What do you think about your salary?
Many people living in the United States are salaried workers, and they prefer to receive as much as possible.
But I can’t say that it’s always better to get a large salary.
If you really know accounting, you can make a lot of money while paying less.
Why is it better to pay less?
If you learn this, you will be able to understand tax reduction with consideration for expenses.
A generous welfare package benefits the company and its employees
As long as you live normally, you will definitely have to pay for living expenses.
If you are doing business at home, if you include living expenses such as utilities and rent as expenses, the apparent profit amount will be less.
For this reason, in a family-run company, it is very meaningful to pay part of the living expenses with company money.
But it’s not just family-run and family-run companies that can adapt to these tricks.
Even large companies with hundreds of employees can use the same approach to save tax.
In this case, we make effective use of welfare expenses.
In other words, they take care of the living expenses (Rent, etc.) of the employees by the benefit expenses.
Then, you can account for that amount as an expense.
Of course, there is no merit for the company if you take care of your life unconditionally.
So, instead of paying for living expenses such as rent, the company reduces the salary by that amount.
For employees, the company takes care of their lives as much as their salary decreases, so the financial burden is virtually unchanged.
This has significant financial benefits for the company.
If you pay your salary, the tax will be higher by that amount.
On the other hand, if you pay the rent as a benefit expense, you only have to pay the rent as an expense.
For simplicity, let’s assume the tax rate is 10%. For example, let’s say you pay 1 million doller a month.
If 10% tax is levied on this, companies will have to spend “1 million doller (salary) + 1000 doller (Taxes) = 11000 doller”.
Here, we will pay 1000 doller for welfare expenses and pay the living expenses of the employees by rent subsidy.
Instead, the salary is 1000 doller minus 9000 doller.
This amounts to a “9000 doller (salary) + 1000 doller (welfare expenses) + 900 doller (Taxes) = 10900 doller” expense.
This time, tax is imposed on 9000 doller of salary, so the tax amount is 900 doller.
In other words, we were able to save 100 doller in tax.
Tax saving of 100 doller is the same as recovering 100 doller which originally disappeared.
The value is the same as earning 100 doller.
A company with a 5% profit margin needs 100 doller to make 2000 doller.
If you have hundreds of employees, you can see how powerful it is.
If you make a lot of money, you need to pay tax for it.
On the other hand, if it is a welfare expense, there is no tax.
For a company, it’s better to shift to support employees’ lives than to pay more.
For employees, it is beneficial to have the company take care of their life.
The same is true of office workers.
Like a company, it is more beneficial for employees to pay less and take care of their rent.
When a company employee receives a salary, he must pay tax.
Of course, the higher the salary, the higher the tax.
So, as before, let’s assume that you are paid 1 million doller a month and the tax rate is 10%.
In this case, the “10000 doller (salary) -1000 doller (Taxes) = 9000 doller” remains with you.
If you spend 1000 doller for rent and leisure, you have 8000 doller left.
・ Salary: 10000 doller
・ Tax: 1000 doller
Living expenses such as rent and leisure: 1000 doller
・ Money left: 8000 doller
Then, as before, the company will bear the living expenses of 1000 doller and make the salary 9000 doller.
If the salary is 9000 doller, the tax amount is 900 doller.
In other words, “9000 doller (salary) -900 doller (Taxes) = 8100 doller” money remains.
I have 100 doller more left than before.
・ Salary: 9000 doller
・ Benefit expenses: 1000 doller
・ Tax: 900 doller
・ Money left: 8100 doller
The actual tax rate is not 10% but rather quite high, such as over 20%.
In this example, the only difference is that living costs, such as rent, are “Be paid by the individual” or “Be paid by the company”.
But that alone is a big tax saving.
It’s not like raising your salary like this.
It is more effective to ask the company to shoulder the expenses related to living such as “Be paid the rent” than to ask the company for a wage increase.
It’s very important, but most businessmen don’t understand this part.
The more you cut your salary, the cheaper your taxes become.
If you can negotiate with the president that “Instead of getting a lower salary, I want you to bear the expenses related to your life and leisure.” and explain the reason theoretically, you will be considered a genius employee.
Many people are too picky about the face value of their salaries.
When you study accounting, you can see a really important flow of money.
If you are particular about your salary, you can’t see the essence of accounting yet.