Learn How To Avoid Paying Taxes Legally
Most of us know taxes are our greatest expense. Yet most people choose to ignore the subject of tax. They choose to be ignorant, then get angry at people like President Trump who know how to make money and pay less in taxes—legally.
Without financial education, most people are financially ignorant about taxes. Many of these people vote for politicians who promise to “tax the rich.” Then they wonder why their taxes keep going up. The problem is not taxes; the problem is spending.
One of the reasons for wealth and income inequality are taxes. Simply stated, the rich do know how to make more money and pay less in taxes than the poor and middle class—legally. The rich are not always smarter, they simply prefer not to be ignorant.
There are more taxes than just income tax. There are taxes on taxes. It is estimated that for every dollar a person spends, 80% goes directly or indirectly to some kind of tax… and back to the government.
For example, if you pay a dollar for gasoline, not only is your dollar net after taxes, which means your dollar has already been taxed, most of the money you pay for the gasoline is going to other levels of tax. The oil company receives very little of the dollar you used to purchase your gasoline. Then the oil company pays taxes on the tiny bit of your dollar they receive. Talk about pennies on the dollar!
I think many people would agree that the lack of financial education shows up in our political leaders. Most are employees, people who know how to spend money but have no idea on how to make money.
Financially ignorant leaders are at the core of this global crisis.
To understand how the rich avoid paying taxes you first have to understand the CASHFLOW Quadrant.
E stands for employee.
S stands for self-employed, small business, or a specialist such as a doctor, lawyer, real estate agent, or sports superstar.
B stands for a big business owner with 500 employees or more.
I stands for investor: active investor not a passive investor.
People in the E and S quadrants respond to the incentive of more money, more income, higher pay, and bonuses. Those in the E and S quadrants work for money.
People on the B and I side work for tax incentives. They make more money, indirectly, via tax breaks.
The CASHFLOW quadrant tells the story of who pays the most—and least—in taxes.
For example, B-quadrant people receive tax breaks for hiring employees. The government does this because the government needs jobs for people. There’s a steady stream of tax dollars flowing into government coffers from employee paychecks. So the government offers the incentive of lower taxes. These are entrepreneurs such as Elon Musk. He receives billions in tax breaks from different states and from the U.S. government.
In the I quadrant, I receive tax breaks for investing in apartment complexes. If I did not provide housing, the government would have to, costing taxpayers a lot of money. So rather than ask taxpayers to pay higher taxes, the government offers entrepreneurs like me tax incentives. I become a partner with the government.
If the government had to build those apartment buildings… that would be Socialism. If I build them, it’s Capitalism. Personally, I prefer to be a Capitalist on the B and I side of the CASHFLOW Quadrant.
There are rich people in all four quadrants. There are many rich employees and self-employed specialists such as doctors, lawyers, sports stars and artists. In the E and S quadrants, there are both rich and poor people. The richest people in the world live in the I quadrant. There are no poor people in the I quadrant. The amount of wealth they have may vary, but no one is poor.
The point I want to make is that people on the E and S side of the CASHFLOW Quadrant pay the highest percentages in taxes.
I have met so many successful accountants, attorneys, and doctors who will tell me, “You can’t do that here.” No matter where we are in the world, some experts will raise his or her hand and say, “You can’t do that here. It’s illegal.”
The problem is that these experts are locked into the mindset of their quadrant. It requires financial education to move from the left side, the E and S side, to the B and I side.
In 1994, after Kim and I made it to the I quadrant, she and I formed The Rich Dad Company in the B quadrant. The purpose of starting The Rich Dad Company was to provide financial education for those who wanted to migrate from the E and S quadrants and become Bs and Is.
As you know, there are no guarantees that anyone will make it to the B and I quadrants.
Move Quadrants to Avoid Taxes
The CASHFLOW Quadrant is more than two lines and some letters. If you look below the surface of this simple diagram, you will find completely different worlds, as well as different ways of looking at the world. As a person who has looked at the world from both the left and the right sides, I can honestly say the world looks much different depending on which side you are on. One quadrant is not better than another. Each has strengths and each has weaknesses.
For Kim and me to go from homeless to financially free quickly meant earning our money in the B and I quadrants. In these quadrants, you can get rich quickly because you can avoid paying taxes legally. And by being able to keep more money and have that money work for us, we were able to find freedom quickly.
Rich dad often said, “You will never know true freedom until you achieve free financialy.” By this, he meant that learning to invest is more important than learning a profession. He said, “When you learn a profession, let’s say to be a doctor, you learn how to work for money. Learning to invest is learning how to have money work for you. The moment you have money working for you, you have your ticket to freedom.”
Editor, Rich Dad Poor Dad Daily