Diane Kennedy, the nation’s preeminent tax strategist, is owner of Diane Kennedy & Associates, a leading tax strategy and accounting firm, and the author of The Wall Street Journal and Business Week bestsellers, Loopholes of the Rich and
Real Estate Loopholes.

A highly sought-after international speaker and educator, she has dedicated her career to empowering and educating others about financial investments and the tax advantages that are available. Diane provides critical tax law updates, advice on the latest tax loopholes as well wealth building resources at her website: www.taxloopholes.com.

Her extensive experience teaching thousands of individuals and corporations how to minimize their tax liability through legal tax loopholes has earned Diane Congressional recognition. She’s written for The Tax Savings Report, Investment Advisor Magazine, Personal Excellence, and the Money & Finance section of Balance Magazine, where she has a regular column. She’s been featured in Kiplinger’s Personal Finance, The Wall Street Journal, USA Today, the Associated Press and on CNN, CNNfn, Bloomberg TV and radio, CNBC, StockTalkAmerica and numerous regional TV and radio shows.

And this month we’re fortunate to have her grace the cover of Healthy Wealthy nWise and get a little behind the scenes look at the woman who is Diane Kennedy.

Liz Thompson: Diane often it’s the important people in our lives who shape much of our outlook and our values. So in that vein we would like to know who some of the most important and influential people in your life have been and how they’ve affected you.

Diane Kennedy: Interesting question… A lot of my ideas and values have been shaped by the instructors I’ve had.

I’d have to say my third grade teacher, Mrs. Weishedel, was probably the first. She was a teacher who loved teaching. She made everything fun – she made learning fun. And what that taught me was how learning and trying new things can be such an exciting adventure.

As far as accounting goes, I had a professor in college – Professor BJ Fuller – and he saw accounting like a puzzle – it was like solving a mystery to him. It was putting it all together and not only recording things, but being able to go back in and look to see what story the numbers are actually telling you about a company and where its going.

When you look at it that way you realize that all of the numbers in accounting really do tell you a story the question is, can you decode what the story is telling you?

Liz Thompson: Hmm… So what attracted you to accounting originally?

Diane Kennedy: Actually the other one person I was going to mention was my father.

My dad had a Bachelor’s Degree in Accounting and a Master’s Degree in Finance and went into banking. But he left the profession early on and started buying small businesses that were failing and renovating them. Whatever was wrong with them he’d fix it.

So as a child my whole family, my father, mother, my sister, and myself, used to move from town to town and work in these small businesses. When I was 12 my dad taught me how to start doing bookkeeping – so then I used to do the bookkeeping for the various businesses that he had. They were all simple Mom and Pop type businesses, and it was fun because it became something that was really kind of easy for me. It was a skill set that I could add the accounting on to.

But the piece of it that really got me going was learning about taxes. I got interested in that during an internship that I had when I was in college. I worked in Sierra Pacific Power – a large public utility in Reno, NV – and my internship was with the tax department. My job was to research future bills and work with senior officials to try to figure out what would happen if a particular tax bill passed and then based on that, determine the lobbying efforts. It was just fascinating to see how tax bills shaped an economy – and that’s the piece that really got me going on taxes.

Liz Thompson: Great.

Now in your book, Loopholes of the Rich , you spell out 5 S.T.E.P.S. to financial freedom. Could you take a minute and go over those steps with us?

Diane Kennedy: Absolutely.

The first part – the S – is just the Starting Point.

It’s interesting; we find that when working with our clients at our practice DKA that this is often the toughest part for people to get going, because they have to know where they are first.

A lot of people have an idea of where they want to go, and what they want to have, and they’ll say, Let me tell you my vision….

We have to say, Great, we need to know where you are NOW.

Liz Thompson: Yeah, well a lot of us don’t want to look at that. (laughter)

Diane Kennedy: Really! No matter what you’re doing, no matter where you’re starting in life you’ve got to know where you are.

That’s the Starting Point – just Where are you right now financially?

Here’s an interesting statistic from the census bureau – three years ago the average 50-year-old American had a net worth of $0. And now, three years later, the average 50-year-old American has a net worth of $-10,000.00. So a lot of times taking a look at where you are right now gives you a good indication of what will happen if you continue on down your current path.

So the guy who has a net worth of $0 or $-10,000.00 – you know where they’re going to be when they’re 65….

Liz Thompson: Even lower!

Diane Kennedy: Yeah – unless they change. So the starting point is the first piece.

The second is – T – Team.

For team we use kind of a liberal definition. It includes your advisors, your CPA, your attorney, financial planners, those kinds of people, but it also includes anybody you take advice from. So if you’re getting your stock investing tips from your neighbor or the cab driver, you’ve got to figure then that, that person is part of your team.

Once you have your team assembled you want to take a real rational look at it and determine what the qualifications of the members are to advise you. In fact in the book we have something called The Advisor Checklist* where you can go through it with anyone you take advice from.

Just go through and figure out what their point of view is. If somebody’s telling you that you should never buy real estate, ask, if they own real estate, find out what their point of view is.

If it’s a CPA, do they have clients who buy real estate?

Its taking a look in general at their point of view and where they’re coming from, because that’s what they’re used to and you can use that to determine the quality of the advice you’re getting.

Liz Thompson: So what you’re saying is, all advisors are not created equal.

Diane Kennedy: Right, you know everybody’s got different specialties and different viewpoints.

I had one client who kept bringing business opportunity deals to his attorney to look at. And every deal the attorney would look at he’d say, Oh no you can’t do that it’s too risky.

My client finally asked him, Well what would be a good deal?

The attorney said, None of them, they’re all too risky!

(Laughter) Wouldn’t that have been something good to know first! How many good deals did he pass by?!?

Liz Thompson: (Laughter) Right…

Diane Kennedy: So that’s the part about Team.

The 3rd step is E – what we call Evaluation and Strategy – and that’s the step after you have your team.

What happens sometimes is that people try to evaluate where they are and come up with a strategy for something different, but they’re trying to do it by themselves.

The fact is, that if you’ve got some team members that you’ve added, maybe you’ve got a CPA or attorney, or different financial advisors and planners, you want to make sure that they’ve got input into what you’re doing. So now you’re able to develop better plans because of that. You don’t have to do it on your own – you can have people help you.

Liz Thompson: That’s always nice to know.

Diane Kennedy: As long as you make sure they’re the right people.

Liz Thompson: Yes.

Diane Kennedy: The next part – P – is what we call Plan and Path.

So once you figure out the strategy, what are the baby steps that you need to do? One of the secrets we’re always talking about is making sure those steps are small, especially if all this is brand new. For some people just that first part of figuring out their starting point is bigger than they’ve ever done in their lives. Maybe the first step is on a quarterly or annual basis have a new financial statement done for themselves so they can see what they’re doing. So whatever those steps are map them out and then celebrate the steps as you do them. Realize that every step you make, no matter how small is going to have a big impact over time.

Liz Thompson: That makes sense.

Diane Kennedy: And then the final one – S – interestingly enough is back to Starting Point.

What you need to do next, is see where you are NOW.

I have the opportunity to work with a lot of wealthy people and we find that the quicker they analyze where their financial statements are – where they are with their businesses and their investments – the quicker they can make changes. What’s working, what’s not working? What do we need to do more of and less of? So that’s the main point – constantly reassessing where they are and where they’re going.

Liz Thompson: So it’s a big spiral…

Diane Kennedy: Yep, exactly!

Liz Thompson: Now I know that setting up something like this – setting up this whole S.T.E.P.S. system – can be kind of scary for some people. So what advice would you give to someone who is just absolutely terrified looking at something like this?

Diane Kennedy: The biggest thing really is just baby steps. Whatever that first thing is, get to that Starting Point.

Maybe its not having a full blown financial statement, maybe its just taking the time on a monthly basis to write down everyplace that your money goes. Starting maybe with a budget, just starting to get your arms around the information about your money and your investments.

Whatever it is, make a positive step and then celebrate what you’ve done – feel good about that.

Liz Thompson: Makes sense.

So has fear ever played a part in helping you achieve your own goals, or holding you back?

Diane Kennedy: My circumstances were a little different because I had the bookkeeping background for that part of it, but it is interesting. I have had times in my life where there have been bad business relationships that I’ve wanted to just close my eyes to.

One’s where I’ve said, its OK, it will be all right, I just really don’t want to look at the numbers. Maybe an employee who wasn’t working out or a sales person who wasn’t selling as well as we wanted, or just a new venture that wasn’t working as well as it should have. There are times when you just really don’t want to look at what the truth is, but the numbers will always tell you the story.

Liz Thompson: So for you personally, you just make yourself look at the numbers and get on with it…

Diane Kennedy: Yeah – sometimes with a really big gulp (Laughter)!

Liz Thompson: (Laughter) Exactly!!

Well Diane, what do you feel one of your greatest accomplishments so far in life has been?

Diane Kennedy: You know the part of it that I just love doing is when I am able to talk to a group of people. I do seminars and just this weekend I did one in Atlanta and one in Houston – and I have people come up to me and tell me the changes that have happened.

One of the stories was a man that lives in Houston, and he’d read my book Real Estate Loopholes, in December. He had a whole bunch of pension plans that were either going down or staying constant, nothing was happening and he felt completely helpless. He felt like he was stuck in their plans and he couldn’t do anything.

But in the book Real Estate Loopholes we talked about how there are some really great ways to move the money from a pension into something called Self- Directed IRAs, which allows you then to start doing some investment.

He had never realized he could do that – so he immediately put that into action and in March he had 7 properties either purchased or under contract all with positive cash flow, and he’s on track right now to have a 93% return on his money.

Liz Thompson: Oh wow. That’s fantastic!

Diane Kennedy: Yeah, and the other thing was looking at this man, he was an older gentleman, and his face was just alive! He felt in control.

I think that some people feel victimized by their money and their investments – and their investors – you know the people who are helping them. And the fact that they can take control and actually make those changes – that’s the part that I get so excited about. When you see people stop being afraid and start feeling empowered I love it!

Liz Thompson: So you’re actually a teacher in addition to being an advisor.

Diane Kennedy: That’s the part I’m passionate about – the teaching and empowering others. Now the big part – you really got me going here…

Liz Thompson: Good!

Diane Kennedy: You know so many people are afraid of taxes and they’re afraid of the IRS, and yet if you follow the rules that the IRS is giving us – things like, have good records – you can only win.

You know if you’re a business owner and you have good records, you’re going to be a better business owner. You’re going to have records that give you actual numbers so you can make changes. Getting back to that idea that if you have good financial statements you know what’s working and what’s not working; let’s say you have a small business and you have what’s called a Sole Proprietorship – a Schedule C on you taxes.

Did you know that the Sole Proprietorship is the most frequently audited business structure there is? And it’s also the only one that’s not required to file financial statements when you file your tax return. All the others, the S-Corporation, the C-Corporation, the Limited Liability Company, the Limited Liability Partnership, all of those have to have a balance sheet as part of your tax return. So you have to be able to produce financial records if you have one of these other types, and to do that it proves that you’re paying attention to your business and having financial statements done, you’ve got less chance of having audits, and you’re going to pay less tax.

It’s amazing when you think about it that the government really does reward you for doing smart things with your business. (Laughter)

Liz Thompson: (Laughter) What a novel concept!

Diane Kennedy: I know! That’s why I say if you do what the IRS wants you to, you’re going to get rich – therefore the IRS wants you to be rich!

Liz Thompson: Well I guess that makes sense!

Now, here at Healthy Wealthy nWise we believe strongly in the idea of Intention to manifest outcomes so we would like to know what your most important project is and what intention you would like us to hold with you for that.

Diane Kennedy: That’s interesting. You know I don’t really have a huge big one. Maybe we’ll just talk about the one for the company, which is to maximize individual’s net worth. So what we want to do is provide information that empowers individuals so that they can then go out and do whatever it is that will maximize their net worth. That’s the piece, always finding new ways to create that wealth and doing it in a way that’s empowering for them and for others.

Liz Thompson: So that’s the mission of TaxLoopholes and DKA?

Diane Kennedy: Yes.

Liz Thompson: Great, we can definitely support you in that Intention. Is there anything else?

Diane Kennedy: Well you know I really love that idea of Balance that you guys talk about.

Liz Thompson: Yes.

Diane Kennedy: And that’s something that in my own life I’m starting to add as well. In my own personal wealth building strategies, my husband and I’ve been stagnant for the past three years and it suddenly has just kicked up to another level because I’ve started a non-profit foundation with some friends where I want to give $1 million in the next five years.

Liz Thompson: Oh wow. Tell me about that – it sounds exciting!

Diane Kennedy: Well it’s a very interesting story. A very good fiend of mine, Beverly Sallee, is the only woman to sit on the board of Quixtar, which you know is Amway.

Liz Thompson: Right.

Diane Kennedy: She’s a very powerful woman. Beverly is in her 60’s and she’s reached a point where she goes and opens up other countries for Amway opportunities. Then her portion of whatever she’d earn in that country goes back into community service for that country.

Liz Thompson: Oh wonderful!

Diane Kennedy: It really is. And India is one of her countries that she opened up. She built a hospital in Calcutta!

Well I saw her this last December and she had just received a phone call about 2 weeks before from this company in India that was working to free some people who were basically being held in slavery.

What had been happening is, in very poor areas parents were essentially selling off their daughters thinking they were going to go to work in factories, and what was really happening was they were being put into prostitution.

Little girls who were only 12 years old were being held as slaves in prostitution. And what happens is by age 14 they’re really just disease riddled and they’re turned out on the street to die.

Liz Thompson: Oh my God.

Diane Kennedy: And some of the girls, even with AIDS and everything else, had made it back to the villages to tell the people what was really happening.

So anyway, some of the slavery houses were allowing the girls to be ransomed out and my friend was able to save 8 girls’ lives for $30,000.

She said to me, How could I NOT write that check?

And now what are we going to do? Because we’ve got these girls that can’t really go back home. In their culture they can’t be married. You know, what is going to happen to these poor girls? So she set up houses where they are being trained in skills they can do other things with.

So that’s basically what our organization is – 5 women who want to find other women and young girls in whatever situation, wherever in the world, that are in the worst circumstances and then help them lead more empowered lives.

My husband and I will be in India the first week in May to go look at these houses.

Liz Thompson: Wonderful! That is fantastic.

Diane Kennedy: Yes, so that’s why I’ve got this new impetus to push the business forward because there’s a WHY now that’s really compelling for me.

Liz Thompson: That’s an awesome project, and if there’s anything we can do to help you with that please let us know.

Diane Kennedy: Well you know, these stories that come out of the project, I’d love to have you guys run them if you want.

Liz Thompson: That would be perfect, we would love to!

Diane Kennedy: GREAT!!!

Liz Thompson: OK, I got all excited and lost my place in my questions here (Laughter)…

Here we go… Diane what are the 3 main things that you know now that you wish you had known earlier?

Diane Kennedy: Hmm… Lets think about this…

You know, something I think I learned a little later in life is that you don’t have to do it all by yourself. For a long time I thought I had to be the smartest person and that it wasn’t OK to admit I didn’t know, that I’d done something wrong, or that I needed help.

Liz Thompson: I’ve been guilty of that one too.

Diane Kennedy: I think we all have at some point or another.

The second one is, how much easier it is to bring a partner on. I have a great partner now, his name is Scott Mertens. And Scott has talents in areas that I absolutely fail at. He’s the person who does all the detail – all the follow thorough stuff. And I’ve also learned how much more you can accomplish by splitting up a pie.

Then the third one is how much more powerful it is when you’re communicating with more than one person at a time. Like with writing though your magazine, through seminars that I speak at, and through books that I write. Its amazing just how much more of an impact you can have when you spread it out to a lot of people. When you cast it out you never know how its going to come back or who you’re going to touch.

Liz Thompson: Right, it’s using that concept of leverage.

Diane Kennedy: Exactly.

Liz Thompson: Diane, if you could give our readers just one piece of advice about how they can start moving toward more balanced abundance today, what would that be?

Diane Kennedy: I think it would be to get really clear on what the purpose is that they actually have. And I hear that from people in more accounting terms – they say they want to have 25 properties making X return, and I say, Well Why?

What is it really that’s moving you behind that?

You see once you know the Why, the How becomes possible. And if the Why is compelling enough you will always have to find the How.

Liz Thompson: That is so true in so many ways.

Diane Kennedy: And you know, if you can’t find the How then the Why isn’t big enough.

Liz Thompson: I would definitely agree with that. Well Diane this has been fantastic and I truly appreciate you taking the time to chat with us today.

Diane Kennedy: You bet. It’s been great talking to you too, thank you.

Liz Thompson: I look forward to talking to you again soon and learning more about your projects. You have a GREAT day!

Diane Kennedy: Thanks, you too.

* Click here to get a complimentary copy of Diane’s Advisor Checklist

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