The word "Tax" seems inherently dull and bothersome. However, in my view tax is the secret weapon of wealth creation. It should be a cornerstone in your financial planning. One fell swoop of a pen on some documents backed up by some clever tax planning can create instantaneous wealth. This is what the wealthy have known for years. Usually, people think about tax as separate to their wealth building activities. This is a huge mistake and will cost you thousands if not millions over time in unnecessary tax liabilities. How the Wealthy Save Money on Taxes It's often reported in the media that the wealthy pay little or no taxes. Now, this is not actually true but they do pay a lot less tax as a percentage of their income than a single person earning $80,000 a year as an employee does. Rather than complaining about the injustices of society or the tax system, I say why not figure out how the wealthy pay less tax. Here's how they do it: They invest with pre-tax money and when they cash-in their investments they look for ways to minimise their capital gains tax. Investing with pre-tax money and then allowing your wealth to grow tax-deferred is the weapon of choice for wealthy folk. In addition, they legitimately use a multitude of other ways to dodge tax bullets! The following are just some examples: How to Save Money on Tax #1: Corporate Structures Wealthy businessmen understand that their business-activity related taxes and their personal net worth are intrinsically connected. They don't mess around with sole proprietorships but instead set up incorporated structures to minimize their tax liabilities. How to Save Money on Tax #2: Pension Trust Funds This is one of the most common methods used by the rich is to set-up a pension trust fund with which to draw money out of their companies in a pre-tax manner and then avail of tax-deferred wealth building by making investments from this fund. How to Save Money on Tax #3: Tax-advantaged Investments Wealthy people often make specific investments because of the tax advantages they provide. Tax-free bonds, variable annuities and some real-estate investments are examples of tax-advantaged investments. Oil and Gas Drilling projects in the US come with great tax breaks. Retirement plans like a 401(k) or an Individual Retirement Account (IRA) are useful and used by the moderately wealthy. How to Save Money on Tax #4: Income Splitting This involves drawing income from a multitude of corporations and trusts and sheltering as much of that income as possible. Since corporate tax rates are a lot lower than income tax rates it makes sense to divert additional incomes streams into different entities. How to Save Money on Tax #5: Offsetting Capital Losses Offsetting capital losses from one investment against future capital gains in another is another common "strategy" of the wealthy and rich. Popular with mutual funds, by exchanging a loss making fund with hopefully profit-making fund (holding the same stocks), you can realize a capital loss for tax reasons without necessarily incurring a long term investment loss. You Gotta Pay Tax but There's No Need to Leave a Tip Someone once remarked, "Next to being shot at and missed, nothing is quite so satisfying as an income tax refund." Even better than a refund is not paying more tax than you should do in the first place. The way I see it, paying more tax than you need to is pure folly and financial nonchalance. If your income is being taxed at the higher tax band rates than you should seriously consider paying for some professional tax advice. It may cost you thousands but could literally save you millions. The first question I suggest you ask your tax advisor is "How can I legitimately pay almost zero tax from now on?" This throws down the gauntlet to your tax advisor. It may not be possible to pay zero tax but I bet you can reduce your taxes significantly. It will require your new best friend i.e. your tax advisor, to find new and creative ways of minimising your taxes whilst simultaneously growing your wealth. P.S. These tried and tested wealth building strategies can help you grow your wealth and speed up the process of real wealth creation. Why not sign up NOW for more insider secrets on Wealth Building at Millionaire Mindset Secrets for FREE. In addition, you'll discover more about personal and business success secrets, wealth building and how to get rich at MillionaireMindsetSecrets.com for FREE.
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