The One Thing the IRS Can Never Tax

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The One Thing the IRS Can Never Tax

“Thinking is one thing no one has ever been able to tax” – Charles Kettering

An American businessman, engineer and inventor ultimately holding 186 patents. From 1920 to 1947, Charles Kettering was the head of research at General Motors. Obviously, this was a man who knew how to think. Considering his many accomplishments, he was probably also a man who paid his fair share of taxes.

Like most of us, I’m sure that Kettering hated the IRS and was probably thinking of them, at least tangentially, when he make this famous quote. Yet there is more to that quote than mere disdain of our government’s tax department. There is also considerable wisdom. For while our government works hard to find every way possible to tax us, they have yet to figure out how to tax the thoughts in our heads. Those thoughts are nothing more than potential for financial gain, not the gain itself.

At the same time, it is actually the results of our thinking which moves us up in our income bracket, increasing the government’s ability to tax us.

Where Does Wealth Come From?

No matter who you are, there is only one honest and legal way of earning money; that is trading your time for it. If you work for a company, they are paying you for your time and for what you are able to produce in that time. Even people who earn their money in more esoteric manners, such as investing, are ultimately trading their time for that money, as it takes considerable time and effort to find the correct places to invest that money.

It doesn’t matter if you’re flipping burgers at the local fast-food joint, the CEO of a Fortune 500 Company, an entrepreneur starting your own business or an artist creating the next masterpiece, you are ultimately being paid for your time. The difference between those various cases is how much the individual earns for their time.

The CEO of that Fortune 500 Company makes more money than the burger flipper because of the thinking they have to do as part of their job and the responsibility that goes hand-in-hand with those thoughts. Their high salaries are compensation for their ability to deal with problems, coming up with solutions to them.

Making Your Time More Valuable

Other than a few exceptions, the value of our time depends on how much we have invested in making our time valuable. A brain surgeon makes more money than a burger flipper because they have invested years of their life and many thousands of dollars in tuition to study how to be a brain surgeon. We could easily say that it is the thinking necessary to learn how to be a brain surgeon, which has made their time more valuable.

Not all of that happens in the classroom. Learning can happen anywhere; and many of the most important lessons have never been written in any book, but are learned in the school of hard knocks.  The CEO of that Fortune 500 Company didn’t learn everything they need to know in order to run their corporation in a classroom; they learned it through years of experience.

Ultimately, the market decides what a particular type of work is worth. That’s where we get the exceptions I mentioned from. Athletes and entertainers earn a disproportionate amount of money, due to their special skills; skills that may have more to do with genetics, then any particular investment on their part.

Taking it to the Next Step

Some of the most financially successful people in the world are entrepreneurs. Elon Musk, Bill Gates, Mark Zuckerberg, Jeff Bezos and many others have become millionaires and even billionaires by coming up with unique ideas and developing those ideas into major corporations.

While it takes an incredibly amount of work from an extensive team to build a business like those started by the people I mentioned, it is their idea and how they developed that idea into a business model which has created the framework for their success. In other words, their success came from their thinking, more than any physical work that they did.

If you want financial success in your life, then the place to encounter it is in your thinking. You don’t earn financial security and then figure out how to do it; you figure it out first, and then put that plan into effect. Regardless of what your financial security is based upon, it all starts in your thoughts; that part that the IRS hasn’t figured out how to tax.

You Can do it Too

If these people can take an idea and turn it into a successful company, you can too. Oh, maybe you can’t do it to the extent that they did; but that’s not saying you can’t do it. You probably don’t need $20 billion in assets to fund your retirement. You can get by with less.

People have million-dollar ideas every day. The problem isn’t a lack of ideas; it’s a lack of doing something with those ideas. Anyone can have an idea; but it takes thought and dedication to turn that idea into success. That’s where many people fall short. They either don’t put enough effort into thinking about their idea and how they can turn it into reality, or they don’t persevere until they succeed.

Success generally requires a team effort. Nobody is skilled in everything. You might have a great idea, but not have the technical knowledge to develop that idea into a finished product. Or you might be the person who can develop the idea, but you don’t know anything about marketing. Expect to need help in turning your idea into success. Find the right people and create your team.

Put Thinking into Your Investing

Part of that team thinking is in your investing. You can try doing it on your own, or you can seek out an investment counselor who can teach you how to do it right. uGro exists to provide those trained counselors. They aren’t salesmen who are just going to take your money and promise a return on it; they’re going to teach you how to turn your investment money into the nest egg you need.

Your investing requires thinking too; and not just about the investments themselves. The government is constantly working on finding ways of getting more of your money; and they’ve got some really smart people working on it. So, you need to develop an investment strategy that takes into consideration what the government is doing and how they are going to tax you, so that you not only get the best return on your investment, but get to keep as much of that return as possible.

The Government’s Take on Investments

Take the 401k for example. Most people see this as a means of saving money on their taxes by putting money aside for their retirement. That’s true; but it’s not a benevolent gesture on the part of the government. Congress didn’t enact this law because they wanted to help you, but rather so that they could increase tax revenue.

The basic idea behind a 401k is to get workers to invest some of their pay in a “retirement account,” rather than spending it. Typically, that money is invested in mutual funds, managed by a financial manager that the company contracts to handle their employees’ retirement. The money invested is removed from their check pre-tax, giving them the incentive to save that money. Then, when the people retire, they receive “disbursements” from their 401k, which are taxable.

This does two things for the government. The first is that it defers those tax payments, kicking them down the road to a time when there will be more need for them. The second is that it increases the overall tax revenue received, because taxes are collected based on the money earned from the investment, not just the money earned by working.

To ensure that the government receives their money, there is a penalty for early withdrawal of funds from the 401k account. There is also a penalty for not withdrawing the money, as there are mandatory disbursements after a certain age. Finally, the government gets to tax whatever money is not collected in disbursements, as that money is taxed as an inheritance.

Forewarned is Forearmed

This is not to say that you shouldn’t use a 401k as a part of your investment strategy. I’m merely explaining what the government gets out of it. You can still use a 401k to your benefit. But understanding how and why the government created it, helps you to make a better investment decision. Again, it’s about thinking, more than about doing.

The same thought has to be included in any investment strategy you are thinking about using. Understand that the government is after your money and how they are going to tax your investment, is an important part of calculating your actual profits from that investment. Failure to understand it could leave you in a situation where your heirs are being taxed 50% of your investment portfolio.

There is much more to learn about the traps that the government has put in place, so that they can take advantage of your investments. You need the right training, so that you can make the right decisions. A good place to start is with our FREE informational webinar, which is available HERE.

p.s. What ideas have you had, that you’ve never taken action on? I’m sure you’ve had some. Maybe today is the day to take action. Maybe today is the day to dust off that dream and start turning it into reality. So, are you using the one thing that the IRS can’t tax?

Remember, nobody knows your finances better than “U.”

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