Since it is tax time, I think this post is appropriate. You can tell a lot about your wealth outside of your retirement fund. First we must understand that in the world of wealth and wealth management, that investment income (earnings) are better than wage. One other thing to understand is that for many, wages can (and probably should) fuel earnings. So let’s take a look at your income tax form (Form 1040).
Wages are listed on line 7. Funds from a business (sole proprietorship or single member LLC) are located on line 12. This is the money you earn from work. Investment income or earnings are listed on lines 8a, 9a, 13,14, 17 and 18. If the larger number appears on line 7, it simply says that most of the money you earn comes from work. If the larger number appears on line 12, it means that most of your money comes from your business. If lines 8a, 9a, 13, 14, 17 and/or 18 are populated with positive numbers it typically means you are getting returns on your investment.
The idea to begin to build wealth is to get positive dollar amounts onto line 8a, 9a, 13, 14, 17, 18 and/or these same elements through some type of corporate structure. Wealth building on the tax return is typically seen on the lines mentioned earlier—taxable interest, dividends, capital gains, rental income, income from royalties, income from a pass through entity (S-corporation, trust or LLC) or farm income.
The most common of these seven are probably taxable interest and dividends. Capital gains could come from the sales of securities or from the sale of other assets like a home, business property, or another asset. Please note that the sale of your primary home may or may not be shown here, due to the IRS guideline regarding home sales.
Lines 17 and 18 have to do with income from real estate rental, royalty income, income from a partnership, LLC, S-corporation or farm.
In order to begin to grow your wealth, you will need to use your W2 income (line 7) to generate income from the other lines. I will be discussing this in the near future.