CHAPTER 1

The Tax Code Demystified

Knowledge Is Power

I often remember a conversation I had with an acquaintance. He was telling me about the “smart” things he had done to reduce his taxes. His business had been successful that year, so in December he purchased several pieces of equipment that he didn’t really need in order to offset his income. With a mischievous grin, he said, “It’s a deduction, right?”

Right—it is a deduction (although that too is questionable). But as I spoke with him, it became clear that he thought a deduction of $3,000 meant he would pay $3,000 less in taxes. He thought he had just stiffed the government and gotten that equipment for free (because he spent $3,000 but saved $3,000 in taxes by doing so). He didn’t understand ...

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