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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

#251

Post by prostoalex »

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.

You have to prove to the IRS that the asset is used 100% for work. If it's not 100%, you have to show documentation for arriving at that specific interpretation of a split. That's why buying a whole house to live in and writing it off won't work, but claiming 10% of the square footage of the house that's used for business (and business only) will.

Unless you feel very comfortable with IRS regulations and annual changes in them, you have to pay a business CPA to run the numbers, and in many cases the added complexity is just not worth it.

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

#252

Post by [deleted] »

random023987 wrote: post #196
tanderson92 wrote: post #168

Earlier quoted context omitted.

There are tax shelters and loopholes for upper middle class workers. The whole tIRA -> Roth IRA conversion is a trivial way to avoid the Roth IRA income contribution cap. The 401(k) system is itself a tax shelter, and is a larger portion of middle class earners' salary than it is for those with tens of millions. Need I mention HSAs which are like triply-tax protected?

Retirement savings is tax advantaged, however most people consider that a feature of the tax code, rather than a loophole. The traditional to Roth conversion will be of benefit only to those whose post-retirement income puts them in a higher tax bracket than they are currently in. Most middle-class wage earners would not be in that category unless they keep working well into retirement age. Health Savings Accounts ar…

[deleted]

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

#253

Post by twoquestions »

carradjm wrote: post #217
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.

Why should we want to tax income? If you tax something, you inherently affect the supply of it. I.e. taxing labor (income tax) will make people want to work less. https://en.wikipedia.org/wiki/Land_value_tax We need to implement a land-value tax, if simply because taxing land does nothing to change the supply of land. Unless America decides to invade Mexico anytime soon, the value of land will not change. I responded…

It looks excellent at first blush, but calculating the value of land seems distinctly non-trivial even for honest assessors. For less than perfect people, this highly charged calculation could become a huge political football.

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

#254

Post by _m8fo »

vasilipupkin wrote: post #245
_m8fo wrote: post #243

Earlier quoted context omitted.

True, but you'd have to pay tax either way (e.g. don't have a rental and pay capital gains, though this is minimized if you're a first time homeowner), is what I'm saying. Though, the cool thing is that if your house is a rental (as opposed to residential) you can actually offset depreciation recapture by passive loss throughout the time the property was a rental. Often this completely negates the tax. Man... too man…

doesn't passive loss lower your tax basis? so, no, I don't think it negates the tax.

You're right, however in the original scenario proposed you'd sell your property and buy another one, enacting like kind exchange. So then you don't have to pay any taxes.

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

#255

Post by clort »

ak217 wrote: post #63
TheAdamAndChe wrote: post #22

Earlier quoted context omitted.

I'm saying there are plenty of people making $200k post-tax. Also, 7% annual returns combined with an additional $150k/yr would lead to having $6.5 million like I said.

To make $200K post-tax, you need to make at least $260K pre-tax. In the US, that puts you almost exactly at the boundary of the 1%. I suppose this is a matter of your definition of "plenty of people".

There will be well over a million of the 1%ers by my reckoning (google says 122 million taxpayers), which is plenty by some reckoning..

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

#256

Post by jermaustin1 »

tmbeihl wrote: post #174
brianwawok wrote: post #165

Earlier quoted context omitted.

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.

Actually, the $30k COULD be reasonable if you are at that point only being a marketer.

If you go on indeed or glassdoor, search what ever your main task is, and screen grab that average salary. Keep searching until you find one that works best for you.

Change your salary with each task by being an hourly w2 employee with different charge codes based on the task. Just make sure you track what work you are doing.

(IANAL/A)

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

#257

Post by prostoalex »

api wrote: post #233
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.

This is yet another barrier to entry for the working class. If the poor try to use tax loopholes they get nailed. The rich can afford tax lawyers to make sure they're doing it right.

For low to middle incomes there's rarely a case where itemizing beats standard deduction.

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

#258

Post by taeric »

autokad wrote: post #235
taeric wrote: post #136

Earlier quoted context omitted.

Using rhetoric like "stole it for" doesn't help your cause. Pretty much period. I'm interested in debating some of these points. (Honestly more interested in seeing others debate it.) However, if you are going to get emotional on points, realize that you are betraying that you likely haven't researched the points. As an example, the claim that "almost all school funding" does not come from these taxes is not as true…

you are the one pushing rhetoric, and taking my money is not a point for debate. I experienced this first hand with Philadelphia's soda tax (to fund universal preschool), which has been a spectacular yet tragic failure thus far. at least with the tax, it was 'said' to have been appropriated for it, but capitals gains simply do not go for schooling children. those are funded mostly local, please play your 'ALL'/'NONE'…

Are you actually interested in debating? If so, I am still interested in seeing that happen.

Pulling nominally related stories up, and then referring to them as a "spectacular yet tragic failure" without citations does little to make me believe you. What makes it a spectacular failure? What makes it a tragic failure? Quickly scanning headlines, it looks like it isn't raising as much as some predictions, but 40 million is not nothing. Nor is a marked reduction in sugary soda consumption. I'd be curious to know if any health benefits can be seen in the city.

And again with the rhetoric. Telling me to take my "lawyer ball" elsewhere is showing that you don't intend on having conversation. So, are you?

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

#259

Post by prostoalex »

jermaustin1 wrote: post #128
alexlongterm wrote: post #93

Earlier quoted context omitted.

^^^ this. In fact in the US the IRS will flag abnormally high salaries for small businesses (millions per individual) if no or very few dividends are paid out because income tax is less favorable to the government in the total amount the IRS receives when looking at multi million dollar salaries. Beyond the first $110kish FICA stops making a dent as social security caps out. I'm sure there are possible loopholes for…

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…

> On the dividend, you don't end up paying toward FICA. Effectively saving you up to 15.3%.

The dividend is taxed at 15% for incomes over $37,950.

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

#260

Post by prostoalex »

nsnick wrote: post #70
dougk16 wrote: post #55

Earlier quoted context omitted.

Could you link to any "for dummies"-type resources that show how you can incorporate and use that corporation to reduce your taxes? Something that would hopefully be applicable to your typical middle-class homeowner in their 30s with young kids and a 9-5 making enough to get by but is looking for any edge they can find? Edit: (in the US)

Start by getting paid on a 1099 instead of a w2

I wonder then why those Uber drivers so adamantly oppose a path to riches.
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