I’ve been thinking a lot lately about how the Internal Revenue Code works. I know, how boring is that!?
To me, the Code is fascinating.
Most people think of the Code as simply a way for the government to raise money and enforce their collection policies. My studies have found it to be quite the contrary.
Rather than an enforcement tool, I have found it to be an incentive tool. And lately, I have discovered that it’s even more than that.
It’s an instruction guide to building wealth.
Our clients at ProVision routinely find that when they do what the Code tells them to do, not only do they pay less tax – they make more money. We have clients who have come across million dollar deals just because they were doing what they had to do to get a tax deduction.
So in my studies, I have been looking for how the Code teaches us about building wealth. The discoveries I have made are nothing short of amazing.
For example, think about how the Code treats debt. Interest on Bad debt – debt that takes money out of our pocket, is normally not deductible and even when it is (such as with a house), the deduction is limited. On the other hand, interest on Good debt – debt that puts money into our pocket, is always deductible without limit. Good debt on investment real estate and in business increases our deductions exponentially. When we buy a property with good debt, we not only get the depreciation deduction on the money we put into the property, we also get a depreciation deduction for the money the bank put into the property. And, we make more money by using debt.
So the Internal Revenue Code is just like any other good code – a secret that when broken leads to great treasure.