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No, I’m not that old…

But I just love this song ‘My Way’ by Frank Sinatra.

It’s really chock full of life lessons and how one may wish to lead his or her life.

I remember my old man used to love singing this song at Karaoke. So did my Taekwon-do grand master. They both took the road less traveled… on their own terms… no apologies. They have both been my inspirations and mentors of mine who have shown me a noble way to lead one’s life. I think that’s why they both loved this song and loved singing it… because the song, in their own ways told their respective stories.

I also see leadership qualities that can be learned from the song, especially for entrepreneurs (which, by the way, is a term that originated from French which means someone who is willing to take upon herself or himself a new venture or enterprise and accepts full responsibility for the outcome… thought it was quite fitting.)

Well, without further ado, here are the lyrics (for those who’ve never heard of the song before).

Enjoy!

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And now, the end is near,
And so I face the final curtain.
My friends, I’ll say it clear;
I’ll state my case of which I’m certain.

I’ve lived a life that’s full -
I’ve traveled each and every highway.
And more, much more than this,
I did it my way.

Regrets? I’ve had a few,
But then again, too few to mention.
I did what I had to do
And saw it through without exemption.

I planned each charted course -
Each careful step along the byway,
And more, much more than this,
I did it my way.

Yes, there were times, I’m sure you knew,
When I bit off more than I could chew,
But through it all, when there was doubt,
I ate it up and spit it out.
I faced it all and I stood tall
And did it my way.

I’ve loved, I’ve laughed and cried,
I’ve had my fill – my share of losing.
But now, as tears subside,
I find it all so amusing.

To think I did all that,
And may I say, not in a shy way -
Oh no. Oh no, not me.
I did it my way.

For what is a man? What has he got?
If not himself – Then he has naught.
To say the things he truly feels
And not the words of one who kneels.
The record shows I took the blows
And did it my way.

Yes, it was my way.

If you’d ask me what one income tax advice I can give you that will have the biggest impact on your bottomline, it would be this: To realize that there are two tax systems in this country (and in many others), and use the tax system that will tilt the tax laws in your favor.

Believe it or not, there are two income tax systems in this country that you should be aware of – one for the “educated” and the other for the “uneducated” (i.e. one for those who know the rules, and the other for those who don’t; they may also be known as “the system for employees or W-2 wage earners” and “the system for self-employed or small business and/or home based business owners”). And the important thing to note here is that you get to choose which one you want to be in.

The first system, or the “educated” system, is designed to create economic growth. The second system, or the “uneducated” system, is designed to take away your wealth.

Note that they are not “the system for the rich” and “the system for the poor” as it is sometimes mistakenly known to be. Even if you are not millionaires or billionaires (at least not yet), you can also benefit from the “educated” system by studying the rules and applying the knowledge.

Here’s a simple formula to illustrate the difference:

In the first system, the amount of taxes you pay is based NOT on the amount of money you earn, but on the amount of money you have left over after deducting all of the expenditures you may have for your business from what you’ve earned.

In contrast, in the second system, the amount of taxes you pay is based on the amount of money you earn from your job as salaries and wages. The taxes are immediately taken out of your earnings through tax withholding. Whatever that’s left over is the amount you can spend. That’s the basic pattern of wage earners or the uneducated tax system.

If you take a look at your recent pay stub, you’ll see that the first line is your gross pay. Let’s say it’s $1,000 for simplicity’s sake. But as you probably already know, you can’t live on the $1,000 because you have taxes to pay. Federal taxes, state taxes, city taxes… and FICA or social security taxes where you pay half and your employer pays the other.

Adding them up, an average American pays anywhere between 42% and 55% in taxes. In other words, pretty much half of what you make goes to pay your taxes! … and this doesn’t include sales tax, property tax, excise tax, gasoline tax, and many other forms of taxes that you likely not pay too much attention to…

Let’s go over an example. Suppose you are an employee with annual salary of $100,000:

Income                         $100,000
less: Taxes (approx.)    <$50,000>
Spendable Income          $50,000

Can you see now what Bill Gates was referring to in my previous post, The Truth About Taxes That They Don’t Want You To Know About? He knew that the secret to building wealth was not simply making a ton of money, but was keeping more of what he made! It’s really about what you keep… not just how much you make (although this is part of the formula).

It’s a lot more difficult to get ahead when you’re paying upwards of 50% of your hard-earned money to the “tax man”…

Now, as an employee, it’s true that you do have a limited number of deduction items such as individual retirement account (IRA) contributions, 401(k)s, mortgage interest and property tax deductions for your home, charitable contributions deductions, etc.

But, the number of items is very limited compared to those that are available to self-employed and business owners.

The “educated” tax system provides a significant tax advantage over the “uneducated” tax system. Business owners are allowed to effectively lower the amount of money on which they are taxed (as you can see from the illustration above).

Why is there such a huge, fundamental difference in the way business owners are taxed compared to wage earners?

Well, I am not sure. Maybe it’s because this country was founded by entrepreneurs. Maybe it’s because the country’s economy is driven by business activities, which in turn employ people who pay taxes on the salaries/wages that they earn (hmm… encouraging businesses to create more jobs for people who will start paying taxes in the “uneducated” tax system…). Business owners make political contributions to support the elected officials and lawmakers who in turn run the government.

Whatever the reasons, the important thing for YOU is to realize that there exists this major, fundamental difference in the taxation system, and to capitalize on it.

So, what can you do?

If you’ve already got a business or are self-employed, great. You’re well on your way to reap the benefits that are afforded to you. If you don’t already have a business, now is the time to really consider it. Learn and use the “educated” tax system as soon as possible and start to tilt the tax laws in your favor!

Here’s a couple of resources to get you started (even if you already are a business owner, these are great tax educational resources for you):

book => Lower Your Taxes – Big Time! 2009-2010 Edition (Lower Your Taxes Big Time)
audio => Tax Strategies for Business Professionals (I got you a 10% discount from the author – just use “hiro” as your coupon code and you’ll get a 10% discount on this audio series as well as any other products on the site if you are interested

Both resources are products of Sandy Botkin who I’ve personally met in person and have been following throughout my tax professional career, and he is the real deal

Well, good luck! and make your life LESS TAXING!

“The single most important key to my business success is a working knowledge of the tax code.”

Can you guess who quoted the above?

When I heard it for the first time, it really caught me by surprise because I was expecting something very different from this billionaire.

Perhaps something related to marketing, technological innovation, etc.

But, no. This is what this person said he thought the single most important key to business success is. “The working knowledge of the tax code”

This is one of the richest men in the world talking.

Well, you probably guessed it right. It is a quote from Bill Gates, the founder & chairman of Microsoft.

If this is something that’s coming from Bill Gates who knows a thing or two about business success and wealth building, I think you should take note of it and apply it for yourself.

Here’s why.

Billionaires and millionaires alike, they are most likely to be the ones paying less than 10% of their income in taxes. Yes, single digit… when the average population is paying anywhere from 25% to more than 50% in income taxes.

What do they know that you don’t?

The best-selling authors of the book The Millionaire Next Door said that most of those who reached the millionaire status didn’t do so by inheriting a lot of money, hitting it big on Wall Street, or picking up a winning lotto.

They were, mostly, average persons who consistently saved up, little by little, year after year.

With diligent saving habits and solid financial planning, they invested their savings in average investments (e.g. mutual funds) for the long-term.

Ok. Let’s say you invest $4,000 per year (e.g. with the cash from your tax savings) in an average mutual fund with an average annual rate of return of 11.5% for the next 30 years. After those 30 years, you would have $1,048,745.68!

So here’s the very simple and powerful, yet commonly overlooked principle that most wealthy people understand and apply:

It’s not how much money you make that counts. It’s how much you keep.

Yes. It is simple and common sense. But understanding AND applying the principle is the key.

No matter what your business is, taxes are by far the largest expense for most people. As a matter of fact, with federal, state and local, and FICA taxes combined, many people are paying in excess of 50% of what they make on taxes as shown in the table below.

Yes. Over 50%! And this is just income taxes. You don’t want to know what you’ll be looking at when you start considering how much you pay on other taxes e.g. property taxes, sales taxes, luxury taxes…

If you don’t think tax planning is important, think again!

So, why is it that you, a hard working, dedicated employee and/or business owner, might be paying over 50% of your earnings in taxes when many of the millionaires and billionaires are paying less than 10%?

Are they doing anything illegal or unethical?

Absolutely not. They’ve got absolutely nothing to hide.

Here’s the thing.

The quality of questions you ask yourself combined with a positive, let’s-get-it-done attitude is what you must have if you are really driven to succeed in keeping more of what you make and building your wealth.

Ask yourself this question: “How can you also pay less than 10% in taxes just like these millionaires and billionaires?”

You are always going to have to pay taxes in one form or another (even if Ron Paul gets elected in the future and implements what he had long advocated to end the federal income tax – which is highly unlikely in itself – but even if… you’ll still be facing FICA taxes, state and local taxes, etc.). This will never change.

So a smart thing for you to do is not to blame the current taxation system for it, but to face the situation as it is and ask yourself, “what can I do to pay less in taxes?”