Robert Kiyosaki strongly believes there are four key financial elements that make 90% of people poor: Debt (Good Debt VS Bad Debt), Taxes, Inflation, and Retirement.
Many laws are written to favor investors, while others are not. And it is extremely important to know and understand these tax laws, because in the end, it can be very expensive if you don't.
With the economy in trouble, you can bet that most of the world leaders will be looking to raise taxes to help solve their problems. The question is will you be the one paying them or will you be protected?
U.S. Tax Overview
The U.S. tax system, like in many other countries, is progressive - meaning people earning more money pay tax at a higher rate than people earning less.
Of course, it is not that simple ... the present tax code may have your money passing through more than one tax bracket before your final tax bill is calculated. The rate you pay depends on many factors, not just your income but whether you're married or single, how many children you have, and so forth. Our current tax system is so complicated that some lawmakers in Washington have repeatedly called for a straightforward proportional tax or "flat tax" that would take the same percentage of each person's income.
However, instead of overhauling the tax code, Congress is forever tinkering with it, changing this and adding that.
When the law changed and the government stopped subsidizing people for losing money, some people went bankrupt and the stock market took a steep dive.
It's never a good idea to invest in something just to avoid paying taxes or in something that's losing money. The idea is to make money, not lose it.
The law is always changing, and the best way to reduce your tax burden is to keep abreast of developments. How? By
- watching the financial news on television,
- reading the financial section of your newspaper, or
- consulting your tax attorney or accountant.
Most people earn money, pay taxes through withholding and spend what little is left over. The rich, however, do it differently. They earn money, spend it and then pay taxes. The government gets less that way, and it's legal!
So how do the rich get away with that?
Well, they take advantage of the tax loopholes that allow individuals to choose different entities for their businesses.
Loopholes are intended to help businesses grow and prosper.
The tax law allows a corporation, for example, to earn, spend everything it can on legitimate business expenses, and then be taxed only on what remains.
How can you get in on this secret? First by learning what business entities are available to you and what the advantages and disadvantages are of each. These entities include sole proprietorship, partnership, corporation, and the limited-liability company, which is a hybrid partnership/corporation.
Often, there is nothing more expensive than free advice from people who have no idea what they're talking about.
As you look at ways to reduce your taxes, it is critical that you build the right team of advisors. Make sure your team includes a trusted attorney and tax accountant to direct you.
Related: Good Debt VS Bad Debt
