Tax-Free Wealth. Tom Wheelwright

      In many countries, only certain individuals are allowed to be passive investors. In the United States, these individuals are called “accredited investors.” Accredited investors meet certain minimum wealth and earning guidelines set up by the government. In Australia these are called “sophisticated investors” or “professional investors.” There are always minimum wealth requirements and in some countries, there are additional certification rules. The thinking is that if you have enough money, you either have a high enough financial education to properly evaluate a deal or you can afford to lose some of your money. Either way, you qualify under the government guidelines for becoming a passive investor.

      While the losses and expenses of a passive investor can be deductible, the rules can be a little tricky. If you’re thinking of going this route, be sure to sit down with your tax advisor and let him or her know what you are planning so that he or she can explain the rules to you and make sure you get the benefit of your expenses and losses.

Don’t Be Cheap with Your Team Members
1.	You often get what you pay for with team members.
2.	Low fees don’t translate into a good deal when it comes to advisors. A good team member is worth their weight in gold.

       Document Everything

       The last key to becoming a super taxpayer is documentation.

      The last key to becoming a super taxpayer is excellent documentation. All good tax planning also leads to sound business and investment decisions. One of the best business or investment decisions you can make is to keep good documentation of your income and expenses. This means that you keep accurate books and records. Make sure your bookkeeping is up to date at least once each week. The more thorough and accurate your accounting, the better business and investment decisions you’ll make, and the less likelihood you will have difficulties in an audit.

TAX TIP:

Document. Document. Document. The IRS, Revenue Canada, the HMRC, ATO, and other tax collectors love documentation. Remember that if you pretend to document a deduction, you get a pretend deduction.

      If you decide to start a business, even though you are starting small (as advised earlier in this chapter), think about your business as if it were one of the big dogs, such as IBM or Microsoft. Think about all of the good reporting they need to do in order to stay in business and to keep investors, bankers and management informed about what’s going on. You can do the same with your small, start-up business that you run out of your home office. When you do, chances are the IRS, CRA, or other tax officials will be in and out of your life quickly and painlessly if you’re ever audited. You’ll also have accurate financial information to help you to make wise and informed business and investment decisions. Best of all, your expenses will be deductible, and you won’t have to worry about whether the government will allow them. Why? Because you’ve followed the law exactly as it was meant to be applied.

      The result will be lower taxes and less stress. So now you know what I mean when I say that almost every expense can be deductible under the right circumstances. Every time you spend money you can also reduce your taxes, whether it’s filling up your car at the gas station, going out to dinner with your spouse and business partner, or even going to New Mexico to look at real estate.

      The basic difference between an average taxpayer and a super taxpayer is how serious they are about increasing their wealth. An average taxpayer turns his or her money over to someone else and hopes and prays that their investments go up in value. The super taxpayer is actively involved in creating wealth, either through actively investing in a business, real estate or the stock market or through actively seeking out active investors who will do that for them. Super taxpayers also build a great team of advisors, mentors and other relationships who actively help them build their wealth and reduce their taxes. Here’s a chart illustrating the basic difference between an average taxpayer and a super taxpayer. Pretty simple, isn’t it?

      Next, we’re going to look at the king of all deductions, depreciation.

CHAPTER 6: KEY POINTS
1.	Most people are average taxpayers who only experience average tax benefits.
2.	The key to saving more in taxes is becoming a super taxpayer and enjoying the benefits of deductible expenses.
3.	The best way to enjoy deductible expenses is to start a business or to start investing for passive income. You don’t have to quit your job. Just start small.
4.	One of the best business and investing practices is to document your income and expenses, and to document them well.

       Tax Strategy #6 – Document, Document, Document

      Being able to immediately provide documentation upon request during an audit is always an impressive tactic. If your activities and expenses are properly documented, then the tax collector will have a hard time making a case for any changes. Plus, having your documentation in place reduces the amount of time your CPA bills you for an audit. Documentation is a successful defense strategy that enables you to always be ready for an audit and reduces the associated costs. Documentation of receipts has been made a lot easier with computers. Now, you can scan your receipts into your computer. This way, you don’t have to have a file drawer just for receipts and you don’t have to worry about them fading over time. Have you ever pulled out a credit card receipt that was a year or two old, only to find a blank piece of paper? This happens all the time. What if you were being audited and went to pull those receipts only to find they were all just blank pieces of paper. Be sure to scan the receipts into a file on your computer. The IRS loves it when they can just look at scanned receipts instead of going through faded paper receipts.

      You will learn more about documentation in Chapter 22 when we talk about IRS audits. Just remember that this is one tax strategy you can do every day, and it doesn’t take much time or effort.

       Chapter Seven