Some may argue that the World’s elite are always getting richer because they have found ways to avoid paying a larger sum of money on taxes. Taxes are mandatory fees that a government usually require the citizens of a particular country, diaspora, area or economic background to pay. Taxes are then pumped back into the country and used to fund projects like paying public sector workers, improving infrastructure and growing the economy ect. The main question that many persons often ask is how does the rich pay little to no taxes?
How does the rich pay little to no taxes?-Robert Kewasaki’s philosophy
Famous author and multi million dollar investor, Rebert Kewasaki is one of the persons who has come forward explaining how the rich legally avoids paying taxes. He has written a book on the topic of investing and how to break “the poor mindset”. He stated in an explanation that he did with Tom Wheelwright that there are 3 basic accounting terms that you must know in order to avoid paying lots of tax. The first is Amortization and a practical example of this is when a business or individual acquires alot of debt and uses the money they earn from other sources ( such as revenue from a business or asset) to repay the debt they owe.
The second term Robert mentions is Appreciation and this refers to when an asset increases in value. Tom and Robert state that when an asset ( in this case they use real estate as an example) increases in value the person who invests in the asset is the one who gets the benefit and they are also usually the ones who receive all the profits because the banks get nothing . The third and final term that Robert Kewasaki explains is depreciation. His colleague Tom, speaks about the fact that depreciation is usually for tax purposes but when this money is deducted, it is usually not taken from the pocket of the investor. What really seems to be happening here is that the investor is lowering their taxes with the depreciation because it is taken from their Net-income but this actually increases cash flow.
In a description that Robert and his colleagues gave they stated that people from different economic backgrounds pay varying amounts of their income in taxes. They state a few statistics; Regular employees pay 40% of their income in taxes, Self employed persons like Lawyers an Doctors pay 60% of their income in taxes, business owners pay 20% tax and investors pay 0% taxes. This statistic is mind boggling but as it is stated above, he explains how business owners and investors manage to avoid paying taxes.
Robert and his colleagues are of the idea that the reason why regular employees and self employed persons are unlikely to apply these concepts. Employees are not financially literate enough to realize that investing is the best way to become financially independent. The best way to earn a steady stream of income is to invest whether it is on the stock market or in assets. He wrote all the secretes to how he became a successful investor in his book and continues to explain his secrets in other forms of media.
How to invest smartly and legally avoid paying taxes
The key to any investment is the returns that it brings in the long term. It is because of these returns that an investor may avoid paying taxes. A smart investor knows that in order to earn more on their investment, they have to diversify and it is because of these diversified assets that they are able to make people’s money work for them. They use the assets they have in order to pay for the debt they owe. Most persons are taxed based on their Net-income which is your gross-income minus your business expenses. This is how the 3 accounting terms help the wealthy to pay less taxes.
Investing is dependent on smart planning and decisions. The way we spend the money that we invest determines the amount of tax we pay and the profit we make. Robert states that most governments don’t want us to pay taxes, they just use taxes to get us to do what they want us to do.
Seek professional help and try to learn about the tax laws in your country
There are many professionals that have experience with tax and financial law and the wealthy knows this so they hire these persons and use them to their advantage. It is the duty of a financial lawyer and a tax specialist to help their clients find legal ways in which they can avoid paying more taxes. The line between legal and illegal is very thin in certain countries and as a result of this it is very important to seek professional advice on these matters.
A financial lawyer will give you a better understanding of the financial laws of a country and this usually includes a detailed breakdown and explanation of that country’s tax laws. If you are seeking to invest in offshore portfolios or businesses then this may be very important. A tax specialist will give you a better idea of how you can legally avoid paying certain types of taxes. There are many different ways in which governments calculate the taxes that businesses owe but the most common way is making a deduction from the Net-income of that company.
Even though Robert Kawasaki did not ask us to promote him in anyway we use his advice because he is one of the smartest investors out there and he sees the need for financial literacy. He has written a famous book on the subject which he calls “Rich Dad, Poor Dad”. In this book he explains how he became financially literate. We hope this helped you to better understand how tax works because I know that many of you have been wondering “How does the rich pay little to no taxes?”.
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