Wealthy Tax Secrets

Do you never want to worry about money again? Do you want to be wealthy? Do you want to buy neat “toys”? What exactly does being wealthy mean to you? Does it mean having lots and lots of money? Or does being wealthy mean you can do whatever you want, whenever you want, with whomever you want? Does being wealthy mean you don’t have to worry about your next paycheck?

There are many ways to define “wealth” and what it means to be “wealthy.” Personally, I like to define “being wealthy” as having your “passive income” exceed your expenses. The IRS defines passive income as “any activity…in which the taxpayer does not materially participate.” If you are making enough passive income to pay all of your expenses, then you can devote your time (time others spend working) to other endeavors.

Fake It Till You Make It

How do the wealthy “do it?” Are they just born into it? Are they special in some way? Obviously, some people ARE born into it, but there’s nothing special about them. The main difference is in how wealthy people think and act.

The fact that rich people think and act differently is nothing new. In fact, it’s been known for quite some time. You could even say that there’s a Science Of Getting Rich. This book is free to download from our free book page.This book may be from 1910, but it is the inspiration behind the 2006 movie and book “The Secret.”

In 1937, Napoleon Hill published Think and Grow Rich, which has sold over 20 million copies and is considered one of the best selling books of all time. In it Hill goes systematically through the differences in thinking between that of a successful person and an unsuccessful person. His examples of successful people are obviously dated, but the concepts discussed are still relevant today.

Do Like They Do

How does one become wealthy? Luckily, there’s no need to reinvent the wheel. There are plenty of wealthy people we can study to see what they have done and emulate that. Most, if not all, wealthy people have three things in common. These three things are: making money, investing their money, and keeping their money. Let’s go over these in detail.

Make Money By Starting Your Own Business

Becoming wealthy obviously means you have to make money. As one of my high school teachers used to say, “The easiest way to make money is to rob a bank.” However, the most reliable way to make money LEGALLY is to start your own business.

It used to be exceedingly expensive to start your own business. But now, with the advent of the Internet, the start-up costs of a new business are ridiculously low. There are a variety of businesses that you can start for under $100 from the luxury of your own home.

One of the easiest ways to start your own business is to become an affiliate and sell other people’s products. All you need is a website that will drive traffic to a product’s site and every sale sent by you will earn you a commission.

What if you are more old-fashioned and want to start a brick and mortar business? Well, this is arguably the most difficult and also the most expensive way to start, but it is tried and true. Sometimes people just don’t know how To find money for their business endeavors.

Maximizing Your Company’s Business

Regardless of which type of business you choose to start, you need to maximize your income without overworking yourself. This is part of the strategy of growing your business from its infant stage into maturity.

One of the central strategies of many start-up companies is to advertise. It doesn’t matter if you are using Google Adwords, direct mail, advertising in a local or even a national newspaper; you need to track your results.

Claude C. Hopkins described this simple, yet revolutionary, concept in detail in Scientific Advertising back in 1923. Hopkins advocated using coded coupons to determine which ads were performing best. By only running your best ads and attempting to improve on those ads, you will be able to maximize your advertising dollars and thus your return on investment (ROI).

Another great way to mature your business is to outsource your least productive efforts. Why not outsource everything that you don’t need a direct hand in? If you specialize in only one aspect of your business, then why are you doing everything? Wouldn’t your time be better suited on your specialty? You can use sites such as Elance.com or Freelance.com to hire freelancers to do jobs for you. Not only are they professionals, but they are relatively inexpensive too.

The other thing to keep in mind when growing your business is the 80/20 rule. This just means that 80% of your results will come from 20% of your efforts (roughly). If this is the case, then why not pinpoint your 20% efforts and spend as much time as possible on them and outsource the other 80% of your effort?

Make More Money By Investing

The economic world is a scary place right now. Have you lost lots of money in your stock portfolio or 401k? Are you
investing at all anymore? Do you have your money in the bank, scared that the bank might go out of business but you don’t know where else to put your money? If your bank goes out of business, how long will it take you get your money, even though your money is insured? What if an emergency comes up and you’re still waiting for your insured money? Is there a safe place to invest your money?

There has to be a safe investment vehicle out there. Aside from gold bullion, which is poised to skyrocket in price, what can you invest in? Real estate is always a safe bet provided you don’t own it free and clear. A fixed mortgage is always a good thing in a declining market. What about purchasing a piece of property for pennies on the dollar? At that price, you can always afford to buy lots of real estate regardless of the market conditions. Tax liens and tax deeds allow you to do just that. This is one way that smart investors will invest their money.

Invest In Stocks

Stocks are arguably the best-known investment vehicles of the modern era. The S&P 500 has grown an average of about 8% per year between 1950 and 2007. This means that for every $1 invested in the S&P 500 in 1950, you’d have over $65 at the end of 2007.

Assuming you had “played it safe” and put that same dollar into a bank earning 4% per year in 1950, you’d have just under $10 for every dollar invested. If you decide to invest in the stock market, you should do it for the long-term and not a quick buck. I’d recommend speaking with a qualified financial advisor/planner before investing in stocks.

You may be wondering about market crashes. Obviously this will hurt your net worth, but when prices drop significantly that is precisely the time to buy MORE. In a few years time as prices rise, you’ll be kicking yourself for not buying more. Stocks involve a long-term commitment; I cannot stress this enough.

Keep What You Earn

So you’ve made all this money with your business and you’ve started investing some, but then you find out that Uncle Sam wants his cut! Part of being wealthy is STAYING wealthy and you can’t do that if you have to give the government more than you can afford. Luckily, there is a lot you can do.

What Can I Deduct On My Taxes?

If you have a business, then you are entitled to certain business deductions. These expenses must fit criteria set forth by the IRS, but most businesses will be eligible for many deductions during the normal course of business.

Tax Shelter: Incorporating

Sometimes running your own business isn’t enough. You’ll need a tax shelter: incorporating your business. By incorporating your business you open up a whole slew of new tax deductions as well as limit your personal liability. (Note: You can also form an LLC to receive tax deductions as well as limit your personal liability)

An advantage of the Internet is that incorporating your business is now exceedingly easy. You can incorporate online at LegalZoom or BizFilings.

Of course, you could still go to a lawyer and have them draw up the papers. This really is a matter of personal preference. In either case, the process will be explained to you. For a quick overview of the different business entities and what may be best for you, check out our article on the Benefits Of Incorporation.

Protect Your Assets

What happens to your money if you are involved in a lawsuit? Worst-case scenario, you lose everything. Best-case scenario you have to pay legal fees and court fees in order to protect your money. In either case, you’ll lose time that could otherwise be directed at your business. Luckily you can protect yourself from these potential headaches by planning ahead. It is illegal to implement asset protection in the middle of a lawsuit!

There is a creative way to actually make it unprofitable for someone to sue you and win. By taking the appropriate measures, you can lose a lawsuit and end up paying the “winner” nothing, but they are still responsible to pay taxes on their “income”. (Imagine having to pay taxes on money you never received and probably never will receive) Makes it pretty undesirable to sue you, right?

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