Debts, Financial Attitudes, investment, Taxation

If You Know the Tax Law, You Can Also Pay Less Tax

16 December 202013 June 2022by Enes ÖnerLeave a Comment

Today, being an employee in America means paying half of the labor in taxes to the state. In fact, this rate is almost the same all over the world. There are no other tax options for employees. Before the employees receive their salaries, the state receives 24% of it.

The only tax cut that the state provides to employees only makes them more into debt. So, the path to financial freedom for employees or self-employed people is much more difficult.

Accountants tell their wealthy clients that if they buy a more expensive house, they can get more tax cuts. This option makes sense for employees or self-employed people. However, employers or investors often do not heed it.

Tax Reduction May Cause Debt Increase

The income tax rate paid by employers or investors is very low. For this reason, it is much easier to increase the money earned as a company owner or investor.

Employees or self-employed people can only benefit from tax deductions by purchasing a larger house. This doesn’t give a person financial freedom. It only brings more debt.

Buying a more expensive home is not wise for employers and investors. Because for them it’s the same as saying, “Lend me a dollar and I’ll give you fifty cents back.”

World History Full of Resistance to High Taxes

America has a progressive tax system. This means that low-income people pay lower taxes and higher-income people pay higher taxes. However, the system does not work exactly like that. Millionaires and billionaires can be the least taxpayers.

The taxes collected in American history have been protested many times. There have been many rebellions against taxation. The American Revolutionary War (1775–1783) opposed the heavy taxes collected from the British colonies in America. Later, Shays’ Rebellion appeared in 1876, Whiskey Rebellion in 1791, and Fries’s Rebellion in 1799. The reason for all these resistances is taxes.

Not only in America but all over the world, there was resistance to taxes from time to time. There have been more than three hundred and fifty resistance, civil disobedience or uprising against taxes imposed since the 16th century.*

Baby boomers begin retiring. What will happen now?

Especially in our modern world, taxes are needed. Problems arise if taxation is not carried out successfully and the collected taxes are poorly managed.

Baby Boomers are already retiring. Within a few years, millions more of them will retire and will cease to be taxpayers and enjoy social security benefits. This will increase the financial burden of the states considerably. So, in the face of rising taxes, the rich will seek other countries where they can invest their money.

How You Earn Money Determines Your Perspective on Taxes

There was an interview with an investor in the newspaper recently. The investor made a million dollars profit and paid no taxes. Because he was able to delay his tax since the money he earned was a capital gain. He was also exempt from tax when buying and selling real estate because he only exchanged property.

A few days later, I saw elsewhere that this same investor was captioned: “He made a billion dollars and admitted he didn’t pay taxes.”

What is written in this title is actually not a lie. However, at first glance, it makes you think that the investor is evading tax. But the investor did not do anything against the tax law.

This is a good example of the difference in tax perspective of those who make money in different ways.

The truth is that not all income is taxed equally. Some are less taxed and some are not taxed at all.

Those who have gained financial freedom, and especially investors, are familiar with the laws regarding taxes. Thus, it is easier for them to increase their money.

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Don’t Be Afraid To Invest Your Money

16 November 202013 June 2022by Enes Öner2 Comments

Wealth Is Measured in Time Not Money

“Wealth is the number of days a person can live without physically working and maintaining her standard of living.”

Let’s say your monthly expenses are $ 1000. If you have $ 3000 in your savings account, your wealth means 3 months or 90 days. Wealth is measured in time, not money.

After all, it is not how much money you make, but how much money you can keep and how long you can increase the money. I know many people who make a lot of money every day, but most of their income goes to the spending column.

If their income increases, they consider buying a bigger house or a new car. This means long-term debt and hard work, so nothing is left for the asset column. Money runs out quickly.

“Going in Red” Shortens The Life Of The Engine

To go in red is to continue driving even though the gas gauge drops empty. This phrase is also used to describe going at full speed.

Whether rich or poor, there are many people who always “go in the red”. No matter how much they earn, they quickly spend what they get. “Going in red” shortens the life of the engine.

According to many doctors, the main cause of stress today is hard work and not making enough money. Especially some people insist that “wallet cancer” is the biggest cause of health disorders.

Money Works for You So You Don’t Have To Work

No matter how much money people make, eventually they have to use some of it to invest. Investors are more interested in making money out of money. This is also the idea that money works for you so you don’t have to work. But the important thing here is to know that there are other ways to invest.

Other Ways to Invest

People invest in their education. Traditional education is important because the better you study, the better your chances of making money. If you devote four years to college, you have the potential to earn between $ 24,000 and $ 50,000 a year or more. Considering that an ordinary person actually gives 40 years to work, studying at a four-year university or similar institution can be a very good investment.

Loyalty and diligence are also another means of investment, for example a lifetime working in a private company or a government agency. The reward for this is the retirement bonus and lifetime pension, as well as the right to various services. However, this type of investment, which is valid in the Industrial Age, has lost its validity in the Information Age.

Others invest in a crowded family and want children to take care of them in their old age. Such an investment used to be good, however, due to today’s economic difficulties, families are no longer in a position to meet the living and health expenses of the elders.

There are also independent pension investment plans called individual pension plans. The federal government provides tax relief for incentives to both employers and workers so that they participate in these plans.

Income from Investments

Although all of the above are investment tools, people who invest are more concerned with a continuous source of income than these. Are you currently deriving your income from your investments? In other words, does your money work for you and generate income for you?

Let’s look at someone who buys a house for investment and rents it out. If the rent he receives is more than he has to spend for that house, it means cash coming from investments. The same is true for those who earn interest on their money in the bank or receive dividends from stocks.

Advantage of Earning Income From Investments

The main difference that separates those who make money from their investments from others is to make money from money. If they succeed in this, they can run their money, and the next few generations of members of their family also benefit.

In addition to the obvious advantages of knowing how to earn money from money and live without having to get out of bed in the morning and go to work, there are also tax advantages that are not available to those who work to make money.

One of the reasons the rich get richer is because they earn millions but do not pay taxes on that money. Because their earnings are included in the “active column”, not the “passive column”. Or they make money from their investments, not physical work.

Those who work to make money are not only subject to high taxes. Also, a certain tax is deducted from their wages, that amount goes to tax before they even get it.

Why Are More People Not Being Investors?

Investing means working less, earning more and paying less tax. So why don’t more people become investors? For the same reason as the small number of people starting their own business. In one word, we can say because of “risk”.

Many people are afraid of losing money when they are investing it somewhere. Even if they know how much their investments may earn them, they avoid investing and risking their money because they are afraid of losing.

Fear of losing money divides investors into four classes:

1. Those who avoid risk, love guarantees and keep their money in the bank

2. Those who leave their investment decisions to experts such as financial advisors or mutual fund managers

3. Gamblers

4. Investors

We can distinguish between the gambler and the investor as follows: According to the gambler, investment is a game of chance. For those who hand their money over to someone else to invest, investing is a game that they do not want to learn. It is important for these people to be careful when choosing financial advisors.

It’s Time to Become an Investor!

The defined and predictable plans of the Industrial Age are gone. As the Information Age shifts to specific retirement plans, everyone has to be responsible for their own finances. However, the number of people who realize this is very few.

I urge you to read my WHY YOU NEED TO INCREASE YOUR FINANCIAL IQ post.

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economy, Taxation

International Trade and Trade Barriers

4 November 202013 June 2022by Enes Öner1 Comment

When exchange is voluntary and free, both the buyer and the seller benefit. When you buy milk, the milkman earns money and you have milk without a cow. Voluntary free trade creates assets because it is mutually beneficial. Asset is the total value of everything owned.

In an experiment conducted at the Foundation for Teaching Economics, a group of participants were given random objects and asked to value them. Then the group members freely bought and sold their objects. After a while, the group was again asked to value the objects they owned. The second sum of values was higher than the first. Thanks to voluntary free exchange, asset was created without adding anything new.

International Trade

International trade generates mutual gain and wealth creation. Before the Second World War, trade agreements between nations were mostly mutual. Private benefits were mutually preserved and trade barriers such as import and export duties were mutual. However, the benefits of free trade were not understood and nations turned to policies of isolation and protection of the domestic economy after the war.

Towards the end of the Second World War, many representatives of the free industrialized world gathered in the town of Bretton Woods in New Hampshire to address economic problems that often cause international disputes. The conference created the International Monetary Fund (IMF) and the World Bank, but did not produce a trade organization to encourage international cooperation. In 1947, many countries, including the United States, came together to form the General Agreement on Tariffs and Trade (GATT). The goal of GATT was to reduce trade barriers so that member countries could benefit equally from free trade.

With the growth in international trade, living standards in the contracting countries have increased. In 1995, GATT became the World Trade Organization (WTO). Under the rule of GATT and then the WTO, more and more countries came to support the reduction of barriers and free trade. As a result, international trade continued to expand and many countries took advantage. For example, Ireland, one of Europe’s poorest countries, joined the EU and became one of the richest thanks to international trade.

Situations Adverse to International Trade

Despite the obvious benefits, there are also those who are against international trade:

• Environmentalists worry that production will increasingly concentrate in countries where there are fewer regulations to protect the environment from pollution and damage to natural habitats.

• Trade unions oppose free trade, arguing that production will be shifted to low-wage countries where there are not many unions, and therefore their members will be negatively affected.

• Human rights activists oppose free trade because of the shift of production to countries where working conditions are very poor and often inhumane, where workers cannot find the same rights and privileges in industrialized countries.

• Politicians and voters concerned about the damage to national sovereignty oppose free trade because decisions affecting the nation are made by an international organization that is not subject directly to the public.

Trade Barriers

Countries sometimes impose taxes or limits on international trade, or even prohibit it. Why is that? Although voluntary trading is mutually beneficial, sometimes only a certain group carries its costs. The public may be overly interested in protecting their industries, increasing tax revenues, protecting the environment, or even creating social change. Sometimes one country may limit its trade in order to punish another country. Customs duties, quotas, and embargoes are among the tools a country uses to fulfill its various goals.

Customs Duties

Customs duty is a trade tax. It can be used to increase government revenues or to benefit a particular sector of the economy. If your industry is facing foreign competition, you can put pressure on Congress to impose customs duties on imports. For example, the US steel industry was protected from foreign competition for years, thanks to tariffs. In 2007, India imposed tariffs on rice exports to avoid famine. The Smoot-Hawley tariff, introduced in 1930, was intended to protect American industry and to increase tax revenue much needed by the state.

Customs tax, on the other hand, has some downsides:

• Customs duty often has anticompetitive effects, supporting waste and inefficiency.

• Customs duties to generate revenue often cannot increase tax revenues because people stop buying expensive imported products.

• Imposing customs duties on exports can give producers a reason not to produce.

Quotas

Quotas are limits in trade. Rather than imposing a tax on imports, a quota may be applied to limit the number of goods imported. In the 1970s and 1980s, American car manufacturers and labor unions supported government quotas on foreign car imports to limit competition and protect their own businesses. The result was higher price and lower quality.

Ultimately, German and Japanese companies set up their factories in the USA. Thus, domestic producers faced more competition in their own countries. Trade unions also suffered as foreign companies set up their factories in states where the unions were less effective.

Quotas also create other problems:

• They do not bring tax revenue to the state, they bring more responsibility.

• Those who try to avoid quotas encourage smuggling, thus creating a black market.

• Quotas can be manipulated by foreign firms to restrict competition from other foreign firms. For example, if a quota is applied to German cars imported to the USA, the German company that filled the quota first would prevent other German companies from competing in the American market.

Embargoes

An embargo is a ban on trade with another country. The purpose of an embargo is usually to punish a country. The embargo we are most familiar with may be the US embargo on Cuba. After the communist revolution and the Cuban Missile Crisis, the US enacted an embargo banning all trade with the islanders. Even if these events are far behind, the embargo continues. To understand why it still continues, we can think again about who is benefiting from the trade embargo.

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Why You Need to Increase Your Financial IQ

1 October 202013 June 2022by Enes Öner10 Comments

The average American today works for six months to pay taxes. This is a very long time. The more one work, the more she pays the government.

In this article, we’ll take a look at how taxes work in favor of corporations and the rich, and then discuss the power and advantages of corporations.

When the poor and middle class try to punish the rich, the rich do not bow down and react. Because they have money, power, and are determined to change things. They don’t just sit around and agree to pay taxes. They look for ways to reduce their tax burden, recruit skilled lawyers and accountants and persuade politicians to change laws and create legal loopholes. They have the opportunity to change the rules.

For example, the US tax law provides some possibilities to avoid paying taxes. Many people cannot access these opportunities because they are busy with their own work. These legal loopholes are details only the rich can see. For example, “1031” means the section numbered 1031 of the State Revenue Law. It allows the seller to delay tax on real estate sold to be exchanged for a more expensive property for the purpose of capital increase.

Real estate can offer great tax benefits. If you are not selling for disposal, you will not pay tax on your earnings as long as you trade them to increase their value. People who do not take advantage of the tax savings made possible by law miss the opportunity to grow their assets.

A high Financial IQ is required to be aware of and benefit from these opportunities. And raising Financial IQ only takes four areas of expertise:

Accounting. We can also call this financial knowledge. This skill is a must to build an empire. The more money one takes the responsibility, the more careful one has to be. Otherwise everything will be ruined. Details matter. Financial knowledge is reading and understanding bank statements. This skill allows to identify the strengths and weaknesses of any organization.
Investment. The science of making money. Strategies and equations are important for making the right investments. This skill is linked to creative intelligence.
Understanding Markets. It requires knowledge of supply and demand. It is necessary to know the “technical” aspects of the markets. Whether an investment is right or not depends on current market conditions.
Laws. A company with technical skills related to accounting, investment and the market grows rapidly. But a person who knows the tax law and is under a corporate shield can get rich much faster than someone working for someone else or just someone who owns a small business. This is like the difference between walking and getting on a plane. The difference is huge when it comes to long-term wealth.

Employees earn and pay taxes, and live with the rest. The company earns and spends money and pays taxes on the remaining amount. This is one of the biggest legal tax loopholes benefited by the rich.

This is easy to do if you have investments that generate good cash flow. For example, you can turn your vacation trips into board meetings in Hawaii. Automobile payments, insurance, repair expenses turn into company expenses. You can show your sports club membership fee as company expense. You can add most of the restaurant expenses to company expenses. There are many more advantages like this, but they should be done before paying tax.

The rich hide most of their wealth. They use companies or foundations to protect their assets from creditors. When someone sues a wealthy person, they face a legal protection shield, and often that wealthy person “has no property”. The rich keep control of everything, but they have no property. The poor and middle class try to own everything and lose them to either the state or other people.

In short, if you have legal assets, find out as soon as possible the benefits and protection shield a company can offer you. You will find many books written on the subject. Even if you look at the company establishment stages, you will get detailed information on this subject. The power of sole proprietorships is well described in Napoleon Hill’s book Think and Grow Rich.

Financial IQ is actually a synergy of many skills and abilities. But I think the combination of the four technical skills I listed above forms the basis of financial intelligence. If you have a desire to make a great fortune, then the combination of these skills becomes even more important.

As part of your overall financial strategy, my suggestion is to have your own company equipped with assets.

Please let me know what you think below.

Keep reading with WHY ACCOUNTING KNOWLEDGE IS NEEDED.

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Financial Attitudes, Taxation, Understanding Money

The Robin Hood Ideal

28 September 202013 June 2022by Enes Öner4 Comments

“Why don’t the rich pay?”

“The rich should pay more taxes and help the poor.”

“The only reason the poor survive so hard are the rich.”

We often hear about the idea of taking from the rich and giving it to the poor. When I hear such sentences, I think of Robin Hood. Robin Hood may have passed away from this world hundreds of years ago, but those who followed in his footsteps are still alive.

The idea of taking from the rich and giving it to the poor most troubled the poor and middle class. The reason why the middle class is heavily taxed is actually the Robin Hood ideal. The harsh reality is that the rich are not taxed. The middle class helping the poor, especially high-income and educated ones.

For better understanding, we first need to look at the historical process.

There was no such thing as tax in Britain and America before. Temporary taxes were imposed to cover increased expenses during wars. In the past, the announcement was made by the king or the head of state and everyone was asked to put their hands in their pockets. The introduction of taxation in Britain took place between 1799 and 1816. During this period, Britain was fighting against Napoleon. In America, the first taxes were introduced during the Civil War period between 1861-1865.

In 1874, England turned income tax on its citizens into a permanent practice. The United States made the income tax application permanent in 1913 after the 16th constitutional amendment was approved. Americans used to be against taxation. The famous Tea Party in Boston Harbor contributed to the start of the War of Independence, and the reason was the excessive tax rates imposed on tea. In both England and the United States, it took fifty years for societies to adopt the regular income tax application.

These taxes were imposed to be collected only from the rich. The poor and middle class were told that taxes were levied only for the rich, so the idea of tax was popularized and imposed on the majority. Therefore, the masses voted “Yes” to the law and the tax was legalized. Although the main purpose was to punish the rich, in reality it was the people who voted for him, the poor and the middle class who were punished.

When we examine the history of taxes, we are faced with an interesting perspective. As stated above, the implementation of the tax system was made possible by the masses believing in Robin Hood economic theories, which argued that income should be taken from the rich and distributed to all. But the state loved money so much that it soon imposed taxes on the middle class, and taxes spread to the lowest class of society.

The rich took this situation as an opportunity. Because they play the game by different rules. Even in the time of sailing ships, they established insurance companies for goods carried on the voyage. The rich invested money in the company to cover travel expenses. The companies was hiring seafarers who would sail to the New World in search of treasure. Even if the ship sank during the voyage and the crew died, the loss of the rich was limited to the money they invested on that voyage.

Knowing the power of the company’s legal structure is what makes the rich superior to the poor and middle class. Thus, although the masses advocated “buy from the rich,” the rich sooner or later found a way to overcome them. That was why, the middle class was also taxed. The rich got what they wanted because they were aware of the power of money.

Companies and governments always protect the rich. But many people who have never started a company do not know that a company is really “nothing”. The company is almost a file containing some legal documents registered in the government office in the law firm. It is not a big building with its name on the top. It is neither a factory nor a community of persons. The company is nothing more than a legal document that creates a soulless legal personality.

As soon as the income tax was made permanent by law, the benefits of companies came back on the agenda. Because the income tax rate of companies is lower than the individual income tax rate. Thus, the wealth of the rich was once again preserved.

As a result, this war between those who have property and those who do not have been going on for hundreds of years. This is the “take from the rich” war of the crowds against the rich. Wherever and whenever laws are made, this war will be fought. It will take forever. The problem is that the uninformed ones are the losers. These are those who get up early every morning and go to work and pay taxes. If they understood the rules of the game the rich are playing, they could play better too. Then they could gain their financial independence.

Please let me know that what are you thinking about the taxes below.

I strongly recommend continuing to read with WHY YOU NEED TO INCREASE YOUR FINANCIAL IQ.

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Taxes and Credit Debts

14 September 202013 June 2022by Enes Öner5 Comments

All over the world, taxes are rising steadily. Because the social demands in return for the tax charge require an increase in the value of wealth, income and sales taxes. Higher incomes cause taxpayers to enter even higher tax brackets. Thus, tax rates increase gradually to meet social services. Today, governments face serious problems with social service programs such as Social Security and State Health Insurance for the elderly. As a result, they cannot pay their debts.

For most people, taxes are the biggest expense item. Most people consider these taxes are income taxes. However, for most developed countries like America, the highest tax is the premium paid to social security. Employees pay roughly 7-8% tax on social security contributions and health care. However, this rate is actually 15% since the employer pays the social insurances to complement this rate. This is the amount that the employer cannot pay the worker. Moreover, the employee also pays the income tax of social security contributions deducted from her salary. In fact, this is an income that she never received since it goes directly to social insurances.

Let’s explain this subject with a simple example. Imagine a newly married couple. This educated young couple rented a small flat. They start making some restrictions to make a living. After a while, they realize that they are spending as little as they did before they got married. So, they save some money.

But one day, the flat they rented starts to seem too small for them.

They want to buy a bigger house to have children. Now, they want to save more money. They start working more.

Their income gradually increases.

As their income increases, so does their expenses.

When they think they have enough money, they buy their dream house. Meanwhile, they learn about a new tax called property tax. Over time, they buy furniture for their new home. They also buy a new car . They suddenly realize that their column of passive funds is now filled with mortgage debt and credit card debt.

They finally have a child. The couple work harder. The same process repeats. The more they earn, the more taxes they pay. They get new credit cards. Their debt increases gradually and becomes equal to the value of their homes.

A company that provide loans to the couple recommends “debt consolidation” while the couple’s credit ratings are high. The company also states that the best thing to do is to pay off their credit card debts and high interest consumer loan debts. Besides, interest on home loan will be deducted from tax. They accept and pay high interest credit card debts. They feel a little relieved. Credit card debts are over. Now they have added their consumer loan debt to the house mortgage debt. Loan installments decreased because they extended the repayment for another 30 years.

Discounts begin in various stores and markets. The couple do not intend to buy anything, they just want to go and walk around. But they also take their credit cards in case they see something necessary…

We often meet this young couple. Their names are different, but their financial dilemmas are the same. They all look for an answer to “How can I make more money?” question.

The real reason for their financial problems is that they don’t know how to spend their money. They don’t have financial knowledge; they do not understand the difference between active and passive funds.

Let me say it again: Earning more money is often not the solution to financial problems. The solution is to act wisely. There is a famous quote for those floating in debt:

“If you find yourself in a hole, stop digging.”
Will Rogers

We must be aware of three powers: The power of the sword, the jewel, and the mirror. The sword symbolizes the power of weapons. America has reached this position by spending millions of dollars on weapons. Jewelry is the power of money. Whoever has money sets the rules. The mirror symbolizes the power of self-knowledge. Self-knowledge is the most valuable of these three, according to Japanese legend.

The lower and middle classes are willing to let the power of money control them. They shoot theirselves in the foot by getting out of bed and working hard, not asking themselves what they are doing. Many who do not understand money, surrender to the power of money. The power of money is used against them…

You can continue reading with THE ROBIN HOOD IDEAL.

Category: Taxation