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Whose Money is it Anyways???

Guest post by: Patrick Bailey

Article Overview:

There are many ways of earning an income.Regardless of where the income comes from if proper tax planning is not in place a considerable amount of the income may be lost to taxes.

How much an individual takes home will determines his real lifestyle. Yet taxes prevents many people from living their desired lifestyle because their paychecks are too small.

A taxpayer might earn his money from many income sources and so the amount of taxes that he pays will depend a great deal on these sources. How is the income earned and what vehicle is being used?

"It's not how much you make it's how much you keep"

Whose Money is it Anyways???



There are two ways of earning an income. Each has it's own merits and contributes to the overall financial wealth and health

1. People making money and
   
   
2. Money making money

The first way "people making money" can be further divided into 2 categories

• your own efforts. This includes employment and small businesses, entrepreneurs, professionals where a considerable amount of personal time is required. The more time you put in the more you get paid. The more you get paid the larger amount you lose to taxes. Taxes are the highest when income is earned this way. Very little capital may be required to start and in the case of employment you get the least amount of tax deductions.

• the efforts of others. This includes businesses which employ other people to help. More income can be created faster this way and can be very tax efficient if the right business structure is chosen. Even though you might be required to commit more time and more capital, initially, over time less time and money will be needed to keep the income growing. Income earned this way may attract less taxes because of the available deductions and the ability to shield more income from the taxman.

The second way "Money making money" simply means your money is invested in the vehicles of your choice

This way is the most time efficient since you don't have to be there on a day to day basis. It can also be the most tax efficient of the three since you control how and where you want to invest. In some cases more capital is required to earn a predetermined amount of income. All investments are not created equally and have their own tax consequences. For this reason investment results vary and will depend on the investors' own knowledge and the expertise of their financial and tax advisors.

So How are you earning your Money?

Here are three(3) tips to help save taxes as you earn or make money

1. Maximize investment income by selecting the right instruments. Professional advice may be necessary
   
   
2. Earn Income from a business. Taxes are payable on a net income basis, that is to say your income is first reduced by the expenses used to earn the business income. Invest profits
   
   
3. If you must be employed, try to choose companies which have benefits and will share the tax burden. Defer as much taxes as possible while investing the income for growth and maximizing investment income. .

Sources of Income

Employment income is paid to you in the form of wages, or salaries by a person or company, for services rendered. The employment may be part-time, full-time or casual.

Careful tax planning can create opportunities which not only allow you to increase your income on a tax efficient basis, but also to provide investment income.

A self-employed individual usually has a skill or profession or a sense of business which they want to use to earn a living. He may choose to work under his own name or under a trade name.

Benefits include the potential for unlimited income, opportunities to income split with family members and the advantage that losses can be applied against other income.

Although the vast majority of individuals still work in a regular job, today an increasing number of people, including the employed, are venturing into the ranks of the self-employed and establishing all kinds of businesses.

Income from Business

Business usually refers to an entity which carries on an enterprise which involves the sale or purchase of goods and services for a profit. The business can be unincorporated or incorporated.

The primary purpose of any business is to provide products or services which are of benefit to the end consumer. To the extent that the product or service helps the end consumer and remains in demand the business will get paid accordingly.

One of the main advantages of a business is that the business owner can employ the services of others. In other words he or she can leverage the efforts of other people. More importantly, having others help work in the business allows the owners to have more free time to spend as they please.

Corporations as a whole pay the lowest income taxes of the business structures, but have more stringent reporting rules than sole-proprietorships. They also help protect against liabilities and personal loss.

Income from property

This is income derived primarily from investments and includes, stocks, rental income , real estate, term deposits, mutual funds etc.

Income from capital gains

Capital gains is income derived from the sale of an asset and is taxed more favourably than most all other investments.

Summary:

In order to protect as much income as possible from the tax man, legally, careful and regular tax assessments should be made. This should be done at the very least on an annual basis or as often as you engage in income producing activities. A good tax planner and financial advisor should play a crucial role in your decision making process.

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Article Tags: health, income sources, lifestyle, money



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