Taxation is a big deal. Most people don’t realize the amount of destruction taxes can wreak on their ability to create and generate wealth. Here is a short list of some of the major taxes we are paying: Federal Income Taxes, State Income Taxes, Property Taxes, Gasoline Tax, Sales Tax, and Car Registration Tax.
With all of these different taxes and the differing financial consequences of them, there are bound to be questions. Here are three of the most common questions we get asked and our answers.
Is a dollar today worth more than a dollar tomorrow?
Yes. Think about the cost of a loaf of bread, a gallon of gas or a gallon of milk over your lifetime. The cost has gone up, meaning the value of your dollar goes down. This is due to the fact that all dollars are debt and the more dollars created devalue the dollars already in existence. This is why we stress the importance of using your dollars today to buy hard assets that produce cash-flow and understanding the 7 sources of residual income.
Do you think taxes in the future will go up or down?
With Trump, people may believe that taxes are going down. Over time, we will see but that has certainly been the case so far. When looking at state pension plan obligations and funding schools, state income tax and property taxes are going to have upwards pressure. Whether tax rates go up or down is debatable, but for most people, as they age and pay-off debt, their kids leave the house and they stop funding a 401K, their tax deductions are being eliminated. Further, many retirees do not realize that social security is taxable. The result is that more of their income is coming from taxable sources with fewer income tax deductions.
Would you rather be taxed on the seed or the harvest?
Obviously, the seed. Paying taxes now and investing in things that produce cash-flow and obtaining multiple uses on your money is so important. Contributing to 401K and retirement plans are all about taxing the harvest later. We aren’t saying don’t put money in retirement plans. What we are saying is that if you don’t have residual income that meets your monthly needs now, being open to wealth building ideas that produce cash-flow now might serve you better than continuing to over contribute to a retirement plan that doesn’t become available to you until age 60.
The IRS tax code is geared more towards business owners, entrepreneurs and those willing to take a risk with their capital. Understanding your tax situation and pursuing your passion with after-tax dollars to invest in things that produce cash-flow, like real estate, may help adjust your tax liability.
Give us a call if you want to know more about how we can help you and your tax situation.