April, 2008: Here's a good quote from the book Rich Dad, Poor Dad regarding the differences in cash flow between people who have corporations and people who work for corporations:
The rich with corporations:
- Earn money
- Spend money
- Pay taxes
People who work for corporations:
- Earn money
- Pay taxes
- Spend money
Discussion
This really is powerful stuff. Imagine that I pay a contractor $20,000 per year, and he has his own business. He can take that $20K, deduct all legitimate business expenses, including rent, utilities, healthcare, hardware and software purchases, take a SEP IRA deduction (up to 25% of his salary), and then pay himself out of whatever is left. His business rent and utilities (a portion of his overall rent and utilities), and healthcare costs alone are currently $700/month, or $8,400 per year, so deducting just those costs from the $20K leaves $11,600 in net income. (And don't forget all the other deductions you can take.)
That's just amazing to me, but it's all perfectly legal, and besides understanding cash flow and assets, it's one of the elements Mr. Kiyosaki emphasizes in his book.
books by alvin
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