Tax-Free Wealth
Taxes are how the government incentivizes economically desirable behavior and promotes the business they need and want most like those that create jobs.
The tax code benefits those who invest in the projects the government needs like energy or agriculture. If you know where to invest your money, you can pay little to nothing in taxes.
Invest in places where you like to travel so you can write off your travel expenses. As long as more than half of your time there is spent doing business, you can write off your plane ticket, hotel, food, and most of your travel expenses.
The tax code is setup to help you save money. It’s your money and you should try to keep as much as you can. 0.5% of the tax code is devoted to raising taxes and 99.5% is devoted to how you can save money through write-offs.
Tax deductible expenses must have a business purpose, be ordinary for your industry, and the expense must be necessary.
The tax system is a subsidy for entrepreneurs and investors. The government wants you to create jobs.
Make your business a family business so you can deduct family expenses, including family vacations.
Paying your child to do work for your business allows you to (likely) pay them less, they learn and don’t have to pay taxes on that income, and you don’t have to pay social security taxes on their wages.
Depreciation deductions on real estate, business cars, equipment, computers, furniture, and any other business-related asset can amount to your biggest tax savers. Depending on the item, the time over which it depreciates will vary, but a business computer, for example, depreciates over a five year period meaning you can deduct 1/5th of the cost each year (if you don’t deduct it all for year one). This is more useful for bigger ticket items like homes because they often don’t actually depreciate meaning you essentially get free money through deductions.
Including your elderly parents in your business after they are retired and in a lower tax bracket can be a great way to lower your taxes without relinquishing control of your business. And when they pass away, you won’t pay taxes on what they relinquish.
Choosing a tax deferred method of investing is only beneficial if you plan to retire worse off than you are now. All your money in tax deferred vehicles gets taxed at the income tax rate so dividends and other capital gains don’t get the benefit of the lower tax rate. You also likely won’t have the same deductions or tax credits come retirement.
Getting taxed in multiple states can actually save you more than if you were taxed in just one state. Different states have different laws on taxation and using that to your advantage could eliminate a large portion of your taxable income. Taxes are paid in the state where products are shipped.
For certain expenses like business travel deductions, you will need to keep notes of the circumstances of that deduction in addition to receipts. A general rule of thumb is to keep receipts for 7 years. Also avoid using round numbers on deductions so auditors don’t see any red flags and assume those deductions were guesses rather than accurate dollar amounts.
Use accounting software that generates an income statement and balance sheet. It shows you are serious about your taxes and better organizes your finances.
Your tax advisor should be the one asking all the right questions, not you. If this isn’t the case, get a new tax advisor.
Use a combination of compound interest, leverage, and velocity to use your tax savings to build more wealth.