[aresant]

The #1 expense over your lifetime won't be your house, your entertainment, or your cars.

It will be TAXES.

If you build a career path that can take advantage of tax breaks you wind up with a huge advantage from the start.

For tech entrepreneurs - focus on building your enterprise value. Reinvest profits into GROWTH so that you wind up paying the bulk of your taxes in capital gains vs. personal income tax. On $1m or 2m in money the difference in what you save is staggering.

In real estate you can take advantage of all sorts of loopholes to reinvest or shelter profits that let you drastically increase your available pool to invest and create gains.

And for goodness sakes at the very least start a LLC or S-Corp if you're making more than $25,000 or so a year from "side projects / consulting" so you can properly write off and document all business related fees (computer hardware, cell phone usage, home office, etc).

[jberryman]

Respectfully, as someone who doesn't know anything about getting rich, isn't your advice more "how to get richer" rather than "how to get rich"?

[sliverstorm]

Most studies I've read found that most of the middle-class rich got there by getting slowly, steadily wealthier, not with runaway successes.

[aresant]

Here's a shorter answer to "how to get rich" - be a successful entrepreneur.

But applying the above: let's say you're at a low-wage, hand-to-mouth style job today.

a) Today commit to being smart about taxation since that is one of your most addressable costs (and study it, there are literally THOUSANDS of loopholes)

b) As a result, save up enough "runway" over several years to go take a swing at a start-up.

c) Reinvest profits vs. buying a brand new status car or whatever and then cash out w/your $$$ at cap gains.

[gnosis]

"Here's a shorter answer to "how to get rich" - be a successful entrepreneur."

Even shorter answer: win the lottery.

Don't know which is more likely.

[erikpukinskis]

There are about 1,600 people who win a million dollars in the lottery each year[1]. There 2 million+ businesses in the U.S. with 5 or more employees[2]. It seems safe to say you've got a better chance at starting a successful business. Although I was surprised at how close the numbers were.

That said, consistent application of intelligent effort will only meaningfully increase your odds in one of those games.

[1] http://ezinearticles.com/?Lottery-Millionaires---How-Many-Pe...

[2] http://www.census.gov/econ/smallbus.html

[grandalf]

What you're describing is the distorted landscape created by corrupt tax policy... it's not a good thing, but I suppose someone has to exploit it.

To my knowledge single employee S-Corps are more and more risky (likely to result in an audit).

[aresant]

I've been through three audits (of businesses) in the past 12 years.

Their purpose is to "uncover the truth", not to hose you needlessly.

You CAN write off a home office, you CAN write of computers, car miles, travel and entertainment, business meals, etc.

As long as these are legitimate business-related expenses you're in the clear.

As a single-employee S-Corp there shouldn't be such an overwhelming amount of documentation and you can probably push through an audit with minimal headaches.

Probably should add the disclaimer that I am not a CPA, follow at your own advice, but man have I spent enough bucks w/CPAs in the last 12 years to hopefully pass on a bit of hard-won knowledge ;)

[carguy1983]

I've also been audited. If you didn't cheat in the first place, you're not going to be in trouble or have to pay a lot of money.

[rwhitman]

A single member LLC does nothing to shelter you from taxes over a sole proprietorship, and in many states requires you to file for additional taxes and fees. It also makes your taxes unnecessarily complicated without any real benefit.

The supposed benefit of being an LLC over a sole proprietor is liability protection, but everything I've heard indicates a single owner LLC is rarely enough protection in court.

[gnosis]

"everything I've heard indicates a single owner LLC is rarely enough protection in court"

What about a single-owner C-corp?

[michaelhoney]

You do understand that taxes are how we pay for the good things, right?

[AutoCorrect]

no, it's how government employees pay for the good things, and modify your behavior to match their preconceptions of how you should behave

[rprasad]

As a tax lawyer, I can say with complete certainty that healthcare costs will trump taxes as the #1 lifetime expense for almost everyone (except the Buffets and Gates). #2 will be costs associated with childraising. Taxes are a distant #3, and for people with sufficient debt (mortage and/or student loan), may actually fall to #4.

Also, while the rest of your advice is sound, it is unncessary to organize an LLC or incorporate a S-Corporation for side projects. In either case, you will face additional taxes (nominally called "fees") for the privilege, along with additional tax filing burdens. You can already deduct business-related expenses as an individual. Indeed, both LLCs and S-Corps are treated as "pass-through" entities, so you would already be doing that for your LLC/S-Corp expenses.

The primary reason to form an LLC/S-Corp for a side project or for consulting is for liability protections (i.e., lawsuits, debt, etc.). Unfortunately, for single-member LLCs or sole-owner S-Corps, creditors will generally require the owner to contractually waive such protections.

The secondary reason, and the reason you're probably thinking of: you can sell the LLC/S-Corp, recognizing capital gains (lower tax rate) or even avoid taxes altogether (via certain norecognition transactions). In contrast, it is extremely difficult to sell an unincorporated/unorganized business, and you will essentially always recognize the gain in such a sale.

[ajross]

Amen to the childraising point. My wife and I took a total of six months of leave for each of our two kids (mostly her, though I did a 1-1.5 months at the end too). That's a year's salary down the toilet. We're mid-career (i.e. unlikely to see an increase in real income unless we get lucky or change career paths). So that's probably 1.5-2% of our lifetime earnings right there: even before the kids started daycare, and long before they'll go to college.

[yogrish]

The love and affection what you gave to ur kids is priceless and much more valuable than the money (1.5-2% earnings)you drained. So, Don't even account it. With out these (spending time with kids taking off etc) how much ever you earn, you are still poor.

[ajross]

Of course it is. The point was to provide some perspective on the cost of taxes, not to put an accounting value on my kids.

[ryguytilidie]

Are you saying 1.5-2% of your lifetime earnings is higher than what you will be paying in taxes? I assume youre in a higher tax bracket than 2% right?

[replax]

He was referring to the first six months of child raising. Therefore, the total cost is definitely higher and may well trump taxes, depending on when your definition of "child raising" stops.

[kbolino]

You're comparing apples to oranges.

The loss of income for 6 months was 1-2% of his lifetime earnings. I strongly doubt that 6 months of taxes will account for >2% of his lifetime earnings.

[lacker]

healthcare costs will trump taxes as the #1 lifetime expense for almost everyone

This is hard for me to believe, since health care is around 15% of GDP and taxes are around 25% of GDP. The top 1% only pays about 28% of taxes, so even "taxes paid by the non-1%" are more money than all expenditure on health care.

sources:

http://en.wikipedia.org/wiki/File:International_Comparison_-...

http://en.wikipedia.org/wiki/List_of_countries_by_tax_revenu...

http://economix.blogs.nytimes.com/2009/04/08/how-much-americ...

[rprasad]

The GDP numbers are not segregated by the source of taxes paid. Those GDP tax numbers include corporate taxes. Even after all of the tax breaks, the U.S. does have the highest corporate tax rate in the Western world at 35%, and most corporations are not able to avoid taxes like GE. [EDIT: inserted not]

Furthermore, though the top 1% pays a quarter of all taxes paid by individuals, the next 9% (salaries down to roughly $110k) pay 50% of taxes. In other words, 10% of the country pays 70% of the taxes! For this 10%, taxes may trump healthcare. http://www.ntu.org/tax-basics/who-pays-income-taxes.html http://www.heritage.org/budgetchartbook/top10-percent-income... http://www.american.com/archive/2007/november-december-magaz...

For everyone else, healthcare costs will defintely trump taxes.

[lacker]

Here's another source of data.

http://www.npr.org/blogs/money/2012/04/05/149997097/what-ame...

This shows that people spend more on each of transportation, housing, and food than they do on health care.

[furyofantares]

But how do healthcare costs scale with income?

[rprasad]

They don't, generally, as healthcare costs are bounded but income is not. So the rich ultimately pay proportionately less for healthcare relative to their income (though on an absolute sense, they pay significantly more).

[larrys]

"Unfortunately, for single-member LLCs or sole-owner S-Corps, creditors will generally require the owner to contractually waive such protections."

Relates to contracts you sign (and getting a credit or charge card which you end up signing personally even though it's a "business" card) but not necessarily to expenses or everyday debts (the local printer, the coffee company, merchandise on net 30 terms etc.) In short you can have debt that is shielded as a corporation.

"In contrast, it is extremely difficult to sell an unincorporated/unorganized business,"

Don't agree with this at all. I sold one (20 person company) and the fact that it was a sole proprietorship didn't make it any harder to sell from my experience.

Agree with the other things you said and correctly pointing out that you can deduct business expenses as an individual.