The key lies in your facts. Your facts include your business activities, your investment activities, and your personal activities. They also include how you keep track of your activities. All taxes are based on your facts and circumstances. So if you want to change your tax, change your facts. It’s that simple.
This book is dedicated to teaching you how to change your facts so you can lower your tax. You will also learn the principles of building wealth. The facts you must change to reduce your tax will at the same time increase your income. Start behaving like the wealthy and soon you will become one of the wealthy for whom the tax law was written.
| Beware of Tax Preparers who: | |
| 1. | Promise they can lower your taxes and who are really tax cheats. |
| 2. | Focus on postponing or “deferring” taxes to a later year. Real tax planning is permanent so you never have to repay the taxes. |
So stop letting the IRS (the U.S. Internal Revenue Service), CRA (Canada Revenue Agency), HMRC (Her Majesty’s Revenue & Customs), or other government agencies steal your money. Don’t let them steal your time. It’s time to get out of prison. As you learn the truth about taxes, the truth will set you free. You will have the time and the money that you want so that you can live your dream of financial freedom, comfort, and security.
| CHAPTER 1: KEY POINTS | |
| 1. | Become one of the wealthy and stop giving the IRS your time. Learn to trade your money for time and engage in activities the government uses to shape the economy. Remember, the tax law is a series of incentives for entrepreneurs and investors. |
| 2. | Taxes are based on your facts and circumstances—changing your facts will change your tax. |
Tax Strategy #1: Include Tax Planning in Your Wealth Strategy
Too many people ignore taxes when investing and planning their wealth strategy. They look at the return on investment as the return before they pay taxes on their investment income. This makes no sense. With taxes as your biggest expense, wouldn’t you want to look at every return on every investment after taxes? When you do, you may find that you are making a lot less on some investments than you thought and are making more on others in comparison.
Let’s take a couple of examples in the U.S. that we will go into in much greater detail later on in this book. First, let’s look at real estate. Regularly, I hear on the news that real estate is only a moderately successful investment on average. And if you were to compare it directly to some other investment before tax and without leverage (i.e., debt), you would have to agree. Let’s say you purchased a rental property for $500,000, with $100,000 of your own money and $400,000 of the bank’s money. Suppose that the annual return on your investment of $100,000 is 7%. Then, let’s suppose that you make a similar investment of $100,000 in the stock market that returns 10%. Which investment is a better return? It seems obvious that the stock market return of 10% is clearly better than the real estate return of 7%, right?
Not so fast. The 10% return from the stock market will get you $10,000 before taxes. You will pay capital gains tax of about 20%, counting both federal and state taxes, leaving you with an after-tax return of $8,000. The 7% return on the real estate investment will get you a before-tax return of $7,000. Due to the magic of depreciation (chapter 7), you won’t pay any tax on your $7,000. Still, $7,000 is less than your after tax return of $8,000 in the stock market, so it seems you are still better off in the stock market.
Only,