They say there are 2 certainties in life. Death and Taxes. Since we can’t avoid death, the next best way is to enjoy life, right? That’s the same way with taxes. If you can’t avoid it, then let’s understand and optimize it.

Would you like to save tax effectively and legally? In fact, so legal when you understand why Tax was implemented in the 1st place, you can take advantage of the many reliefs and incentives introduced by governments all around the world, including Malaysia

The good news is that many of these reliefs are benefiting businesses and entrepreneurs, mainly due to governments’ need for investor funds to grow the economy and create jobs.

The bad news is that if you are still ‘an employee’, perhaps this will give you the incentive to transition to being an entrepreneur. At least, that’s how my journey started when I read “Rich Dad Poor Dad”. In fact it was Robert Kiyosaki’s “Cash Flow Quadrant” which changed my outlook and ultimately my life. Have a read

There is 1 particular topic I like to share with you which help me increase my Financial IQ and inspired me towards my entrepreneurship journey 14 years ago. Read Chapter Five – Lesson Four – The History Of Taxes and the Power Of Corporations

You see, Tax was initially created to tax the rich and help the poor. We all know that government need to tax its citizens in order to create funds to build public infrastructures like schools, hospitals, roads and transportation. These public infrastructures creates a sustainable and peaceful environment for everyone to live in

But the problems start when governments need to spend their entire yearly budget. Apparently, it is a bad thing to ask for excess money that doesn’t get spent. You can verify with your company’s person in charge of budgeting,

Governments will be seen as asking for too much money and don’t utilize them where it is needed. So they may not be able to get the same budget or more in subsequent years.

As a result, governments need to spend all the money they requested from their budget and more. And when this happens, you can guess where they start looking for extra funds to cover their deficit. Yes, tax the poor, unfortunately.

What started as a noble intention to tax the rich and give to the poor took a U-turn. As entrepreneurs who run businesses have more wealth and governments all around the world start to jostle to invite them to invest in their country, they introduce a variety of tax incentives, friendly enough for entrepreneurs to do business there. That’s how entrepreneurs have access to more tax incentives and the employees needs to pay more tax.

You may ask what is the difference? The difference is immense. Let us take an example

Employee
Income minus Tax Paid = Then only Spend

Entrepreneur
Income minus Spending first = Then only Pay Tax

You may ask what is the difference? The difference is immense. Let me show you an example

*This is a simplistic example to show the effects of “Tax On Net Income” Vs “Tax On Net Profit”

Notice the 1st example on the left – taxed on the income earned as an employee vs the 2nd example on the right – taxed on the net profit which is after expenditure needed to generate the revenue/income for the entrepreneur’s business.

Can you see based on this example, there is almost a RM 6,300 difference in tax calculation based on both individuals earning the same income of RM 100,000 (although this is not the exact and accurate example).

Would you like to get ‘tax on income earned’ or ‘net income after deducting your expenses’? I bet you like the latter. This is 1 of the main reason I work so hard to be an entrepreneur. Is the risk worth it? You have to ask yourself. For me it is definitely a road less traveled, but well worth it after 15 years travelling on it.