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One of the best lessons from "Rich Dad, Poor Dad" was about using pre-tax versus post-tax money.
This is an important distinction.
Let's walk through a couple places where makes this a difference
This is an important distinction.
Let's walk through a couple places where makes this a difference
1. If you have a side hustle, you can offset legitimate business expenses against your side hustle income, especially in a corporate vehicle.
-phone, internet, computer, part of your housing, etc.
Money comes in from the side hustle, you pay expenses, then you pay corp tax
-phone, internet, computer, part of your housing, etc.
Money comes in from the side hustle, you pay expenses, then you pay corp tax
2. This is the savings:
If you have $400/month of expenses, and your tax rate is 35%, then you need to generate $615 of pretax income to pay them with after tax money
I think we'd all take $200/month extra.
Savings improve as your tax rate goes up or you have more expenses
If you have $400/month of expenses, and your tax rate is 35%, then you need to generate $615 of pretax income to pay them with after tax money
I think we'd all take $200/month extra.
Savings improve as your tax rate goes up or you have more expenses
3. Next up, saving out of a corporate entity
In almost every country, pensions contributions for employees are tax-deductible. There are also pretty generous limits.
Thus, if you have a corporate, you can load up your pension there, save on tax and not have personal income tax
In almost every country, pensions contributions for employees are tax-deductible. There are also pretty generous limits.
Thus, if you have a corporate, you can load up your pension there, save on tax and not have personal income tax
4.
E.g. Company has $20k of revenue.
You spend $5k on various expenses, as detailed above.
Then you can contribute $15k to your pension. That's a business expense, so total corporate tax = 0, personal tax= 0
easy way to load up your pension in the years before retirement.
E.g. Company has $20k of revenue.
You spend $5k on various expenses, as detailed above.
Then you can contribute $15k to your pension. That's a business expense, so total corporate tax = 0, personal tax= 0
easy way to load up your pension in the years before retirement.
5. Third way it helps-- investing.
Most places in the world have lower corporate taxes than personal taxes. One thing to do is to accumulate cash in the corporate and then invest it at that level
(this does work for pass through LLCs too)
Most places in the world have lower corporate taxes than personal taxes. One thing to do is to accumulate cash in the corporate and then invest it at that level
(this does work for pass through LLCs too)
6. E.g. you run 20k of income through your corporate entity, and you have a tax rate of 20% there. So you can invest 20k *.8 =16k
contrast that with 35% personal tax rate, you have 20k * .65 = 13k to invest
3k more invested right now will result in a much higher figure
contrast that with 35% personal tax rate, you have 20k * .65 = 13k to invest
3k more invested right now will result in a much higher figure
7. The hit comes when you take distributions. But here, there are several ways to reduce taxes
- You can make family members the shareholders, to reduce overall tax burden
- take distributions only later, when retired
- take out cash via pensions etc
- sell company outright
- You can make family members the shareholders, to reduce overall tax burden
- take distributions only later, when retired
- take out cash via pensions etc
- sell company outright
8. While corporates aren't the be and end all, hopefully you can see the benefits of using saving taxes by using corporates efficiently
