Our current laws allow us to become wealthy legally, ethically and morally if it is used properly and to our advantage!
Tax-deferred program is extremely powerful allowing us to get the use of Uncle’s Sam’s money “Interest-free”!
You can’t get any richer than “Interest free” money!
Typically, there are four basic categories as shown below:
| Category | Tax bracket | How are the taxes being handled |
| EMPLOYEES | About 40% | Automatically taken out of your paycheck every month. |
| SELF-EMPLOYED | Up to 60% | You are responsible for paying employees and your taxes. |
| LARGE BUSINESSES | About 20% | Handled by in-house Corporate CPA’s and accountants. |
| INVESTORS | Varies | Typically handled by professional CPA’s. |
| PROFESSIONAL INVESTORS | As little as 0% | Financially educated investors work in coordination with CPA’s that fully understand corporate structure and laws. |
- If you are an EMPLOYEE, you are expected to pay about 40% in taxes. It did NOT change much after a Trump tax cut. This is the simple case because money is being automatically taken out of your paycheck every month.
- If you are SELF-EMPLOYED, have a retail store, restaurant etc. the taxes go UP because you are paying for both your share of the taxes plus the employer share of the taxes because you have both sides.
That means that the taxes now go up as high as 60%. A self-employed person is responsible for paying taxes which is why many self-employed people get in trouble. Why? Because people usually spend all their money and do not have any money left to pay the taxes. This is another reason many small business owner’s go out of business within a few short years. Taxes are the biggest expense for small business owners.
- LARGE BUSINESSES – with hundreds of employees. (IBM, Amazon, Microsoft, DELL, etc.). Typically, corporations will pay about 20% in taxes. Why large corporation’s pay less in taxes over small businesses? There are many different opinions on this, in my personal opinion; the government wants us to do certain things, and they will give us incentives if we do them. What the government wants out of large businesses is, they want employment!An example: IBM employs nearly 430,000 people worldwide out of which only about 100,000 are in the US. The government wants large businesses to create as many jobs as possible in the US which leads to stability and economic growth in the country. Typically, (not always the case), the more jobs large business provides, the more tax benefit they get. It is publicly known that Amazon pays very little income taxes and sales tax. Many companies like Amazon are getting tax breaks from multiple types of government agencies such as Federal, State and local taxes.
- The last category is known as INVESTORS – traditionally investing in stock, bonds, Forex, mutual funds, real-estate. We call them “passive investors†Their taxes varies based on short vs. long-term investments and other factors that are critical to determining the tax brackets.
- PROFESSIONAL INVESTOR – (example large investors, Shark Tank, angel investors etc.),
Now, believe it or not, these people can pay as little as 0% in taxes. They can completely eliminate their taxes LEGALLY. One may ask, why would they get such benefits in paying as little as 0% in taxes? It is simple: Because the government WANTS and NEEDS housing, they want energy, various commercial projects, technology, food, and the list goes on and on….
One of the misconceptions is that the tax break is mostly for wealthy people which is not the case. By looking at the taxes above, there are many very wealthy people both employees and self-employed people with successful small business paying as much as 60% taxes. You could be a CEO earning nearly one million dollars paying 40% in taxes. You could be a doctor or an attorney earning 400,000 dollars paying 60% in taxes. We are fortunate to live in the best time ever, in a country with lots of opportunities and we ALL have options of choosing in which tax bracket we really want to be. Sadly, and unfortunately, our traditional school system does not teach our kids about these types of things, which is partially the reason most kids end up being employees. I am sure many of us heard the phrase: Go to school to get a good-paying job!!!
The main difference between being rich or being poor is the mindset of choosing taxes to your benefit.
The majority of us chose to be employees simply because we did not get a financial education choosing another path, unless we would be fortunate to have wealthy parents in which case our mindset about the money would be completely different.