“I got my money the old fashioned way, I inherited it.” So said a Forbes billionaire. A lot of them came from families that have been actively building wealth for decades. Hopefully we get to do the same. Meantime, let’s look at how to gather funds for Trading or Investing (long-term).
I offer these ideas:
- Don’t pay Tax that you don’t have to
- Actively contribute to Retirement account
- Sell “stuff” e.g. jewelry
- Simplify your Life
- Business and pleasure
We’ll tackle the first 2 points here and then more fun stuff later 😛
TAX : Your biggest expense
You probably heard that the single biggest expense in life, is Taxes. OK to be clear – I’m not an accountant so I’d just share my experience and so please get professional advice before doing anything. Think instead of paying tax, you keep the money for investing / trading. This requires careful research and planning but well worth the effort.
PLAN YOUR TAX
• I remember planning for my second baby, and plan to have 1 year of maternity leave (for permanent employees in Australia).
I thought any income I’d receive from work will lessen my entitlement for Family Benefits Tax so I crunched the numbers and made plans for when the baby should be born (approximately, hehehe). I finished up at work at the end of Financial Year, and reaped at least $3000 in tax savings and family benefits for planning the birth timeline. OK, that’s easy money. ;P
• Late last year, our laptop was showing last gasps of life, it would shutdown unexpectedly etc. It didn’t die completely so we were able to wait until January (when my daughter starts Primary School and eligible under the scheme) to purchase a laptop which we can claim in the Educational Tax Refund scheme of Australian Tax Office. That’s a few hundred dollars to add to the kitty.
These specific examples might not be applicable to you (maybe you’d want to migrate in Australia then? hehehe Ask me ). 😛 Anyway, the principle is to check the Tax you are paying and the taxation rules that could apply to you so that instead of paying tax, you can put that aside for Trading. Nothing happened “differently” in your life. You just made an effort to learn about your tax situation and all the better for it.
IS IT YOURS OR IS IT YOURS?
Next is about Trading or Investing in Personal/Individual name or Company (that you own).
PERSONAL NAME : The thing with trading under your Personal account is that
- your trading profits will be taxed at your tax bracket or creep up to a higher bracket (with BIG profits! Woooo hooooo!).
- If you lose money, you can’t claim it as a loss against your employment income. That loss will just be carried over to other financial years when you make money from Trading.
- You can potentially claim Self-Education Deductions like books, seminars against your Total Income — check with your accountant.
- Advantage : managing tax affairs is simpler, while you learn to Trade, you can start here. OR…
(best if you have one already set up to start with )
- Gives you a favourable tax rate. No matter how much money you make, you just pay the Company tax rate, won’t go higher.
- It also separates your trading income from personal income (salary) so if you are collecting Family Benefits or similar, you can still enjoy your benefits.
- Another thing is being able to claim the Goods and Services Tax (GST) or similar in other countries. If you are a “person” you are paying this 10% (at least) on almost everything including trading brokerage fees, bank fees, computers etc. With Companies, get it back from the government.
- For Deductions, education expenses that include travel and hotel costs are easier to claim (with other company income able to support the expense). Check with Accountant for your situation.
- Disadvantage – you have bit more complex compliance obligations – but then if you already have a business, this will just be part of managing your tax affairs.
Once you’ve set up your business structure, a Company can give you more Tax advantages so you don’t pay tax you don’t have to. So include this in your research and talk to your accountant about what could be done.
What is good about investing/trading using Retirement Accounts is you can use the money to fund investments BEFORE the government takes their share, 😛 so there’s more for you, and since you don’t even see it, you don’t spend it. A few points:
• Talk to a Financial Adviser / Accountant –In the US, there are many kinds of retirement accounts – ask which is appropriate for your situation. In Australia, it’s fairly new to manage your own retirement account. I am excited about it because then I can control the investments, and therefore the performance. It can be used to hold assets like shares, ETFs, others as long as there is no debt.
• If you don’t manage your own retirement account, the other option is to check if your company’s investment management for employees allow you to invest directly in Shares or Exchange Traded Funds.
• For low-to middle income earners, the Australian government can also contribute to your retirement account up to $1000, if you contribute AFTER tax. Calculate if you are contributing more BEFORE tax or AFTER with the gov’t co-contribution.
Learn more at http://www.ato.gov.au/individuals/content.aspx?doc=/content/42616.htm
That’s more money for your sunset years,,, and you get to practice your trading skills NOW.
What a joy!