Rich Dad Poor Dad Question on taxes

[Andrew Butler]

Hi everyone,

This is my very first post and i have a few questions. I just started listening to the bigger pockets podcasts and i am now obsessed. I love learning and trying to educate myself. It quickly became evident that Rich Dad Poor Dad was a top pick for a book so i'm instantly got it and got into it.

My question:

The author repeatedly states that you should "pay yourself first to motivate you to pay your liabilities with with the money left over from what you get" And one of the major incentives that he gives is that way you're not paying taxes on that money and losing it's earning power. My question is how do you structure this so you don't pay taxes on that money?

My situation:

I'm self employed, 1099 income, and earn roughly 300k a year. I briefly looked into setting up my business as an S Corp to cut down on what i pay in self employment tax, but my understanding is that I make too much to declare a small enough salary to justify getting well under the (I think it was around 127k threshold) <any advice here would also be appreciated. 

But long story short, if there is anyway to "pay myself first" by investing or in any form to lower my income taxes, i would love any advice. 

[Hadar Orkibi]

Wellcome to BP @Andrew Butler, 

The BP Podcast is great place to start and learn about Real Estate, it has content to all levels and like yourself, I'm hooked. 

Considering your questions above I would like to recommend you listen or read the book Tax-Free Wealth Written by Rich Dad advisor Tom Wheelwright I JUST finished it and its great. Highly recommended to any REI. And it will answer your first questions and will show you how the Rich don't pay tax, often At all! There are so many tax incentives in the US Tax system that i was blown away.

To pay yourself first means simply this: Before you pay your bills, before you buy groceries, before you do anything else, set aside a portion of your income to save, some say 10% of your net income. 

If you put these saving towards ASSETS that produce income like Cash Flowing Real Estate you can use this cashflow to pay off you liabilities. 

Im not sure exactly to which part of the "not paying tax" on the income you are referring to, but there are many ways that this could be done. (and the book cover them all). 

One way that Rich Dad is referring to Tax free income is by refinancing assets and pulling out equity which is affectively tax free cash. this is not my favourite strategy as if one keep doing that regularly one just create more and more debt. this strategy is safer in high capital growth environment but very risky in no or slow growth market. 

Another way is to off-set your income with chattel and building depreciation deductions from your rental property.

In regard to your situation, I would start with listening to the book and then consulting a good CPA. 

Although BP is great and there are some very experience people here, I always think that seeking professional advise is money well spent. 

All the best.