It’s not how much money you make, but how much money you keep. In addition, it is also about what you do with the money you do keep. This thought mentality is at the heart of building lasting wealth.
Tip: Have the mindset that the more money you make the more money you can save in taxes.
You can reduce your taxes down to single digits. You can keep your taxes in the single digits even as your money grows. You can put these tax savings into vehicles that will build you even more wealth.
Two tax savings distinctions: Incorporated and unincorporated.
Incorporated businesses are the way to go. However, you can experience tax savings for both incorporated and unincorporated businesses.
The purpose of your business is to generate a profit. Sometimes it takes a long time for your business to see a profit. For example, Amazon.com didn’t earn a profit for the first 15 years. Many accountants will say that if you don’t earn a profit in the first 3-4 years then it is considered a hobby. This is completely false! Amazon.com took 15 years to realize a profit and they are most certainly not a hobby!
You can take a loss from your business and subtract if off your other income. For example, let’s say that you lost $20,000 on your business. However, you also have a corporate job. You can subtract this $20,000 from your W-2 income (from your corporate job). This means that your taxable income has decreased. This is a great tax savings in itself.
The uneducated system of taxes includes earning money, paying taxes on it (state, federal, and FICA taxes), and then spending the difference. This type of tax format doesn’t allow you to build wealth. It makes it extremely difficult to get ahead.
The “educated” system of taxes includes making money, spending it, and then paying taxes on the difference. “Spending it” in this case refers to business deductions. Deductions include health care, business supplies, business trips, etc. There are very few things that you can’t deduct if the circumstances are correct.
You need to learn enough about the tax codes so that your records are kept properly. You need to be aware of what information and documentation is required for deductions. This way you can slash your taxes legally.
Tip: Bill Gates said “A working knowledge of the tax code” was the most important factor of his success.
Tip: S-Corporations have typically 75 deductions they can take. If you are a W-2 employee then you have at most 10 deductions you can take. That’s why it is hard to get ahead financially when you work for somebody else or work at a corporation.
Tip: C-Corporations allow you to choose your fiscal year end. It doesn’t have to be December 31st. A C-Corporation can take several deductions as well.
C-Corporations pay only 15% tax on the first $50,000 word of net income.
Do you have a working knowledge of the tax code? If not, learn it today to save you thousands of dollars.
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