Blog | Personal Finance

Why Governments Want You to Pay Less Taxes

Tax Planning 101: Buy, Borrow, Die

There is an entire political discussion around taxes: are they fair or unfair? Are you paying your fair share?

During the last election cycle, President Trump received a lot of attention when he said, “I pay no taxes.” But what most people don’t realize is that Trump is only doing exactly what the government wants him to do.

Congress NEEDS professional investors and entrepreneurs. They want to reward business owners because they know that by doing so they will create jobs, and housing. After all, that’s what creates a better economy.

The tax law passed in December 2017 was intentional. The corporate rate was deliberately reduced to 21%. This not only leads to a direct cash windfall, it opens up more funds for large corporations as they have less incentive to hire massive teams of accountants to find creative ways to hide money.

For C-Corporations, the corporate tax rate will drop from 35% to 21% starting this year. Certain S-Corporations and LLCs might qualify for the 20% deduction on the income attributable to that entity as long as the business or service isn’t listed on the exclusions.

There’s the accelerated depreciation of equipment that allows 1 million dollars in equipment to be fully deducted in the year it is purchased. If you have substantial fixed asset cost and current tax liabilities, this benefit provides significant tax savings. And these things were all intentional.

However, beware that there are still many complicated caveats limiting the maximum amount a pass-through owner can deduct (some of which surprisingly have to do with limiting how business owners benefit from using investment income like capital gains as a tax shield, which no one seems to be mentioning).

If you pay taxes the way you’re supposed to, and are a good partner with the government by doing what they want you to, you get to sleep well at night and pay less taxes.

And it’s not just in the United States.

For every country I visit, I always study the tax law. The fundamentals are always the same. It’s entrepreneurs and professional investors who are going to get the tax breaks. The way you get rich faster is the way you pay taxes slower. That’s the way it goes.

To simplify how you can do what the rich do, I call it buy, borrow, die. That first step, buy, means you buy assets. The second step, borrow, means borrow the money to pay for that asset.

Let’s say you want to invest in real estate. Buy, borrow, die works like this: you buy a property mostly with the bank’s money and get a tenant to pay enough in rent to not only make your payments to the bank but also pad your pockets a little.

In a nutshell, when you do this you:

• Receive a tax benefit
• Provide housing
• Use OPM to purchase real estate
• Create cash flow!

The key thing to understand is that paying less taxes is 100% legal because you, as an entrepreneur or investor, are doing exactly what the tax code allows you to do. You are getting rewarded in a sense for helping to grow the economy.

Learn more in my book, Tax-Free Wealth. Get your copy now.