U.S. Tax Code is an "Abomination" - Here's Tips To Navigate It with Former TurboTax CEO Bill Harris

0:00I once interviewed the CEO of a credit bureau and he confessed that his assistant has a better credit score than he does. Why? Because she's more organized. Yep, even the head of the credit bureau can use a little help in the credit score department. If you can too, then listen up because Chime has a card that can help you do just that. Chime turns everyday spending into real rewards and progress. Not like old school banks that charge you overdraft and monthly fees. Built for you, not the 1%. Imagine cash back and credit building with your own money finally on the same card. No annual fees, no interest, and no strings attached.

0:34And when you get qualifying direct deposits, you get 1.5 % cash back on eligible Chime card purchases. Chime is not just smarter banking. It is the most rewarding way to bank. Join the millions who are already banking fee-free today. It just takes a few minutes to sign up. Head to Chime.com slash MNN. That is Chime.com slash MNN. Chime is a financial technology company, not a bank. Banking services, a secured Chime Visa credit card, and MyPay line of credit provided by the Bancor Bank N.A. or Stride Bank N.A. MyPay eligibility requirements apply, and credit limit ranges$20 to$500.

1:15I recently went on a quick beach trip with my husband for a little couple's time, and it was perfect. We sat in the sun, swam in the ocean, and generally just tried to get to that place of deep relaxation where your shoulders actually drop a few inches. Do you know what else can give you that feeling? Co-hosting with Airbnb. Trust me on this one. Hosting your home on Airbnb while you're away from home is a great way to make some extra cash and make sure your home is working as hard as you do. But knowing where to start can feel overwhelming. That's where co-hosts come in. These are local experts who can help make hosting even easier by taking care of all the little details back home while you're off enjoying yourself.

1:56Co-hosts can handle everything from staging your space to communicating with guests to offering on-site support so nothing interferes with your time away from home. Whether you're living the digital nomad life or just taking a well-deserved reset, I love this for you. Looking to get started? Find a co-host at airbnb.com slash host. Your financial journey shouldn't be a solo mission. Am I right? I am. You need a banking partner who's genuinely invested in your success story. U.S. Bank gets it. They don't just show up for your account opening and then ghost you. If you're saving for that engagement ring, they're cheering you on.

2:32If you're buying your first home, they're right there with you. If you're planning for retirement, they're still your biggest supporter. It's about having a financial teammate who believes in your potential and backs it up with real tools and real people who actually care. See what genuine partnership looks like at usbank.com because together we're unstoppable. That's the power of us. Equal housing lender. Member FDIC. Trademark 2025 U.S. Bank. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab.

3:14I talk a lot about how investing can help you grow your wealth. But do you know how to keep your wealth? Taxes. I know, I'm sorry, we have an aversion to tax talk. Even I do, I'll admit it. But the more we can bring ourselves to face it head on, the more money we can keep in our pocket. Today, I'm talking taxes with Bill Harris, who has had senior leadership positions in all the big fintech companies. Seriously, PayPal, Intuit, TurboTax, Nirvana Money, One, and now Evergreen Money, which you'll hear more about in this episode. Today, we talk about tax tips and tricks that the rich use, and you should too.

3:46Bill Harris, welcome to Money Rehab. Hey, it's a pleasure to be here. Thank you. No, thank you. You are like the fintech king. And I am honored, as always, to have financial royalty on this show. You have held leadership roles at, count them, 11 major fintech companies. All of them aim to address some problem with the financial system, which I love. But also I have to ask, who hurt you? Did you have some problems, some personal experience with the financial system that made you feel like it's so broken? Well, I'll tell you what, I will talk about the problem that is most on my mind, which is taxes.

4:24But first, I'll just tell you the secret to this type of success. Start in the right place at the right time. And I happen to be lucky enough to do that. And then get old. Because I've been watching this merry-go-round for so darn long. It's now been, oh gosh, four decades. And so with enough time, you get enough at-bats that some of them are bound to work. And you say a merry-go-round. Have you seen trends come and go? From the point of view of the business, running the business, yes. It goes back and forth between growth in the tech business, between growth and profits. And it always goes, the pendulum swings way too far one way and then way too far the other.

5:03But that's in terms of the business of creating a tech company. In terms of what people need, both investors and families, in terms of what they need, there has been the yin and yang of some tremendous functionality, some tremendous point products. PayPal is one that does a specific thing extremely well. And that's all come as a result of applying technology to the financial sector. The downside is that we've taken something that was already somewhat fragmented and we've fragmented it even more. So most people, the average American family, I think, has in excess of 20 financial accounts. And so their money is scattered all over the place.

5:51And you just can't keep track of it all. And if you can't keep track of it, you won't understand your money. Therefore, you can't plan and make it better. And you mentioned PayPal. You were co-founding CEO of PayPal. So many entrepreneurial heavyweights came out of that era at PayPal. It's been called the PayPal mafia. Of course, Elon and Peter Thiel. what was it about paypal that drew all these smart dudes together well first of all let me just say i'm smart but i'm not as smart as they are i'm not in their league but what it was is a a volatile mix and if you're doing startups and particularly in the very early days of the internet i mean this was 1999 you have to be willing to take big risks elon is an incredible risk taker, extremely bold, Peter as well, Max as well.

6:36But here we were, this was the first time you could skittle money across the globe instantly and with a push of a button. But even though we were purchased by eBay a couple of years after we started, we actually in some way created eBay because it was before we started working with eBay, they were effectively a hobby site. And there was no way you could buy anything except by sending a paper check by mail. And with PayPal, all of a sudden they had the instancy that they could essentially turn themselves into the e-commerce giant that they are today. But then PayPal spun off again, right? What happened?

7:21Well, there are many pieces to that tale, but I'll just give you one high level thing. When we were PayPal, we had 90 % of our business with eBay. And we were just about then to go beyond that and try to become the electronic payment mechanism for the entire web. And we could have done that. We could have gotten there before credit cards really made their way onto the web. When eBay purchased PayPal, they turned inward. And they looked at PayPal as being the second revenue source when they did a transaction on eBay. as opposed to thinking about the entire web and say, okay, now I want to be the way people pay online everywhere you go.

8:03And so there was a couple of years of missed opportunity in that way. Ultimately, a very good job was done. But at a certain point, the eBay business was such a small portion of the PayPal business that it just made sense to move those two things apart. And there's so many payments companies now. I'm sure you guys could not have ever imagined every company becoming a payment company. Yes. But that's another example. It's another example of the fragmentation that everybody's facing. So you've got a PayPal account. You've got a Venmo account. You've got a Cash App and Zelle and who knows what. And now with BNPL, you've also got an Affirm account and a Klarin account and the list goes on.

8:48So you've got all these little pieces of money floating all over the landscape. And it's, you know, how can anyone keep track? I think Elon wants to turn X into a payments fintech company. What do you think about that? I wouldn't bet against Elon in anything he might really put his energy against. But that seems to be more like an after the fact rationale for buying X rather than what might have been the original plan. Would you work with him again? I don't think there's room enough in any large gymnasium for the two of us. Okay, fair enough, fair enough. Another company, Bill, that you are at the helm of was Intuit, which is, of course, the home of TurboTax, Credit Karma, QuickBooks, and more.

9:39I'd love to talk more about the tax system. You mentioned that that was a big part of what your passion is and what's broken about the financial system. So here's a top level question for you. Why the heck are taxes so complicated? Well, it's a combination of politics and inertia. So the politics, obviously, first of all, let's just say the U.S. tax code is an abomination and it is worse than every single developed country on this planet. Far worse. And so how did that happen? It's a series of political deals and combined with fiscal deals where individual legislators or groups are trying to fit something for a special interest.

10:22Okay, that's not always bad in by itself, because the special interest can be, for instance, people who have a mortgage. And so now we have a mortgage deduction. And all right, that's a special interest. People with children. Or with children. Exactly. So many things done with good intent, but it ends up being a cripplingly complex system. And the other thing, so it's first of all politics, but then it's secondly inertia, because once you layer all this stuff in, pulling it back out is almost impossible. For instance, if we tried to get rid of the mortgage deduction, there'd be a lot of people who would be pretty angry.

11:04When I was originally at TurboTax, before we merged with Intuit, we were taking the company public. And this was in the early to mid-90s, mid-90s. and we were on the road at about the same time that Steve Forbes was running for president. And you may not remember this, but Steve Forbes, his platform was postcard taxes. All you would do, you could file your taxes on a postcard. You'd say, this is how much I earned times this percent. This is what I owe you. Send in the postcard. And of course it was a little nuts, but that's what everyone was talking about. And so now here I am representing TurboTax, trying to go public.

11:46And I would have all of these meetings with investors. And sure enough, somebody would raise their hand and they'd say, well, what if Steve is elected president and we get the postcard taxes? And I would just say, if anyone in this room honestly believes that the government of these United States is going to take a significant simplification to the United States tax code, please do not invest. And of course, everyone invested. Yeah, it's too it's too deeply enmeshed with all the other financial systems for there to be significant simplification. I know, but I do love I love the postcard idea, at least like a greeting card or like I'd go for a pamphlet or something.

12:30And also for a long time, right, Bill TurboTax worked with the IRS to provide free tax return filings for Americans, which worked out because the IRS didn't even have its own system. But then the IRS did make its own system. Right. So do you think the government even has time to own this? Well, I think it's a good thing. And the government is not capable of doing sophisticated software, but there are many people who have very simple returns. And for very simple returns, the IRS can certainly handle the software in order to make that happen smoothly. I view it as something that as part of what the IRS needs to do, which has become more customer-centric.

13:13I mean, what's the first thing they should do? put enough people on the line so they can answer the phones. And then they will be able to service the people who use the software. But all that's great. And this is an opportunity for public-private partnership. The IRS can do those kinds of simple things that make sense and are good benefits for everyone. But then for sophisticated situations, for even modestly affluent families, they really need something that is a full-blown tax package built by technologists. Have you ever tried to call the IRS? Yes, I have. And I've been successful in calling the number.

13:53I have not been successful at talking to a human. Same. But I tell you what, one of the questions you asked earlier on was, what was the problem that motivated much of what I'm doing today? It was taxes. Because even relatively young, even single, it would take me two weekends to get my taxes done. And remember, I'm a grumpy old man. And so this was a long time ago. It was paper, everything, your taxes, you would get paper forms. And with a pen, if you were bold, you'd go do all the math with a little calculator on these forms. And it was tedious, literally two weekends a year. And so this was just about the time that personal computers were becoming slightly more than a tinker toy.

14:44So the question was, could you use an IBM PC or a Mac or something like that to do the taxes? Turns out the answer was yes. And that's when I joined a company called, well, it was called Chips Off. We made TurboTax. And I wasn't the founder, but I was one of the very early employees and I ran TurboTax for 10 years. It was fascinating to see it grow because it went from essentially an overblown calculator that would just, you'd put your numbers in and it would do the math for you. The big innovation was we went to the interview. And so now all we do is we ask people questions. We never show them the tax form.

15:26We never show them a calculation. We just ask people questions and then they would push the button and we would do everything else and print out a return or electronically file it. But seeing that evolution, seeing the evolution from the simplest and most and crude mechanism, essentially a calculator approach to doing taxes to something that, I won't call it AI, but an intelligent question and answer process to get through a relatively complex financial requirement. It was magic. I have a feeling before then you were a pen guy. I was. Did you ever make a mistake on your taxes? Did you ever get audited?

16:11I've never been audited. Oh, I was audited once, but it was not because of mistake. It was just my year. I was up for a California audit. It wasn't actually a federal audit. However, have I made mistakes? Yes. And the typical mistake that I've made is losing track of accounts. And okay, someplace there's a 1099 out there that I either missed or they didn't send it to me or who knows. And particularly a couple of decades ago when they were not delivered electronically, it was all in the mail. So then I would underreport income because if I had missed a 1099, and I did that a couple of times and many, many people did.

16:51It goes back to the point of trying to decrease the fragmentation and bring people's money together so that they really know what's going on. Let's continue to nerd out, if you don't mind. For tax nerd after my own heart, I also can't help but notice that you live in Miami. Is that for tax purposes? actually no I came here for sunshine it turns out that I don't run on metabolism I run on photosynthesis but I love it out here it is a fabulous benefit that we have in Florida no state taxes as I'm sure you were referring to but you shouldn't decide where you're going to live based on taxes you should live where you really want to live and then you know there are many ways.

17:38If you do it right, there are many ways to save on taxes. I'm really glad you mentioned that. We did a full deep dive episode on this, and there are a lot of states that get you in other ways. So they're going to get money from you somehow. It might not be in the state taxes, might be in the sales taxes, or might be in property or something else. Yeah, it's called the tax burden. And in my book, there's a little section on tax burden by state, and it is the combination of property tax, of sales tax, of income tax, et cetera. And typically, when you look at one of the states where the income tax is zero, they get you in other ways.

18:15Yes. And so I would love to double click on the tax planning that you think people are missing out on that they should do, but they don't because they don't need to do. It's not a necessity. Tax loss harvesting. Can we talk a little bit more about that? We've alluded to it on the show, but it's a complicated idea. So let's review. How does tax loss harvesting work? The concept is straightforward. The concept is if you've got a lot of equities, a lot of stocks is an example. Some of them will be up and some of them will be down and hopefully more up than down, but there will always be losers. The great thing about stocks, capital gain stocks, is that you don't have to realize the gain until you sell the stock and you have control over that.

19:01So if all you do is not sell, you're not going to pay taxes this year or next year or the next year after that until you sell. And that's particularly valuable for someone who has a buy and hold type of investment philosophy. Okay, but sometimes you need to sell or you want to sell for whatever reason. And you'd prefer not to have to pay tax on those gains today. Well, if you sell a winner, but also sell a loser, then they offset each other and there's no tax. It's a fabulous thing. Capital gain stocks are a fabulous vehicle because all of the gain, the timing of the gain is under your control.

19:48And you can do three things. You can offset the gain so you can take it this year, offset it with losses. you can simply defer the gain. Don't sell this year, sell next year or whenever. Or if you play your cards right, there are numerous strategies where eventually you can dispose of the asset with paying no tax at all. How? Oh, there are a number of ways. Some of them are charitable. If you set up a donor advised fund, which is another great thing to do, you can move money into the donor advised funds. You never pay a tax on the appreciation in the securities, and you also will get a charitable deduction.

20:27There's also stepped up basis at death. There is also generational giving and a series of trusts, different types of strategies that you could do there. But even if all you do is defer the gain for a year or more, that's a great benefit in terms of your cash flow. But what if somebody says, I am such a fabulous investor. I don't have any net losses to carry over to the next year. I only have gains. Well, show me that investor. Yeah, fair. You make a really good point because if you think about how the two different modalities for people to invest, one is I'm going to pick my stocks. I can beat the market.

21:10And whether you're doing it yourself or whether you're hiring a stockbroker or a money manager or a mutual fund that is actively trying to beat the market. That's one modality. The other modality is an indexed approach where really what you're trying to do is get full diversification, low fees, and that's very much the camp that I am in. If you go to something like Robinhood or one of the other retail trading apps, what you're going to do is, first of all, have more volatility than you're increasing the volatility without increasing the expected return. And that's called uncompensated risk. That means you're gambling a whole bunch, which you're going to, on average, at the end of the day, you're going to end up at about the same place you would have had with a more diversified set of stocks, but you're going to have higher volatility, which is the definition of risk.

22:07So first of all, you're taking unnecessary risk. Second, if you're trading a lot, It's all short-term. And short-term capital gain from a tax point of view. And now all of a sudden, rather than being in the lower capital gain tax brackets, which top out at 20 % federal, you are now in ordinary income tax brackets, which top out at 37 % federal. And in addition, you cannot you'd not only pay higher tax on any gains realized today but you also cannot defer and you cannot eliminate and so really what you take even if you are lucky enough to beat the market and academic studies say nobody can on a statistically reliable basis even if you happen to beat the market you're probably going to suffer in the tax side so it doesn't make any many difference anyway.

23:06So you're alluding to something that you educate investors on, which I appreciate, the reality that ETFs are usually more tax savvy than mutual funds. Can you explain that? I mean, mutual funds are basically trying to outperform their index. So they're getting into a bunch of trades that give you short term cap gains problems. If somebody is using a robo advisor, you mentioned Robinhood, there are others. Should they be nervous about running into the same short-term cap gains problem? Yeah, let's take one at a time mutual fund ETF robo and somebody like a trading app like Robinhood. Hold onto your wallets.

23:42Money Rehab will be right back. And now for some more money rehab. Yeah, let's take one at a time mutual fund ETF robo and somebody like a trading app like Robinhood. Mutual funds. Yes, they trade frequently, not as frequently as people on Robinhood, but they trade frequently and therefore they're generating short-term capital gains. They don't care because they are not measured on their after-tax performance. They are only measured on their pre-tax performance and there are all sorts of reasons they'll trade. But what they're doing is passing to their investors a significant amount a short-term gain.

24:24And short-term gain that the investor has no ability to time. So yes, it's tax inefficient. ETFs are better. I wouldn't say they're tax advantaged because you're not doing tax loss harvesting and other techniques with a simple ETF, but they're at least tax neutral. Ultimately, what you'd want to be doing, although it's complicated to actually implement, Ultimately, you want to take a full diversified portfolio of stocks that would perhaps mimic an ETF, but own the stocks individually so that then you could tax loss harvest, defer, offset and eliminate. So buy 500 of the S &P 500 individual stocks?

25:11Well, obviously that's impractical for anyone but an institutional investor today. But that is actually what I'm building at Evergreen, an automated ability for anyone to take, for instance, the S &P 500 and buy all of those stocks instead of a single ETF and then have significant tax advantages. The same, the pre-tax return, but a significantly better after-tax return. I want to dig more into Evergreen in a moment, but you mentioned this hot take that you have that investors should focus almost exclusively on after-tax returns and not pre-tax returns. Can you explain why this is an issue and also define what after-tax returns would be comparatively?

26:03Sure. Well, first of all, it's easy. Pre-tax returns means what you make before the government takes their share. After-tax returns is how much is left after you pay your taxes. And so why should people care about after-tax returns because that's the only thing that goes into their pocket. And so that's the objective. I mean, you don't really care about anything else. We care about net at the end of the day, how much money do I have to live my life? The financial services world does not ever talk about that. All they talk about is pre-tax return. First of all, they don't have the products, they don't have the technology or the products to really address each individual person's tax situation.

26:49And it is idiosyncratic and they don't have the knowledge of how to operate a tax aware portfolio. So nobody out there is talking about tax. That's why I think it's so important. In fact, I would argue that tax is the single most important driver of investment performance outside of the market itself. So if you're an investor and you're looking at mutual fund ticker symbol, let's say MNN, and MNN trades 50 times a year, but you are in the top tax bracket and you don't sell for 50 more years compared to another person who might sell the very next year. I might be in a different tax bracket. It's really hard to quantify that because of all of those individual circumstances.

27:41So how should somebody think about taxes when there's not the mechanism to tell you exactly how much you're going to get based on after-tax returns, because you're only seeing pre-tax stats, to account for what you'll actually get net-net? Yeah. Well, it's a very good question. And once again, I'll say that's a question that I'm attempting to solve at Evergreen. However, what could you do today? I think it's not a bad strategy today to go in highly diversified, low-cost ETFs. At least that keeps you diversified and safe with low fees. In terms of tax optimization, you'd end up perhaps taking a look at the end of the year and seeing in December and seeing whether there are any losses to be harvested at that point.

28:28That's not a terribly thorough approach, but at least it would get you a couple of big chunks at the end of the year. But even if all you've got is ETFs, you can be relatively smart in terms of what funds you put in your taxable accounts and what you put in your tax deferred accounts. That's what I also want to ask you about, because you have this other hot take, Bill. You say that many people think that because retirement accounts have a long time horizon, they should put their longer term stocks in 401ks or IRAs and their shorter term savings like CDs or bonds in taxable accounts. You say that this whole thing is backward.