Blog | Entrepreneurship

Why Investors and Entrepreneurs Get All the Breaks

How you can leverage the tax code to make more money

Summary

• With the proper advice, you can take advantage of tax laws

• The tax law is a stimulus package for entrepreneurs and investors

• Take control of your taxes to reap the rewards of true financial freedom

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Some financial advisors are only in it to keep you in the rat race. They “consult” you on how you should spend your money, while taking full control of your finances.

Others, like tax expert and Rich Dad advisor, Tom Wheelwright, are filled with a passion to build wealth for others (which, by proxy, makes them wealthy too).

“I love the freedom that comes with having enough money,” Tom writes, “I don’t have to worry about the price of groceries, if I can afford a personal trainer at my gym, or if I can afford my mortgage this month.”

Tom wasn’t always given the freedoms he has now, though. Like many of you, right out of college, he had a job, a mortgage, and a family. It’s only in the last 15 years or so that he realized he could have assets that paid for his expenses without having to work every day.

“I’ve been fortunate to build my assets, especially with my business, where I don’t have to go into the office very often, and I get the benefit of saving on taxes!”

The tax law is a stimulus package

After acquiring a practice that was servicing Robert Kiyosaki’s tax needs, Tom and Robert finally met. At the time, Tom didn’t know much about Robert Kiyosaki, but purchased Rich Dad Poor Dad once he knew he’d be taking him on as a client. They became friends, and great business partners for many years thereafter.

One of the first things Tom learned about was the CASHFLOW® Quadrant and how it separates income earners into different quadrants. Over the years, he’s compared the quadrants to how tax law applies to the diagram.

It was eye-opening when he figured out that those on the right side of the quadrant, the B & I side, pay less in taxes because that’s what the government wants.

Before diving in, let’s review the CASHFLOW® Quadrant.

CASHFLOW® Quadrant summarized

The CASHFLOW Quadrant is divided into four types of people, each representing the four different ways to make money.

1. Employee
2. Small business/self-employment
3. Big business
4. Investing

Simply put, the quadrant separates income earners into these four categories. Upon first seeing this, Tom’s thoughts naturally went to the tax consequences (and benefits) of each category. He quickly realized that the employee and self-employed groups pay much higher taxes than the business owners and investors.

But why?

The government is basically steering the country’s economic behavior through tax law.

That’s right, the tax law is essentially a stimulus package for entrepreneurs and investors.

For example, two of the government's goals are to create more jobs and provide affordable housing.

Who does these two things? Entrepreneurs and real estate investors.

Those on the E & S side of the quadrant aren’t necessarily punished, they just aren’t rewarded like those on the B & I side.

Plan to take control of your taxes

You might be asking yourself, “Well what about me?”

Sadly, the deductions available to entrepreneurs and businesses aren't available to you, but they can be. You just need to shift some of your income-earning activities to the B & I side of the quadrant.

The best part, it’s easier than you think!

You don’t need to start an Amazon-sized business. Thousands of people all over the world start home-based businesses that enjoy saving money through the tax code.

So where exactly do you begin?

Now that you’ve been introduced to the CASHFLOW® Quadrant, and you have an idea of tax laws… how do you actually get started?

Tom starts with this bit of advice:

“Whenever you start out, start small.”

If you have dreams of being an entrepreneur, take courses on entrepreneurship. That word has changed drastically in the last five years or so and opportunities for digital and online businesses have become easier than ever.

If your dream is to become an investor, you have to be an active investor to enjoy the tax benefits of the B & I side of the CASHFLOW® Quadrant. This means you have to be an investor that actively invests for passive income, not earned income. You must find good, cash-flowing investments that produce passive income.

Whether you’re thinking of becoming an active investor or an entrepreneur, you can start enjoying these tax benefits that others are already enjoying by investing in your financial education.

You don’t need a four-year degree in finance or business, you can simply start reading or taking online courses that help you better understand which quadrant you want to be in.

To learn about other tax benefits you might be missing out on, get Tom’s book, Tax Free Wealth.