It was recently announced that Charlie Sheen owes $5 million in back taxes. Back taxes are income taxes that were unpaid in the year they were due. This means that the IRS sent him the bill and for one reason or another decided not to pay it right then and the balance accumulated over time. Today I want to talk to you about how to avoid this, because I actually AGREE with Charlie Sheen not paying his taxes. Why? Because I believe taxation is theft. Now, there are better ways to not have to pay taxes other than just not paying them.
Why do most people owe back taxes? Typically, it is because an individual saw large increases in income and did not keep track of their finances. The income is coming in untracked, money is not being categorized & set aside, and expenses are not tracked. This is very common for high income earners. Finances aren’t always easy to manage and it becomes much harder when larger numbers are added to the equation. So what happens? You file for an extension and then put it off until next year. Then next year the same thing happens and suddenly there is a large balance that can’t be paid off easily.
How to prevent this? First things first, find some form of self employment income potential. Notice I said “potential”. You don’t have to have actual income or profit, just the intention for income and profit. This may mean joining an MLM or starting your own business. What this does, is that it allows a person to deduct a great deal of their expenses for business as long as they are legitimate. Charlie Sheen more than likely does have that ability to get these deductions, but again due to laziness, lack of desire, or lack of knowledge did not have the record keeping in place to execute on this. Use apps like intuit and expensify to document your expenses so that you can deduct them from your taxes and also so that you can beat the IRS if they decide to play chicken and audit you.
Invest. Once you’ve got enough income that it is not feasible to spend it all every year, you can hold your profit aside and begin investing. I do not recommend using a tax deductible defined contribution plan such as the 401k. Why? Because all you’re doing is prolonging the taxes to be taken out at distribution on a larger amount of money with a larger tax bracket. Invest in income producing assets like real estate and private lending. These will pay income long term and the tax bracket is much lower for this income than it is for earned income.
Asset structuring. Make sure you have a great tax team and legal team from day 1 that also believe taxation is theft. Their job is to structure your legal entities and spending/allocation patterns in a way that lower your taxes. You can’t just run your wealth like a mom and pops shop forever so you may as well start off on the right foot. There are benefits to using S-Corps and C-Corps vs LLC’s and your legal and tax team will be able to properly structure these to benefit you the most.
Ultimately, this comes down to controlling your money. You may be able to make money, but if you don’t know how to keep it and the IRS continues to take more than their legal minimum, then you’ll never know how to multiply it. I want to invite you to take a free online personal finance course that I hosted. It will give you applicable and workable tactics to control your finances. This is free and worth thousands of dollars that you’ll recover in lost money and lost opportunities. Click here to enroll in the course.
Own Your Potential,
Jerry Fetta
Grant Cardone Certified Coach
Jerry Fetta helps his clients make money, keep it, and multiply it.
He believes everyone should own their potential. He believes you were not created to spend 40+ hours per week serving the 40-year-to-life sentence trading your precious time for money just to live in mediocrity.
However, the truth is that time and money must be exchanged. It just doesn’t need to be you making the exchange.
Jerry helps his clients create wealth that exchanges time and money on their behalf.
His clients see a 30% increase in income, a guaranteed increase in savings rate, and 8-12% fixed annual returns on their assets in the 1st 90 days of working with him.
To get started, go to www.WealthDynamX.com/potential
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