How To Work The System Instead Of Beating The System by Dannielle Fritz-MacDuff

As an accountant and financial educator I have been asked countless times how to beat the tax system. After all, our largest expense in life is our tax bill. We are taxed when we earn, taxed when we spend, taxed when we save and taxed when we die. So how does a person, the average working Joe, "beat the system"? The simple answer is... you don't. Instead, learn to work the system. I have included some things that you can do that will help you make the system work to your advantage.

Talk to a tax professional.
Interview several tax professionals, not all accountants and tax agencies are created equal. Much like lawyers, accountants tend to specialize. Find one that is competent and willing to put forth an effort and guide you. You tax advisor should be up to date with the latest tax loopholes and requirements as well as being a forward thinker. A forward thinking tax advisor will be able to help you create a workable strategy that is proactive and takes advantage of every possible loophole available to you and advise you on what changes could be made that will open up additional loopholes.

Change how you make your income.
This does NOT mean quit your job. Instead look for and take advantage of opportunities that will move your money from earned income, which is the most highly taxed income with the fewest allowed loopholes, to passive income. Passive income allows multiple loopholes and is taxed on a completely separate set of rules.
When you make your money from a job as an employee the tax rules in their simplest form look like this:
EARN ---- TAXED ON ALL OF IT ----- SPEND WHAT'S LEFT
When you make your money from investments that are working for you, this is passive income. The tax rules in their simplest form for passive income look like this:
EARN---- SPEND WHAT YOU NEED TO SPEND ---- TAXED ON WHAT IS LEFT
Most of us are only using the first tax strategy and making all of our money as employees. Converting that earned(employee) income into passive income will allow you to take advantage of the second tax strategy which puts you in control of your financial future your tax bill.

Monitor and control your expenses
I am not preaching "live below your means, cut up your credit cards and don't use debt". Instead pay attention to where you are spending your money. We all should live the good life. what ever your good life may be. When you pay attention to where your money is going, this gives you more control. Controlling your expenses simply means making wise choices. Most of us get caught in the consumer craze. We spend millions every year on credit card interest and don't use those credit cards to our advantage. Instead we choose to buy things that require us to work harder to pay for the stuff that we want instead of first buying the things that will put money into our pockets that can pay for our toys. Instead use credit to your advantage. Use other people's money to buy your investments and assets that are making money for you. If you are using other people's money to make money for you, your return on investment is infinate.
ex. you purchase a rental property for $5000.00 using an advance from your credit card. After all of the expenses are deducted from the rental income (including your credit card payment) you have 200.00 left over every month. Your rate of return =cashflow from the investment(profit) devided by the cash that you put into the investment (0 of your own money). That return is infinate and you do not have to pay back the debt, your tenant pays that for you.

Pay Yourself First!
Don't dip into your savings when times get tough. Let the pressure build up and motivate you to think outside of the box to find ways to make more money. Then use that savings to buy investments or assets that put money in your pocket. These sources of income will be there even if you loose your job.