Tax Deferral & the Time Value of Money

"A dollar saved is a dollar earned," as the old saying goes.

But this is not accurate by a long shot.

A dollar saved is post-tax while a dollar earned is pre-tax. The two are not equal. If I saved $1.00 on tax liabilities for example, that goes directly into my pocket but if I earn an extra $1.00 in income, this money is viciously ravaged before any portion hits my own pockets.

Hence, as a concept of increasing the earnings of your 24-hour daily clock, it is mathematically in your best interests to maximize tax reduction instead of chasing more pre-tax income.

Avoiding tax is not what every one thinks it is and the Income Tax Act is essentially designed to keep the rules fair for both employees and business owners. However, where the strategic benefit of being self-employed comes in is "Tax Deferral".

Let's look at an example that every often discusses - investing in RRSP's. People say things like "Ya, you may save taxes now but you'll end up paying them later." True, but this is the precise reason to do it - the value of the time between.

If I save $10,000 today but have to pay $10,000 in 10 years, for example, the benefit is what I can do with that $10,000 between now and then. The savings now, allows me to invest now, earning money now and thus the compound effect of deferral becomes massive. The same simple concept can be used many ways for business owners in various aspects.

We will pay tax, sure, but kick that fucking can down the road and use your money NOW to scale growth.