The first thing I remember learning from Robert Kiyosaki when I first met him years ago was the concept of context vs. content. Robert uses a glass to illustrate this concept. The glass represents the context while what goes into the glass is the content. Until you make the glass (your context) bigger, you cannot add more content then you currently have.
I was thinking about this the other day in terms of tax knowledge. What's more important – context or content? In my travels, I am finding that most people are lacking in both content and context when it comes to taxes. They know very little (and really don't want to know more) about the rules (which, admittedly, are complex) and know even less about how the tax law works.
As I do tax evaluations for our new clients, I routinely find that 90-95% of them are overpaying their taxes by 10-40% simply because they don't know how the tax law works. This is the context I'm talking about, not the content. As soon as we broaden their context, they instantly start paying less tax.
The first and most startling change in context for most people is that Congress has filled the tax laws with tax savings that act as incentives for handling their business and investments. In fact, of the approximately 5,700 pages of Internal Revenue Code, 5,600, or 98%, is dedicated to reducing taxes. Less than 100 pages are dedicated to raising taxes.
The second change in context is finding out that of the 5,600 pages of tax reductions, only 400 pages are dedicated to deferring, or postponing taxes through mechanisms such as IRAs, 401(k)'s and pension and profit sharing plans. The remaining 5,200 pages are dedicated to permanent tax reductions.
That's enough context for today. Are you beginning to get a sense of what I mean by changing your context when it comes to taxes? When you begin to understand how the tax laws function, they stop being so scary and you can start saving taxes immediately.
Tomorrow we will talk about another change in context regarding taxes that will change your life and permanently reduce your taxes. Stay tuned.