Tax History/Power of Corporations

This is a summary of Rich Dad Poor Dad Chapter 5

In chapter 5, Robert Kiyosaki talks about the history of taxes and the power of corporations. Taxes are an extremely important factor to your overall wealth simply for the fact that they are generally a person's greatest expense. In fact, most people work 3 to 4 months out of the year just to pay taxes to the government.

It used to be that Americans were anti-tax, especially in regards to federal income taxes. According to Kiyosaki, it was the idea of "stealing from the rich to give to the poor" that eventually convinced the mass public to buy into the idea of income taxes. So, as the story goes, it was the rich who were targeted as the main source of additional tax revenue. However, as the size of the government increased, so did its expenditures and its need for more capital. The most natural thing for the government to do was to place more of a tax burden on the poor and middle classes. After awhile, the rich succeeded in finding loopholes to protect more of their income from the government. However, the poor and middle class remained the oblivious victims of our income tax system.

The loopholes that the rich began to take advantage of were found through the use of corporations. In the words of Robert Kiyosaki, "A corporation is merely a legal document that creates a legal body without a soul." There is a misconception that corporations are only for big businesses with buildings, hundreds of employees, large operations, etc... However, anyone can create a corporation. It is relatively simple and would only require a little study on how to set one up.

One advantage of having a corporation is that you can pay for many of your everyday expenses with before tax dollars. Another advantage is that there are several tax deductions that are available to corporations that are not available to individuals. Also, corporations are great tools for asset protection. For more on corporations, Kiyosaki recommends a book called Inc. and Grow Rich.

Aside from the history of taxes and corporations, Kiyosaki mentioned four broad areas of expertise that you should study to increase your financial IQ. As I discussed before, increasing your financial IQ is critical to your becoming and staying rich. Below are the four areas mentioned by Kiyosaki:

1. Accounting - Ability to read and understand financial statements; allows you to identify strengths and weaknesses in a business
2. Investing - Kiyosaki refers to this as the "science of money making money". This includes real estate, stocks, bonds, etc...
3. Understanding Markets - There are two types of analysis that you need to understand: 1) Fundamental analysis - economic sense of the investment based on current market conditions. 2) Technical analysis - study of emotion-driven price movements and indicators
4. The Law - Simply, a person with knowledge of corporations, accounting, investing, tax advantages, etc... will be able to get rich much faster than someone without that knowledge

Note: I surely cannot cover the information on taxes and corporations in enough detail in this summary of rich dad poor dad. I suggest that you purchase Rich Dad Poor Dad for more on Kiyosaki's general perspective on this subject. However, I have pointed out the main ideas concerning corporations in this blog. So, if you want to do a more in depth study of corporations, I suggest reading Inc. and Grown Rich.