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Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

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Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#171

Post by JamesBarney »

solotronics wrote: post #158
gnicholas wrote: post #82

Earlier quoted context omitted.

Working as a contractor for your wholly-owned company would never pass muster with the IRS. You might be able to avoid audit for a little while, but when this catches up to you it will be a huge mess. They would recast the transactions (they can do this) and you'd end up owing a ton of tax and penalties. Source: I'm a (former) tax lawyer.

no but instead of taking out the money to pay yourself, you just buy things as assets of the company therefore reducing tax exposure.. at least thats the way I have heard of.

This is called "piercing the corporate veil" and will not only get you in trouble with the IRS but will also mean if you're ever sued you won't get any of the normal protections to your personal assets that you would expect from doing business as a corporation.

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#172

Post by njarboe »

menacingly wrote: post #56
cylinder wrote: post #6

The biggest lie is this nonsense about "double taxation," ie taxing money that's already been taxed is somehow unfair. So stupid. Capital gains tax shouldn't exist. It should all be one income tax. You can carve out discounts or exemptions for things like sale of PPOR, sale of family business up to a certain point, if you want.

This similar to the logic that used to fuel Adobe's anti-piracy numbers. They claim they lose (number_of_pirated_copies X retail_cost) to piracy, making the huge assumption that everyone who pirated would have bought a copy, and needs photoshop so badly that they will sell a kidney to get it if you could stop piracy. You can't selectively change variables and assume the others stay the same. Your life would be negati…

I think I am on the side of Warren Buffet and agree that investment tax rates does not much effect how eager people are to invest. I mean, what else are the rich going to do with their money? If they think, "These tax rates on investments are too high. I'm not going to invest. I'm just going to spend it on yachts, hookers, blow, and black-jack.", then soon they will run out of money and have to start earning it again. Most investors like making successful investments and growing their wealth. What the capital gains tax rate is is not going to change that. Maybe they would not switch investments as much. That might be a good thing.

Maybe a better argument would be that successful investors use of money is better for everyone in society in the long run and that having lower taxes on earned income would just let more money be spent on "useless" things: longer vacations or fancy lattes.

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#173

Post by tanderson92 »

njarboe wrote: post #159
zamfi wrote: post #135

Earlier quoted context omitted.

IANATA, but if you look at the qualified dividends and capital gains tax worksheet [0] on personal income tax form 1040 (that’s the main tax form for individuals), you’ll find that your capital gains tax rate is dependent on your income including capital gains . For the purposes of your example, Larry and Sergei would pay no tax on the first 37,949 of capital gain income (thanks to the $1 salary), but regular capital…

Thanks. That makes sense. Didn't think a loophole that big would not be talked about more. On the other hand, it is interesting to know that you can have a capital gains income of ~75k as a married couple and pay no taxes, if you have no other income. Not a bad income for early retirement.

Here's an even more ambitious use of loopholes: "How to pay ZERO taxes in retirement with 6-figure expenses"

The poster "livesoft" is one of the consistently insightful and funny posters I know.

https://www.bogleheads.org/forum/viewtopic.php?t=87471

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#174

Post by tmbeihl »

brianwawok wrote: post #165
jermaustin1 wrote: post #128

Earlier quoted context omitted.

People often forget about S-Corps. As the owner you W-2 yourself, then what is "left over" is a dividend. Since an S-Corp is a pass-through entity, you don't pay corporate taxes, and aren't getring the C-Corp double tax on your dividends. On the dividend, you don't end up paying toward FICA. Effectively saving you up to 15.3%. IRS rules stipulate you have to be paid a "reasonable" compensation, which most accountants…

So the average programmer US wise makes something like 90k I believe (haven't checked in a few years). You are saying if you ran a 1 man SAAS app and made 200k in a year, you would w2 yourself for 30k and take a 170k dividend? I am not sure my accountant would like this plan. Taking say that 90k or 100k might be plausible, but 30% of the average wage? (And at the 90k point.. FICA goes away past 110k anyway, so the sa…

I think what he means is that your pay must be within 30% of the average wage. So you could likely pay yourself between 63k and 113k if the average wage was 90k.

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#175

Post by rgbrenner »

gnicholas wrote: post #94

> You owe the IRS about $38,500 more, assuming each of us pays the maximum with no special deductions. This also assumes the investor has no interest income, which would be unlikely. For a younger person with a big nest egg, this wouldn't be a huge chunk of their assets. But as you age you'd want to shift into less-risky assets, like interest-bearing ones. Also, investors would probably be diversified into real estat…

But you only get to collect social security to the extent you paid into the system

Medicare and social security payout more in benefits than you paid in: http://www.politifact.com/truth-o-meter/article/2013/feb/01/...

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#176

Post by URSpider94 »

dogruck wrote: post #32
URSpider94 wrote: post #9

Earlier quoted context omitted.

It's not the progressive tax structure that's the problem, it's the fact that cap gains are taxed at a much lower rate than other forms of income.

We should tax consumption, not income.

If you think about it, the poorest 10 percent of society consume 100% (or more) of their income, and would pay tax on all of it. The wealthiest 1 percent might only consume 20% of their income, and would therefore be taxed at a much lower rate vs. their income.

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#177

Post by 31reasons »

Can't we just have Sales tax only. People who buy more will pay more taxes. You can exempt certain items like food, education, healthcare. Why do we need complicated income tax model? In the Sales Tax Only model, wealthy investors can invest as much money as they like but they will only be taxed if they liquidate their stocks and buy a fancy car or a yacht. I am trying to understand why we need Income tax at all?

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#178

Post by guelo »

walshemj wrote: post #15
URSpider94 wrote: post #9

Earlier quoted context omitted.

It's not the progressive tax structure that's the problem, it's the fact that cap gains are taxed at a much lower rate than other forms of income.

That's to encourage money to be invested and also to compensate for the risks.

As the article points out we don't need to encourage money to be invested.

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#179

Post by URSpider94 »

Robotbeat wrote: post #33
walshemj wrote: post #15

Earlier quoted context omitted.

That's to encourage money to be invested and also to compensate for the risks.

If I had the money, I'd renovate my roof, get a solar roof with battery backup, etc. It's an investment just as much as in any business; why am I discriminated against as an individual?

That's a tax-neutral investment. You would pay for the equipment with after-tax dollars, and your returns would be in lower utility bills, which you pay with after-tax dollars. So, your returns are effectively tax-free!

Re: Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

#180

Post by [deleted] »

brianwawok wrote: post #165
jermaustin1 wrote: post #128

Earlier quoted context omitted.

People often forget about S-Corps. As the owner you W-2 yourself, then what is "left over" is a dividend. Since an S-Corp is a pass-through entity, you don't pay corporate taxes, and aren't getring the C-Corp double tax on your dividends. On the dividend, you don't end up paying toward FICA. Effectively saving you up to 15.3%. IRS rules stipulate you have to be paid a "reasonable" compensation, which most accountants…

So the average programmer US wise makes something like 90k I believe (haven't checked in a few years). You are saying if you ran a 1 man SAAS app and made 200k in a year, you would w2 yourself for 30k and take a 170k dividend? I am not sure my accountant would like this plan. Taking say that 90k or 100k might be plausible, but 30% of the average wage? (And at the 90k point.. FICA goes away past 110k anyway, so the sa…

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