No Limits Ladies.com

Around this time of year, there are articles and articles and articles about saving money on taxes (I think this "tax season" thing is a bit silly, taxes should be considered on each transaction throughout the year).

My tax advice?

Don't spend everything you earn.

You see, I was reading Warren Buffett Speaks, Janet Lowe's compilation of his thoughts (another holiday present – my book shelves are full again). One of his quotes is "I'm paying taxes at a lower rate than my secretary… and frankly I think that's crazy." He also notes that many of the soldiers fighting in Iraq pay a higher percent of taxes than he does. That, he thinks, is unfair.

Why?

Because when you don't have to use your money for spending, you can invest it and grow wealth at a lower tax rate (note: because you will be making more money, you'll pay more tax overall but less tax as a percentage of income).

As Berkshire Hathaway doesn't pay dividends, investors' money grows relatively tax free. As turnover within the company is low, capital gains aren't paid. Investors won't pay capital gains or any other tax on that investment until they sell the Berkshire Hathaway units. They also aren't spending that money and incurring consumption tax (sales tax).

In other words, as long as investors don't need to spend the money, they're becoming wealthier and wealthier in a tax free environment.

THAT is how the rich get richer. It isn't due to fancy tax lawyers (though they can help). It is because they don't spend everything they earn.