The Taxes and How it Works? Do you know the facts that Taxes Kills the Financial Illiterate Peoples to the core? As far we have discussed about the Financial Education through many aspects in our previous chapters, starting from the Rat Race, Assets vs Liability, Cash Flow Pattern and Yes the Business Income. So, Today it's time to introduce you with the Tax Trap and the Power of Corporations to get out of those Tax Traps and take another step towards your Financial Education to become rich and wealthy.
Tax Trap
Do you know majority of the people are stressed when it comes to taxes and most of the time they think about is taxes which they need to pay at the end of every financial year, everyone is just cursing government when it comes to pay taxes!
Another fact is that Majority of People works for 5 Months in a year just for the government and the rest 7 months for them and their family, How?
Let me give you an example of a person with an annual income of Rs. 20 Lakhs,
So Let's Calculate his Income Tax...
As Per Income Tax Act 1961 in India and according to the latest exemptions in taxes and tax rebates.
Upto 2.5 Lakh - Nil (20-2.5=17.5 remaining)
2.5 Lakh to 5 Lakh - 10% on 2.5 Lakh - 25,000 (17.5-2.5=15 Lakh remaining)
5 Lakh to 10 Lakh - 20% on 5 Lakh - 1,00,000 (15-5=10 Lakh remaining)
Above 10 Lakh - 30% on 10 Lakh - 3,00,000
Total Income Tax to be Paid = 4,25,000/- (25,000+1,00,000+3,00,000)
Annual Income = 20 Lakh
Monthly Income = 20/12 = 1.66 Lac
So, this means technically he worked for 2.5 Months just to pay his Income Tax to the Government.
How He Worked 5 Months for Government Then?
Ohh..yes, you got it right, how he worked 5 months for government then? Uhmm.. I must say you are very smart ;)
You know Government taxes that Person on His Income (as we discussed above) and Also whenever he spends (in form of Service Tax, VAT, Road Tax etc), when he invests (Property Tax) and when he gains (Capital Gain Tax) etc..etc..etc..etc!
Just count everything after that you will say it's more than 5 months, Gurpreet you wrote it wrong! :D
So In a nutshell Financial Illiterate People are in a Tax Trap, that goes like this...
Earn > Pay Taxes > Spend
Now, how to get out of this tax trap then? Well to get out of tax trap you must know the power of corporations and how Financially Educated Persons benefits from the Corporations and how they make themselves more rich and wealthy.
So, Lets start with....
The Power of Corporations
What is a corporation? How do they help to get out of the tax trap?
Governments have left a loophole for the businessowners and the rich peoples when it comes to pay taxes, now what is that loophole? Well, it's Corporations! :)
Rich and Financial Educated persons knows this loophole from the day the tax system got started, How? because they work on their Financial Education instead of their traditional education.
The Rich BusinessOwners and Financially Educated Persons have made their legal corporations it's not everytime that you have to make a physical appearance of your corporations to enjoy benefits of this loophole, a corporation can only be just a corporation on legal documents to help you enjoy the loophole benefits.
Okay, Gurpreet you sounds impressive...Tell me more, How it helps?
Well, How a Corporation can help you is by making your income and expenses a coporation's income and it's expenses.
This can be explained more clearly by the cash flow pattern of corporation....
As you can see the above cash flow pattern using the Power of Corporations it helps you to make your income a corporation's income and your expenses - a corporation's expenses. So, in this way you can get out of the tax trap and save a lot of money for you by saving taxes, as corporations works like this...
Earn > Spend > Pay Taxes
Bottom Line
So to sum up the Tax Trap and The Power of Corporation below is the Difference between the persons who use the Corporations and Who Don't.
Financial Educated Person Who Use Power of Corporation
- Earn
- Spend
- Pay Taxes
Financial Illiterate Person Who Doesn't Use Coporations
- Earn
- Pay Taxes
- Spend
Now, you can see how much tax you can save every year and use that amount of money to buy income generating assets that will make you more rich and wealthy..as I discussed before the only rule to become rich is know the difference between assets and liabilities then just buy assets!
If you have any query then feel free to comment below, and don't forget to subscribe to my daily newsletter service so that you can get every future posts directly in your inbox!
If you have any query then feel free to comment below, and don't forget to subscribe to my daily newsletter service so that you can get every future posts directly in your inbox!
Read Previous Chapters:
Chapter #1 - Don't Work For Money
Chapter #2 - Importance of Financial Education
Chapter #3 - Focus on Your Business Income
No comments:
Post a Comment