There are two ends of the spectrum: on one end, you have the lowest earners who pay essentially no taxes because they don’t make any money. On the other end you have the ultra-rich who make their money through capital gains — they also don’t pay any taxes because they can afford to game the tax code by hiding their money offshores, charity write-offs, etc.
The middle — high earners who make the majority of their money through labor, not capital (mainly six-figure earners such as bankers, lawyers, doctors, etc.) — are the ones who get truly shafted. Why am I paying over 30% in taxes when the people infinitely richer than myself pay almost nothing (on a percentage basis)?
The only way out of the tax trap is to start your own business, keep all your wealth in the business and don’t take an income, which is what I plan to do as soon as I have a big enough cushion.
Can confirm this is correct, at least it feel sso personally. I'm in the unfortunate postion of being a high wage earner and paid over 500k in taxes last calendar year.......
That really sucks, I guess you’re still well off compared to many others, but 500k in taxes sounds so ass. To make you feel better, did you know there are commies who want to tax cap gains at the same level as normal income and have people pay interest on investments?
I live in CA.... i'm used to getting shafted up the ass on taxes. Stopped feeling the pain a while ago and just write my quarterly tax check in somber silence
Milton Friedman proposed that capital gains tax be about the same as income tax.
It's not about "punishing the rich" but about curbing monopoly power. The idea behind is it's better to have hundreds of thousands of millionaires than having couple hundred billionaires.
Of course that's the case. That's what's so dumb about the current tax system, there are so many loopholes for the rich.
Idk why we just don't reform the tax and make it super simple.
What would you propose?
Step 1: Burn the current tax code. It's complete garbage.
Step 2: Implement 3 tax brackets - 1) Flat tax for everyone making above some baseline (probably annualized minimum wage), 2) Negative income tax for people with jobs making below the baseline, 3) Unemployment check slightly below the baseline so people are incentivized to find jobs and not live off welfare.
Step 3: Tax all cash income without distinguishing what's capital gains and what's salary, etc...
Don't know enough about other taxes but couple ideas...
1: VATs on luxury goods and other price inelastic goods (not on utility like electricity or water though)
2: Sizeable inheritance tax (I think we already have this?). I don't like bunch of trust fund kids running around not doing anything productive.
3: Tax heavily on real estate speculations. Sorry for all Real estate investors, but real estate speculation has absolutely 0 value to the world. Actually ends up hurting people. (Also suggested by Milton Friedman)
EDIT: Sizeable inheritance tax only if the inheritance is very large. I can't tell you what the figure is you could easily do some economics research on it to find out where to draw the line.
Repeal the 16th amendment, fund governments through sales tax.
It isn't simple because legislators love using tax laws to incentivize behavior. And maybe because they write rules they financially benefit from, but I think it's mostly wanting policy tools.
How are you going to survive if you do not take money out of the business? How long is the cushion going to pay your bills? Self employed people pay a lot in taxes because there is something called a self employment tax, which is both parts of social security (employer + employee). Prior to the tax reform, which I personally benefit from, I was paying my tax bracket (or average tax rate) plus the self employment tax.
You can structure your business as a S corp to reduce self employment tax but you have to pay yourself a reasonable salary,which is subject to self employment tax. The probability of getting audited goes way up if you claim a very low salary and assign the rest of income to profits.
Well I clearly have a lot to learn about the tax code. This post was honestly more of a rant than anything else. I’m interested in entrepreneurship for other reasons as well beyond taxes.
Ever heard of corporate income tax? You also have do pay yourself a "reasonable salary".
Here is the answer from experience. Keep the cash in the business and loan yourself the money. You are not taxed on loans, but you have to have payments or the IRS calls shenanigans on the whole thing. I think a promissary note even works.
Is there interest on the loan and who does it go to?
Just my $.02
I bought a couple of properties quickly after graduating, one of which was a fixer upper. The interest / depreciation / expenses to upkeep fix up the properties have helped tremendously in reducing my tax bill (I now itemize). Granted if I get audited on true maintenance vs improvements that won’t go well, but whatever, I’m betting the IRS won’t think I’m worth the squeeze.
My point: try to get creative in your taxes! The standard deduction is bullshiz.
How are your returns so far? I’ve been interested in real estate investing but unfortunately I live in the 2nd most expensive market in the country
You can't offset w2 income with real estate losses...
what about the small landlord exception? "A favorable exception to the PAL rules allows you to currently deduct up to $25,000 of annual passive rental real estate losses if you “actively participate” in the rental activity and have adjusted gross income (AGI) under $100,000. The $25,000 exception is phased out between AGI of $100,000 and $150,000."
Taxation is theft.
A necessary theft.
Edit: Guess y'all really hate taxes...
I agree
Based
I was shooting heroin and reading “The Fountainhead” in the front seat of my privately owned police cruiser when a call came in. I put a quarter in the radio to activate it. It was the chief.
“Bad news, detective. We got a situation.”
“What? Is the mayor trying to ban trans fats again?”
“Worse. Somebody just stole four hundred and forty-seven million dollars’ worth of bitcoins.”
The heroin needle practically fell out of my arm. “What kind of monster would do something like that? Bitcoins are the ultimate currency: virtual, anonymous, stateless. They represent true economic freedom, not subject to arbitrary manipulation by any government. Do we have any leads?”
“Not yet. But mark my words: we’re going to figure out who did this and we’re going to take them down … provided someone pays us a fair market rate to do so.”
“Easy, chief,” I said. “Any rate the market offers is, by definition, fair.”
He laughed. “That’s why you’re the best I got, Lisowski. Now you get out there and find those bitcoins.”
“Don’t worry,” I said. “I’m on it.”
I put a quarter in the siren. Ten minutes later, I was on the scene. It was a normal office building, strangled on all sides by public sidewalks. I hopped over them and went inside.
“Home Depot™ Presents the Police!®” I said, flashing my badge and my gun and a small picture of Ron Paul. “Nobody move unless you want to!” They didn’t.
“Now, which one of you punks is going to pay me to investigate this crime?” No one spoke up.
“Come on,” I said. “Don’t you all understand that the protection of private property is the foundation of all personal liberty?”
It didn’t seem like they did.
“Seriously, guys. Without a strong economic motivator, I’m just going to stand here and not solve this case. Cash is fine, but I prefer being paid in gold bullion or autographed Penn Jillette posters.”
Nothing. These people were stonewalling me. It almost seemed like they didn’t care that a fortune in computer money invented to buy drugs was missing.
I figured I could wait them out. I lit several cigarettes indoors. A pregnant lady coughed, and I told her that secondhand smoke is a myth. Just then, a man in glasses made a break for it.
“Subway™ Eat Fresh and Freeze, Scumbag!®” I yelled.
Too late. He was already out the front door. I went after him.
“Stop right there!” I yelled as I ran. He was faster than me because I always try to avoid stepping on public sidewalks. Our country needs a private-sidewalk voucher system, but, thanks to the incestuous interplay between our corrupt federal government and the public-sidewalk lobby, it will never happen.
I was losing him. “Listen, I’ll pay you to stop!” I yelled. “What would you consider an appropriate price point for stopping? I’ll offer you a thirteenth of an ounce of gold and a gently worn ‘Bob Barr ‘08’ extra-large long-sleeved men’s T-shirt!”
He turned. In his hand was a revolver that the Constitution said he had every right to own. He fired at me and missed. I pulled my own gun, put a quarter in it, and fired back. The bullet lodged in a U.S.P.S. mailbox less than a foot from his head. I shot the mailbox again, on purpose.
“All right, all right!” the man yelled, throwing down his weapon. “I give up, cop! I confess: I took the bitcoins.”
“Why’d you do it?” I asked, as I slapped a pair of Oikos™ Greek Yogurt Presents Handcuffs® on the guy.
“Because I was afraid.”
“Afraid?”
“Afraid of an economic future free from the pernicious meddling of central bankers,” he said. “I’m a central banker.”
I wanted to coldcock the guy. Years ago, a central banker killed my partner. Instead, I shook my head.
“Let this be a message to all your central-banker friends out on the street,” I said. “No matter how many bitcoins you steal, you’ll never take away the dream of an open society based on the principles of personal and economic freedom.”
He nodded, because he knew I was right. Then he swiped his credit card to pay me for arresting him.
Read the whole thing. Great read.
Have you thought about becoming a comedy writer?
The only way out of the tax trap is to start your own business, keep all your wealth in the business and don’t take an income, which is what I plan to do as soon as I have a big enough cushion.
That's not how it works lol.
And yes it's unfair. It really does suck that you can't employ great tax strategies until you have $10MM+. That's life though.
Any elaboration on this? What's the "one weird trick"??
The math on building out the infrastructure doesn't start to make sense until around then. At least for my situation and some of my American business partners.
It's expensive to hire a well known accounting firm + lawyers to do everything the right way.
If I had the ability to build the tax/entitlement system from the ground up:
This too simplified to fit a population of 330M people. There will always be exemptions, cheat codes, etc. Our tax code will always be complex however I do believe government should do a better job at eliminating loopholes & making the laws easier understood.
This is widely inaccurate and don't get me wrong here, I hate taxes and think a lot of the way the system works is kind of fucked and borderline stealing but...this guy sounds like a total moron. As someone who spent time as a CPA doing tax accounting you would get laughed out of the room if you said this to tax professionals. If you are trying to say "wage earners pay more tax on a % basis than entrepreneurs that sell their company stock" then thank you Sherlock but your overall point is wrong.
Nobody "games" the system you conspiracy theory dope. They follow the tax rules that allow them to LEGALLY PAY LESS TAX. Saying things like "game", "offshores", "charity write-offs" to imply the ultra wealthy don't pay their fair share is indicative of the fact that you have absolutely no idea what you are talking about and should get the fuck off this forum.
"People infinitely richer" than you, probably almost everyone, pay so much tax it would make you shit yourself. Seriously, have you ever watched someone write a 9 digit check to the IRS? I don't care how rich you are it is fucking terrible.
I don't even have time to explain to this god damn simpleton how taxes work but a 5 min google search would teach him so much. Doctors, bankers, and lawyers do not, for the most part, pay more total tax in aggregate than the capital gains people you are referring to. Why? Because someone that is getting taxed at a capital gains rate for a stock sale is 99% of the time going through a corporate structure that ALREADY PAID 21% (used to be 35%) of tax on that same dollar. Meaning that person who is "keeping all their wealth" in their business is still getting taxed on that income and usually at pretty high corporate state and federal rates. Partnerships, S-Corps, Grantor Trusts, or any other type of LLC you wanna try and counter point with all pass taxes directly to the individual.
Want to keep all your income in the corporate structure and never sell the stock? Never get to spend all that money while you're alive? Have fun getting ABSOLUTELY FUCKED by the estate tax when you die. And I mean FUCKED real hard.
Good god this forum is nauseating. Yes some tax strategies are more efficient than others but there are not "tax loopholes for the rich." Holy shit critically think for 20 seconds. There are tax advantages for people who take risk. There are infinitely more tax advantages for poor people than rich people.
There is not a single tax advantage that I know of that a rich person could use that a poor person couldn't in the same scenario.
If you are married and together can't real in the household average income you will virtually pay 0 tax in almost any scenario. In fact, in a lot of cases, the government will redistribute money they take from the rich and give it to you! You can argue the societal merits for wealth redistribution policies but you cannot reasonably argue that poor people, or honestly anybody not in the top quartile of income, are paying a substantial part of our tax revenue.
I could go on for an hour but I've wasted enough time on this bum as is. Stop listening to Bernie Sanders and go read a book.
Didn’t read
Unde unde aliquid distinctio ipsum provident omnis. At quasi molestias in nemo ut. Odit magni quos laudantium voluptates pariatur molestiae. Velit nemo nihil mollitia sint velit ex omnis aliquid. Id quos perferendis vero aut eveniet ea voluptatem autem.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Repudiandae eos alias labore voluptatem aut hic et. Ex quo ipsum sequi. Et sit aut magni adipisci delectus.