Chalk this up to another issue we all have thanks for the employee mindset we are trained with.
Taxes!
They are bad, and rich people get to lie, cheat, and steal so they dont have to pay them, right?
I hear this a lot, and why taxes are stressed as vital in my “Quit with Confidence” lessons
But stop right there and think to yourself about your own beliefs about taxes and the rich.
Ask yourself:
“Is it actually true that rich people lie, cheat and steal so they don’t need to pay taxes?”
The next question to ask yourself is
“Can I do what rich people do to avoid taxes?”
Most people dont even entertain these questions because of the employee mindset. (they just do what they are told and accept things as they are)
But, since you are reading this blog, I know you are different so here are some facts:
- Employees pay around 40% of their income in taxes
- Small business owners without a strategy pay around 60%
- Big businesses pay around 20% (and in many cases much less, like 0%)
- Investors, like big business pay even less…sometimes they can also get as low as 0% too
Many people think you need to hire a team of lawyers and accounts to pull of tax evasion strategies to get to that 20% and lower amount.
I won’t lie, a team of accounts and lawyers would be awesome to help you with your tax strategy but…
you dont need anything that extreme!
You only need a bit of understanding on what taxes are for, a tax strategy that makes sense for you, and a professional book-keeper and accountant to help you
First off, I need to get this out of the way.
If every year you are hoping to get a tax refund, you are overpaying in taxes!!!!
That means you gave the government too much money!
Money you could have used to invest in yourself, your business or anything else that will help you to earn more money!
But instead of holding on to your money, you gave the government an interest free loan.
While you are an employee, your goal is to not owe any additional taxes, and not get a refund.
That means you pay what you owe during the year, and not a penny more.
Getting back to it, you need to understand that if you’ve been an employee your whole life, you only see 1 side of the coin when it comes to taxes.
The side you see is that they just take money from you and make your paychecks smaller.
Maybe you get that the tax money pays for services like the police and fire dept…but in general, it goes to the government.
If you are a small business owner, and you dont have a tax strategy in place, you pay even more in taxes.
(another reason why I stress tax strategies in my quit with confidence lessons)
On a side note: this is why many small business owners had issues when Obamacare came around.
The tax penalties and whatnot was too much for people because they didn’t have a real tax strategy (or a pro on their side to help).
They were essentially caught unprepared.
Anyway, getting back to the topic at hand, as large business owner or an investor, you pay MUCH less in taxes (as we previously discussed)
The question you may have is why?
Well, the tax code is actually pretty simple, but what is complicated is all the different deductions and incentives that are out there.
These are there to incentivise you to do the things that the government wants which is a healthy economy
As an employee, you are doing a lil bit to contribute to the economy by getting paid so you can buy stuff.
That stuff (rent/mortgage, food, gas, entertainment, cars, etc) circulates money in the economy
That’s good stuff…but giving government money in the form of taxes is not great (its not bad either)
But as an investor or large business owner, you can do a lot MORE for the economy.
- you can create jobs
- create/rent homes to many people
- create new technology
- fix problems with society
- etc.
So, the govt sees this and asks itself
“what helps us more? Person A who is circulating a little money in the economy and paying us a little bit each year, or person B who creates things to buy, creates jobs, or fixes problems? And they do what we want on our behalf?”
You can see what the govt decided is more valuable and what they decided to reward.
Some of the things you do as an employee gets incentives too, like the deduction your mortgage insurance, and childcare expenses are great examples.
However, businesses and investors have a lot more things they can do for those sweet, sweet deductions.
This is how investors and large companies can pay 0% in taxes, because the amount of stuff they do the government likes is greater than the stuff they would get taxed for!
Before knowing this, you prob thought they were cheating the system…and maybe in a moral sense you still feel that way.
but now you have info that and now you can start to change your mindset when it comes to taxes a bit.
Here’s the point.
If you want to pay little to no money in taxes, you need to acquire assets…if you want to pay a lot of money in taxes, you need to earn more money.
You can guess that the rich acquire assets and the poor and middle class earn money.
The government does not tax assets the same way, they will tax income!
The good news is that we all play by the same rules.
That means 2 people who make the same money in the same way will get taxed EXACTLY the same.
However, dont you think it’s about time you know how to use the rules in your favor?