High taxes be damned, the rich keep moving to California
51–60 of 79 posts
Re: High taxes be damned, the rich keep moving to California
#52Earlier quoted context omitted.
Can you explain the charity portion, isn’t that the net same as not having the money? Sincere question
You set up your own charitable foundation/trust which you control. While technically not your money anymore, you get to decide how it gets spent. I even heard about a man who had his charity buy a portrait of himself ;-) Snark aside, lots of people with money do this and while they don't technically ever get to see that money themselves again, they can and do spend it in exchange for influence/favors.
There are limits on how much you can deduct when donating to a foundation you control. So you can’t wipe out all of your income this way, whereas there aren’t the same type of limits on donations to unrelated charities.
Re: High taxes be damned, the rich keep moving to California
#53Once tax day has come and the full force of the capped SALT deduction is felt, things may change. A high-earning couple with $500k in combined income (roughly $45k in state taxes) and a $2m home (roughly $20k in local taxes) will go from a $65k deduction to a $10k deduction.
Wealthy != high income. A high-earning couple might make $500K spread across 2 W-2 salaries, and then pay those $45K in state and ~$200K in federal taxes. A wealthy couple owns a network of business, reinvests all profits of those businesses in capital improvements to make more money in the future, pulls out only enough in salary to meet their expenses, makes an equivalent donation to charity to offset all their "inc…
$200k in Federal taxes on $500k of W-2 income (i.e. a federal tax rate of 40%) is significantly higher than the reality.
With no deductions, it's closer to $135k (24% tax rate). The marginal tax rate on 500k of income is only 35% (plus FICA, but that's 2.4%).
$45k in state (i.e. CA) taxes is about right.
Source: https://smartasset.com/taxes/income-taxes#ntLwScKyxG
Re: High taxes be damned, the rich keep moving to California
#54Earlier quoted context omitted.
Right, but the previous comment suggests that you can reduce your personal tax liability to zero while still having some personal money paid to you: "pulls out only enough in salary to meet their expenses, makes an equivalent donation to charity to offset all their "income", and then pays zero in taxes." and that's confusing, 'cause say I can live off $100K/yr. So I pay myself $140K (or whatever) and pay the taxes on…
No, I mean that you pay yourself $100K and then you make a donation of $100K of securities, real estate, etc. to a charity out of assets that you control. You can deduct the full amount of "in kind" transfers to charity, and you don't need to pay the capital gains tax on them. The value of your charitable donation gets subtracted from your AGI, so you really can get to zero task liability this way. Meanwhile, you rei…
> The value of your charitable donation gets subtracted from your AGI, so you really can get to zero task liability this way.
Of course, that's how it's supposed to work, because the reason it's set up that way is that if people actually do that, they have to donate $100K to charity in order to reduce their taxes by about a third that amount.
Assuming the charity has about equal effectiveness as the government in using the money to benefit society (note that this is not a high bar), allowing the deduction significantly increases the amount of money going to benefit society compared to if the deduction wasn't allowed and as a result the donation wasn't made.
You can argue about whether one organization or another shouldn't be considered a charity, but that's a separate question as to whether charitable donations should be deductible in general.
Re: High taxes be damned, the rich keep moving to California
#55Earlier quoted context omitted.
Right, but the previous comment suggests that you can reduce your personal tax liability to zero while still having some personal money paid to you: "pulls out only enough in salary to meet their expenses, makes an equivalent donation to charity to offset all their "income", and then pays zero in taxes." and that's confusing, 'cause say I can live off $100K/yr. So I pay myself $140K (or whatever) and pay the taxes on…
No, I mean that you pay yourself $100K and then you make a donation of $100K of securities, real estate, etc. to a charity out of assets that you control. You can deduct the full amount of "in kind" transfers to charity, and you don't need to pay the capital gains tax on them. The value of your charitable donation gets subtracted from your AGI, so you really can get to zero task liability this way. Meanwhile, you rei…
So, there's two possibilities here that I know of.
1. you are running this all as a sole proprietorship, with no separation of business and personal money. In that case? sort of. Your accounting is going to be complex as heck. if you have $100K of assets to donate, donating those assets can offset $100K of income. you are giving up an amount equal to what you are earning to avoid taxes, it's a lot like not paying yourself, and selling and living off of the assets you donated, except you avoid some of the extra taxes you would have paid on doing that. Also note, in this case, the stuff you have to pay FICA on is... complicated, and your charitable donations usually don't get you out of FICA (which if you are rich you don't care about, but we're talking about $125K/yr, and as you are paying employee and employer, thats 15% - without selling the company or without paying both corp income tax and personal capital gains for a dividend, it's hard to take money out of a company without paying FICA.)
Note, this is pretty unusual for people who know what they are doing. This is how I started out, and it was a real mess to untangle. Most people compartmentalize their businesses into several entities, and not just for liability protection (though that is nice, too) - Accounting works much better when your money isn't just one big pool.
2. this is the common thing. your businesses are their own tax entities. You have a LLC (often several) for your real estate, an S corp for your consulting/speaking income, C corps for a lot of your other businesses:
In that case? having a business entity I control that is taxed as a c corp donate a bunch of money is going to change taxation for that entity. Not for the personal money I pay myself.
Re: High taxes be damned, the rich keep moving to California
#56First off, making $110k a year does not make you rich. Secondly, the article does not address the rich that live in California but make their money outside of California. Many truly rich people buy homes in California even though they have a "primary residence" outside of California.
Re: High taxes be damned, the rich keep moving to California
#57Earlier quoted context omitted.
That's state tax, which is paid in addition to federal (nationwide) tax. Some states, like Texas, have no state income tax.
And the states without income tax usually make it up somewhere. I believe with Texas it means higher property taxes (California's are quite strictly limited thanks to the notorious Prop 13).
Texas also gets 36% of its tax revenue from sales tax:
Re: High taxes be damned, the rich keep moving to California
#58Earlier quoted context omitted.
No, I mean that you pay yourself $100K and then you make a donation of $100K of securities, real estate, etc. to a charity out of assets that you control. You can deduct the full amount of "in kind" transfers to charity, and you don't need to pay the capital gains tax on them. The value of your charitable donation gets subtracted from your AGI, so you really can get to zero task liability this way. Meanwhile, you rei…
> The value of your charitable donation gets subtracted from your AGI, so you really can get to zero task liability this way. Of course, that's how it's supposed to work, because the reason it's set up that way is that if people actually do that, they have to donate $100K to charity in order to reduce their taxes by about a third that amount. Assuming the charity has about equal effectiveness as the government in usi…
I pass no judgment on whether this is a good thing, only that it's a thing.
I can see the argument that maybe society would be better served by a bunch of independent charities that all take voluntary donations. I'm not sure everybody buys that, or that these are donations that wouldn't otherwise be made if there were no tax deduction.
Re: High taxes be damned, the rich keep moving to California
#59Earlier quoted context omitted.
No, I mean that you pay yourself $100K and then you make a donation of $100K of securities, real estate, etc. to a charity out of assets that you control. You can deduct the full amount of "in kind" transfers to charity, and you don't need to pay the capital gains tax on them. The value of your charitable donation gets subtracted from your AGI, so you really can get to zero task liability this way. Meanwhile, you rei…
So, there's two possibilities here that I know of. 1. you are running this all as a sole proprietorship, with no separation of business and personal money. In that case? sort of. Your accounting is going to be complex as heck. if you have $100K of assets to donate, donating those assets can offset $100K of income. you are giving up an amount equal to what you are earning to avoid taxes, it's a lot like not paying you…
Not securities owned by the C corp, securities of the C corp. This of course requires that there be a liquid market in its stock. But this thread is about wealthy people, after all.
Re: High taxes be damned, the rich keep moving to California
#60Earlier quoted context omitted.
Can you explain the charity portion, isn’t that the net same as not having the money? Sincere question
You get to control where it goes, rather than the government. For most people, their values are an extension of their identity. (This, BTW, is why we get values voters on both sides of the aisle who vote against their own economic self-interest for a party that supports the kind of world they want to live in.) If you're making 2x+ times what you actually need to live the personal lifestyle you want, the rest is going…
Reminds me of a quote:
"The secret to success is to own nothing, but control everything." ~ Nelson Rockefeller