So often rich people receive attacks for not “paying their fair share” or for being “greedy” like Scrooge in A Christmas Carol.  And there are many who are greedy.

However, many rich people are the ones providing jobs, housing, and other assets that society needs.  And for taking risks, they get rewarded by the tax man.

Leverage the Tax Laws

The rich use leverage more so than the poor and middle class – the leverage of the tax laws.  Leverage is simply the ability to do more with less.  And the tax laws they use aren’t just for the silver-spooned and well-healed.

They are available to anyone willing to learn about them.

With the spread of the internet, ignorance is no longer an excuse for not being able to “get ahead” because of knowledge only a few can afford to get: you can go to IRS.gov and look up the tax laws yourself.

1031 Tax-Deferred Exchange

The greatest tax trick of the rich is using a part of the tax code called a 1031 Tax-Deferred Exchange.  This tax law allows an investor to defer paying capital gains taxes when any money made is rolled over into a “like-kind” exchange.  An example would be exchanging a 3 unit apartment building for an 8 unit apartment building.

There is one gotcha though – this mostly applies to real estate.  It does not apply to stocks, bonds, notes, and most other assets.  Here is a link to an article from the IRS on what qualifies: 1031 Exchange.  And here is a resource page with more information about Real Estate 1031 Tax-Deferred Exchanges.

By rolling over capital gains, you can increase your cash flow for life, compounding your returns tax-deferred.  There is nothing saying you must sell any of the properties ever (which would cause you to have to pay taxes on your gains) – so you can continue deferring taxes indefinitely so long as you continue to roll it over into more property.  You could die without paying taxes on these investments!

The same cannot be said for 401(k)’s and IRA’s.  These tax-deferred accounts are taxed at Ordinary Income tax rates when the money is pulled out of them.  And currently, 401(k)s and IRAs are subject to an early withdrawal penalty if they are taken out before age 59.5…and to make it even worse, a part of the portfolio must be sold by age 70.5.

Commit to learning more about taxes and seek out a qualified CPA.  Taxes are one of your greatest lifetime expenses – learn to reduce them legally and you’ll be far richer.

Disclaimer: This website is designed to provide competent and reliable information regarding the subject matter covered. However, it is understood that the author is not engaged in the rendering of legal, financial or other professional advice. Laws and practices often vary from state to state, and if legal or other expert assistance is required, the services of a professional should be sought. The author specifically disclaims any and all liability that is incurred from the use or application of the contents of this site.

It’s possible to never pay one red cent of interest on your credit cards.

Now I know you might think this is hard to believe, but you can even make money off your credit card company.  (I hear you laughing “Yeah, right”)

Hard to believe?

Here’s how…

Credit card companies charge a fee to merchants every time you use your card – usually between 2-3%.  That’s how the credit card company makes money.

Some credit card companies offer cash back reward cards.  One card I’d recommend looking into is the Discover More card.  Another is the Chase Freedom rewards card.

These cards actually give you “cash back” – almost like a mini savings account within your credit card.  This happens when you make certain types of purchases or a percentage is credited to your cash back account based on the total charges you have in a year.

One example is the Discover More card, which lets you earn 5% cash back on gas, groceries, hotels, restaurants, and more.  For instance: Jan 1-March 1, the offer might be 5% cash back on gas restaurants.  Any purchases you make at gas stations those months will earn you 5% cash back (up to a certain limit) that will add to your cash back bonus account.  Once you reach $50 of cash back bonus, you can use it towards paying your bill. (Note: You can also use your cash back rewards towards charitable giving and/or for gift cards to online and offline retailers and restauarants)

How to Profit Off Credit Card Companies in 3 Easy Steps:

Step 1. Charge purchases that you normally would make like gas, groceries, etc.

Step 2. Have enough cash in your bank account that will fully pay off your credit card when the bill comes due every month.  This is the key to making this work.

Now many people have heard of Steps 1 and 2 being smart.  But you can actually make money off your credit card company by building up cash back bonus money…

Step 3. Use your cash back bonus as a credit on your credit card statement.

Conclusion

If you do this correctly, you are not spending any more money than you normally would otherwise, and are leveraging the credit card companies cash back incentives to make more money.  Now that’s smart leverage.

Debt seems to be a necessary evil in life.  You need it to buy a home, a car, bed, furniture, etc.  It seems like every time you turn around, there is someone offering you a way to get into debt for something.

But how do you know whether or not it’s a smart move?  You must ask yourself these two questions first:

1. “How much will it cost?” (it being the debt)
2. “Can I afford it?”

You want to know how much it will cost so you don’t end up with terms that don’t work out for you.  Like having a balloon mortgage due in 5 years after low teaser interest rates.  That didn’t work out quite well for many people in 2007-2008.

How much can you afford is a harder question. You have to consider the kind of future you want.  If you don’t want debt servitude and are willing to sacrifice a bit now, then stick with low payment conditions that don’t lock you into any long-term contracts.  Especially during periods of economic volitility.

Using the good old 80/20 rule, 80% or more of the stuff you see offered with financing is stuff you don’t really need to have.  The only three needs we all have are: food, shelter, and clothing.  Period.

So keep these two questions in mind next time you’re shopping around for debt.

Your credit score and credit reports can affect how much you pay in interest for cars, homes, and other items.  Your score can be scrutinized by landlords and employers.  Keeping it high is crucial.

There are three credit bureaus: Experian, Equifax, and TransUnion.  They each collect financial data and generate two pieces of information about you: your credit SCORE and your credit REPORT.

You are entitled to one free report annually free each of the three credit bureaus, but you usually must pay for your score.  Below, I show you how you can find out your credit score for FREE, and it’s 100% legitimate (I’ve used it myself).

NOTE: DON’T FALL FOR THE ADS THAT PROMISE YOU A FREE CREDIT SCORE.  Most of the time, they are trying to sell you a credit monitoring service.

Here’s how to improve your credit score:

1. Go to AnnualCreditReport.com (this is the ONLY 100% free credit reporting service authorized under Federal law and is the hub for all three bureaus: Experian, Equifax, and TransUnion)
   • Check just ONE of your reports from one of the bureaus.  You will do this once each four months, so create a schedule for each year and mark it in a planner: January (check Experian), May (check Equifax), and September (check TransUnion).
2. Go to CreditKarma.com and get your free credit score.  If you want to find out your score from all 3 bureaus, you can pay for them at annualcreditreport.com.
   • CreditKarma also shows you how well you “graded” in each category that makes up your score.  Review these areas and look at their suggestions for improving your score.
3. Keep your credit card balances to between 25-30% of your total available credit. The number that appears on your statement as the ending balance is what they care about (not the fluctuations during the month where you may charge a big purchase but pay it off with cash before the end of the billing cycle).
4. Do not close old credit cards. Have no more than 3 credit cards total.  I suggest getting a Visa/Mastercard and one other (Discover, Amex, etc).  This will give you maximum flexibility in case a business doesn’t accept Discover, for example.
5. Keep all your long term debts to within a range of your income, say 30-40%.  This gives you a cushion against future job loss or business decline.
6. Freeze your credit.  You can freeze your credit with each of the bureaus so that no company can look at your report – other than the institutions you already do business with.  This limits a thief from trying to open an account.  You can do this at each of the bureaus websites.
7. Check out the “Bad Credit Hotel” to learn more about maintaining your credit score: ControlYourCredit.gov

How many people do you know often thoughtlessly spend their money on items without giving any thought to what that purchase represents?

Many people shop for price alone or they shop for the things that are most popular at the time regardless of price.

Very few think about it in any way other than how their lives will be different or better short term once the items are theirs to keep, but don’t consider the impact of the decision they are making long term.

Let’s put some examples to this concept:

# 1 : Food

When you go to the store and purchase organic peppers, analytically speaking, that purchase means more than just you prefer the taste, or it was a better price. It can also mean that you support organic farming and eating healthier produce.

You could have chosen to buy French fries to go with dinner, but you chose the organic peppers instead.

# 2 : Non-Essential Habits (i.e. Tobacco Products)

You might mindlessly buy cigarettes because you can’t kick a bad habit, but buying the pack also means you support big businesses that promote lung cancer. Tobacco companies make a profit off of people coughing, having shortness of breath, high medical bills, increased pollution to our planet, and early death.

Have you ever sadly gone to visit your suffering grandmother in the hospital for emphysema due to smoking and on the ride there light up a smoke of your own?

Your visit to the hospital is sponsored by your decision to buy cigarettes.

# 3 : Books vs. Video Games

Do you support reading, education, imagination, and intelligence? Or do you support no creativity, nonessential “fun”, unrealistic portrayals of the real world, and violence?

Many parents wish for their kids to do well in school, grow up to be leaders, and lead active lives, yet they allow their kids to come home after school and play video games and watch movies when they could send them outside or encourage them to read a book about something of importance (ex: George Washington).

Take away:

Your decisions and your purchases are really a manifestation of what you think is important in life.

Next time you make a purchase or make a choice consider these questions:

• Are you buying it just because it is cheaper or easier to have?
• Is it appealing simply because other people have one just like it (I NEED an iPad, too!)?
• Are your purchases and decisions counterintuitive to what you tell people you think is important?

When was the last time you thought about your habitual consumption and what it’s saying about you?

Know What You WANT: Check Edmunds.com for the latest car details, and check Consumer Reports for their vehicle ratings so you can choose a more reliable model year.

Know WHEN to Buy: November through January are the slowest months for sales.  Aim to buy during these months – and buy at the end of the month when the salesman or dealer may be aiming to hit a sales goal.

Know WHERE to Buy: Private sales will save you from dealer markups – use Autotrader.com or eBay Motors to find local deals and compare prices.

Know WHAT to Buy: A brand new car loses 30% of it’s value the day it’s driven off the lot.  Buy used instead.  Aim for a car that’s at least 3 years old.  You’ll end up saving on registration and insurance.  Don’t forget to check Consumer Reports for used car ratings.

*NOTE: Keep in mind prices are based on supply and demand at any given time.  Make sure to shop for a car in advance of needing one so you don’t make a quick decision that costs you money.

Excellent video describing what Quantitative Easing is…

Finally!  Marketing Meets Tax Strategy In A Business Book That Will Leave You Running a Much Smarter, More Profitable Business…

Many business books leave the reader feeling like they are missing something.

You’ve probably had this experience yourself.

You read a book about business management, but there’s no mention of how to create effective marketing campaigns. 

Another book talks about marketing, but it doesn’t tell you how to keep your income protected from taxes, so your business (and you) don’t get sucked dry. 

Enter Diane Kennedy and Megan Hughes.

These two women have teamed up in a new book Smart Business, Stupid Business to show you how smart business management, marketing, and tax strategies can help you position your business for ultimate profitability. 

The book is simple, straight-forward, and practical. 

Each chapter is only a few pages, quickly getting to the meat of what you need to know with brief stories to demonstrate points made. 

Here’s what you’ll learn:

• How to build business credit – separate from your own personal credit
• 9 Factors the IRS will use to assess your business and it’s ability to take deductions
• Essential bootstrap marketing techniques
• How to find a good business partner
• And so much more…

Smart Business, Stupid Business will be an important reference in your library.

Once you’ve read it, come back and let me know what your thoughts are.

Buy it now: you’ll be glad you did.

                 VS                  

Robert Kiyosaki, author of the NY Times best-selling book Rich Dad, Poor Dad, and Suze Orman, author of the best-seller The Money Book For The Young, Fabulous, and Broke, began slinging fireballs at each other on Twitter…

Your Thoughts

Which one do you think is right? 

Do they each have a valid point?

Do you like the investing philosophies of one over the other?

Share your opinion below.

Personal Branding expert Dan Schawbel has put together a great 52-page report on how to use blogging to build your brand.

Grab your FREE copy of his report here: Blogging Your Brand.

In his report, he describes 10 Benefits of Blogging:

1. Position yourself as an expert
2. Rank high in Google
3. Build a community
4. Gain confidence in yourself
5. Sharpen your writing and technical skills
6. Get your message across for free
7. Network with successful people
8. Command attention from mainstream media
9. Make money
10. Stay current and have a voice in your industry

Are you blogging? If yes, how has blogging impacted your life? If you aren’t yet, what’s stopping you? Comment below.