Donald Trump says that if you want to be a millionaire, you must get your tax affairs down to the legal minimum.
Money Mastery is a book written by a gentleman named Alan Williams, who said the exact same thing.
There are a lot of reasons for that, but Donald Trump used a slide in a presentation that he allowed my friend Sandy Botkin to use that inspired this article. Itâ€™s a very interesting slide. It shows what happens if youâ€™ve got a dollar that doubles every year.
Ok, you start with $1. At the end of year one, it becomes $2. At the end of year two, that doubles and becomes $4. At the end of year three, it becomes $8. At the end of year four, it becomes $16. At the end of year five, it becomes $32. It just keeps doubling.
When you get to 20 years, it is $1,048,576. That $1 bill doubled for 20 years is now worth over $1-million.
Now, watch this. Same dollar doubling, but letâ€™s assume youâ€™re in the 35% bracket. You pay 35% of what you make in taxes, and you add all of the income taxes, the state income taxes, the capital gains taxes, the sales taxes, the transfer taxes, the property taxes, I can go on and on, the hotel taxes, the internet taxes, and gasoline taxes. And 35% is actually conservative.
This time take taxes out of the doubling effect, take that dollar and double it, instead of it being $2, like in the other example, itâ€™s only worth $1.65 because youâ€™ve got to pay at least 35% of that in taxes. And the $1.65 doubling isnâ€™t $3.30, because youâ€™ve got to pay part of that in taxes. Itâ€™s only worth $2.70.
Even though it is the same dollar doubling, but now with taxes, take a guess how much thatâ€™s worth at the end of 20 years. Remember, the other one was $1,048,000 without taxes. Take a guess how much itâ€™s worth with taxes each year?
Would say probably around $600,000?
Try again. Maybe youâ€™d guess $400,000?
Nope, $400,000 is too high, go ahead give it another shot and try again.
Canâ€™t be less than $300,000 can it?
Is it $200,000, less? Youâ€™ve got to be kidding! How about $150,000?
Not yet, keep going, one more guessâ€¦Less than $100,000?
Yes, much less. Youâ€™re never going to get it. Itâ€™s $22,370.
That is amazing.
People, you may think Iâ€™m crazy so go try it out on your calculator or accounting program and youâ€™ll find its true.
The reason itâ€™s true is not only do you lose 35% on everything you make, but hereâ€™s the important point, you also lose all of the interest, all of the compounding year after year.
That is why itâ€™s worth only $22,370. There is nothing more important than tax planning, absolutely nothing. Itâ€™s better than a raise. Itâ€™s after-tax money.
Scott Letourneau is the founder and CEO of Nevada Corporate Planners, Inc. Recently, heâ€™s started an exciting new project on how to get viral residual income. Visit right now to find out how to get started!