Getting the order right about how to reduce your overall taxes is important.
Taxes are the largest cost most households face. Second is interest charges.
If you want more money in your pockets, simply reduce your tax bill every year. It’s part of The Two Surest Ways to Guarantee Yourself a Rate of Return.
Reducing your tax bill DOES NOT start with investing in registered investment accounts like a 401K or RRSP.
It starts with making sure all your monthly expenses payments are as tax deductible as possible.
This will ensure you pay less taxes and keep more money you’ve earned in your pockets without having to give it away or invest it.
An easy way to make your household payments tax deductible is to get a home based business. Even if you are bad at your home based business, you’ll reduce your tax bill.
Let’s give an example.
Let’s assume a person makes $50K per year from a regular job and pays $10K in taxes and other government benefit costs. Let’s also assume this person decides to start a home based business like a multi-level marketing company.
As long as the person buys products from the MLM company that he or she would have bought anyway, the tax bill each year will be much less.
Here’s why even if this person is terrible at making money in the home based business.
The person still gets to write off all the legitimate expenses from being self-employed in a home based business against the $50K income earned from the regular job.
Those expenses may include part of your mortgage or rent, the products you bought from the business, car expenses, Internet, phone, restaurant meals and education, plus a bunch of other expenses.
Let’s assume this person was able to legitimately deduct $10K in expenses. That makes the overall taxable income now $40K instead of $50K. Thus, the tax bill should be cut by several thousands of dollars.
Another scenario is this person become so successful at the home based business that it replaces the $50K per year regular job. Except there are less taxes to pay than with a regular job because there are more tax deductions.
It’s the order of returns that count. The first order of business is make all your outgoing payment as tax efficient as possible.
If you still want to invest in a 401K or RRSP to reduce your current taxes even more, you can use the tax saving from the home based business.
Make sure you get an accountant to help you.