

[52:27] Austin Hankwitz: "If you know any high earners, business owners, or anyone looking to save on taxes, share this episode with them. Let’s build rich habits together."

For more insightful discussions and actionable financial strategies, subscribe to the Rich Habits Podcast on Spotify and join the growing community dedicated to financial literacy and wealth building.