Einstein and The Power of Tax
Einstein believed the Theory of Compound Interest was the most powerful force in the universe. What does that have to do with you? As a business owner - a lot. The Theory of Compound Interest demonstrates the growth potential of a well managed business that takes advantage of strategic tax planning, retirement planning, deferral of taxes, and asset protection. It's also a great illustration of another powerful force in the universe – The Power of Taxation!
Let's take a look at the Theory of Compound Interest at work. You start with $1 and double it by the end of the year for 20 years. The growth is astounding – From a $1 to over $1,000,000 in 20 years:
Now look at the unbelievable effect taxes have on the Theory of Compound Interest. If Einstein was around to see our current system of taxation, I think he would have a different perspective. The most powerful force in the universe is the IRS Tax Code.
The illustration below is the same as above, except instead of uninterrupted growth, taxes are extracted on the growth or income amount each year.
So instead of having $1,048, 576 after twenty years, you walk away with $40,652 – a difference of $1,007,923 dollars. If you are a business owner and this sounds familiar – you need strategic tax planning. You can analyze the numbers and say – over the twenty years I only paid $17,422 in tax. That is correct, but really misses the point – it misses the point by more than a million dollars! That's the cost of sitting back and not proactively making the tax code work for you. Instead of paying the tax every year on this income, if it grew in a tax deferred vehicle, paying a 30% tax on the $1,048,576 if withdrawn in year 20, you still have managed to put $734,000 after tax dollars in YOUR POCKET!
I think Einstein would agree. The MOST powerful force in the universe, or at least the U.S., is the IRS tax code. This powerful force can work for you or against you. If it's not working for you – Call Us!