It’s not easy to write a book about taxes that appeals to the average Joe. Most people are scared to death of taxes. They believe that the tax law is out to get them. For years and years, the media and so-called financial advisors have told us that the tax law is far too complex for most people to understand. What these groups are not telling you is that the tax law is actually pretty simple. Yes, there are many details, and you need a good tax advisor to help you sort them out. Still, the fundamental concepts of the tax law are easily understood by anyone with a fifth-grade education.
Of course, the tax laws were not initially intended to even include the average working man and woman. They were meant to reach only the excess earnings of the most wealthy individuals and corporations. Over the past several decades, however, they have evolved to become tools of social and economic policy making.
When the tax laws were first imposed on employees, an average employee earning the average wage was exempt from tax. Now, employees pay the highest taxes, and employers and investors pay the lowest. Why?
Economic policy makers in government discovered that people respond quickly and directly to tax incentives. So, if you want to encourage big families, you give a tax credit for each child. If you want to encourage investment in domestic oil production, you give a big tax deduction for every dollar invested in oil and gas. If you want to encourage investors to build apartments for low-income workers, you simply give them a credit for doing so. And it goes on and on.
This book is not a criticism of the world’s tax laws, or even a recommendation that they change. Taxes are part of our world and will always be part of our lives. So, instead of complaining about them and hoping for parliaments and legislatures to make them fairer, let’s simply understand them and put them to good use in our lives.
Taxes will either make you rich or make you poor. The tax laws of all countries are written to encourage certain activities that benefit the economy and promote social policy. It’s our job to understand and take advantage of the tax laws as they are written.
This book is not about loopholes. Loopholes are unintended consequences of laws that were enacted. This book is about the consequences that lawmakers intended. Taking advantage of the intended benefits is doing what our governments ask us to do. Invest where they say to invest and you get a tax benefit. Put your time and talents into activities that produce jobs, housing, and grow the economy, and you get tax benefits. In many ways, utilizing the tax code to the fullest to save as much money in taxes as possible is one of the most patriotic things you can do.
Again, the concepts of the tax law are not difficult to understand. While this book will not make you an expert in your country’s tax laws, it will teach you the fundamental principles of those laws so that you can take advantage of them in the way your government wants. And in doing so, chances are that you will become more profitable in your business and investing. After all, the tax law is really a map—a treasure map. As you follow this treasure map, your taxes go down and your profits and investment returns go up. Enjoy the treasure hunt, and you will find that your financial freedom is closer than you think.
by Robert Kiyosaki
The old saying goes: There are two constants in life, death and taxes. I’m of the opinion that you want to do all you can to put both off as long as possible—or at least minimize the pain they cause.
To prolong my life, I eat healthy, exercise, and avoid things like drinking too much and smoking. I value my health. So, I work with experts who help me keep my body in shape and to put only good things inside my body. I put my money where my mouth is.
It didn’t used to be this way. I used to love eating junk food, enjoyed my drink a little too much, and didn’t exercise. And I paid the price. I was over weight, unhealthy, and had a close call with my heart.
I didn’t understand the rules of my body and was breaking those rules. And that was costly. Thankfully, my health problems motivated me to get healthy. Barring the unforeseen, I’ve added years to my life.
When I was younger, I also didn’t understand the rules of taxes. Much like you probably do, I looked at taxes as a major inconvenience that couldn’t really be avoided. Thankfully, my rich dad taught me that taxes aren’t unavoidable, and that, quite the contrary, they could even be used to your advantage.
My rich dad was not my real dad. He was my best friend’s father. My rich dad was an entrepreneur, who owned retail stores, restaurants, and hotels. My real dad was a schoolteacher who eventually became the head of education for the State of Hawaii.
It was my rich dad that pointed out to his son and me that there are four different types of people in the world of money. He defined these four types with the diagram below, a diagram he called the “CASHFLOW Quadrant.”
E stands for Employee
S stands for Self-employed or small business owner
B stands for Big business owner
I stands for Investor
As a boy, thanks to my rich dad, I knew that those in the E and S quadrants paid the highest percentage in tax. I also knew that those in the B and I quadrants paid the lowest percentage, sometimes zero in taxes. Following my rich dad’s advice, I focused my life on the B and I quadrants…and have done very well financially.
All I had to know was the rules and how to play by them. My problem was finding CPAs who understood the tax laws as my rich dad did.
Over the years, I lost a lot of money to taxes simply because I had high priced, well-educated CPAs who were not the brightest matches in the box—that is until I met Tom Wheelwright. For years now, Tom has been my guiding light, allowing me to do what I do best, which is build businesses, invest, create jobs, and make money, all the while paying less and less in taxes…legally. I’ve encouraged Tom to write this most important book, especially at this time in history. I am glad it’s here and I trust you’ll enjoy and learn from it.
Today, taxes are killing many people financially. Perhaps you know what I mean. Do you look at your paycheck every month and wonder where all your money is going? I’ll tell you. It’s going to the people who know how to use taxes to make money rather than lose money. It’s going to people like me.
As you’ll find out more in this book, governments write the tax codes to incentivize investors and entrepreneurs to behave how they want. So, if a government wants more affordable housing, they’ll provide some great tax incentives to motivate developers to build affordable housing.
The problem is that the governments still have to pay their bills. So whom do they tax? The middle-class.