Realities Of Tax Exemptions - Tilted Forum Project Discussion Community

audioguru · 03-21-2011, 12:24 AM

Most of us know that there is a political philosophy regarding tax exemptions to wealthy corporations magically getting back into the economy.

Those weakly making that argument could find a way to argue the facts I am going to talk about, but it would be a lot of gobbledygook that has no relation.

The fact of the matter is that generally smaller closely held corporations don't claim much in the way of profits. A company can be doing fantastic and it simply bumps the salaries and compensation to it's owners and management.

If a corporation is posting a substantial profit after all expenses and investments have been used as write offs against the profits taxes are going to stimulate the desire for that corporation to invest more money into equipment and research and development which means more employees. If I'm looking at a tax against a hundred million dollars of thirty million I'm going to look at what things I could invest in for the company rather than paying taxes.

Give this company an exemption on thirty million dollars that should be paid in taxes and you have just taken away all reasons and incentive to invest a lot of money in that business that is fantastic for it's future revenues.

I don't know the wealthy person that does anything differently with tax exemptions they should be paying except put more in the bank, right now that's buying up foreclosed real estate. The wealthy people I know take advantage of so many loopholes that they don't pay any taxes at all. One friend buys two new Mercedes a year, of course they are largely business write offs. He does my taxes and is always recommending tax exemptions that are too much like evasions for our comfort.

Here's an example, and I will get the tax code number if anyone wants to really look at the wording. We are going to owe about $50k in taxes for the 2010 year. His suggestion is that we pay someone he will provide that has set up multiple businesses that were designed to post substantial losses. The losses exceed the write offs needed by that business and are excess, so this clause allows another person to buy the losses of that corporation so as to offset the need for more write offs to eliminate a tax obligation at all.

So... instead of us having to pay IRS $50k, we only pay $25k to this guy who is ripping off our government in multiple ways.

It's in the tax code and my wife and I read it thoroughly. We are going to pass on this one.

Xazy · 03-21-2011, 04:58 AM

That is not a tax exemption that is using the loophole to do fraud and is illegal. That is the problem of fraud rather then the tax exemption. By the way if the profit goes to salary the salaries are taxed, and that does not change how much the corporation profit is.

The_Jazz · 03-21-2011, 05:23 AM

I think you're confusing personal taxes and corporate taxes, at least if you're talking about the US tax code. They're very different animals. For instance, your friend buying the new Mercedes is almost certainly not doing so with his personal funds; he controls a business that purchases it for him. It is a deduction for the business but not for him personally.

I'm also willing to bet that you've never been a small business owner - I could be wrong, but it seems like a safe bet - so I don't know if you understand the ramifications of a small business bumping compensation and perks for the owners. That's going to create some significant tax liabilities for them personally, most specifically with compensation. For instance, a salary going from $75k to $100k is going to result in a change in tax brackets and an increase in personal income tax by roughly $10k. But maybe you're talking about something completely different.

If you have $50k in tax personal liabilities for last year - 2010 - you need to get a new investment advisor. You're making over $400k, so you can afford it. There are many ways - municipal bonds for instance - that allow you to grow money with little or no penalty.

Now, your current advisor's recommendation is fraudulent. I can easily check with a tax attorney if you'd like (I'm related to more than one), but I'm certain that there's no provision that allows an individual to purchase a corporation's losses to claim as their own. Perhaps you haven't described the theory well enough, but as it stands, what you've described is blatantly - and obviously to me - illegal.

If we're talking about the US, I think you're getting some pretty bad information from someone.

audioguru · 03-21-2011, 12:23 PM

Quote:

Originally Posted by Xazy

That is not a tax exemption that is using the loophole to do fraud and is illegal. That is the problem of fraud rather then the tax exemption. By the way if the profit goes to salary the salaries are taxed, and that does not change how much the corporation profit is.

Yes you are correct about salaries being taxed on the other end, theoretically....to talk about how you'd think it works doesn't reflect the reality that is happening. Highly paid CEO's flat do not pay the listed tax rate, most don't pay more than 15%. Bonuses become part of a contracted pay package because they are taxed at a lesser rate.

except the banking industry and wallstreet not to mention oil companies and healthcare CEO's have built in loopholes that tax bonuses at a far lessor rate if at all. The biggest bonuses going out in wallstreet have full exemptions and offshore clauses that eliminate the tax burden. If anything a base salary should have it's standard rate and a bonus should be taxed at a higher rate to create a corporate incentive not to bonus as much. Investment brokers have finagled reduced short term gains, which is a segment of the investment market that should have huge tax penalties if anything. I am a day trader, I know a little bit about how whacked out the whole investment market is. It wouldn't hurt the market a bit to support long term investing by hammering short term gains by 70% and decreasing the tax penalty for gains as the term goes up. People should be encouraged to invest in companies for five or ten years. Quick profits made in days or weeks do nothing for the market except bring a Ponzi scheme element in where the less sophisticated long term retirement investors get caught holding an empty bag.

The levels that big government funded businesses have exempted themselves from taxes is profoundly unnecessary.

My point still stands that if you give a larger corporation a profit margin tax exemption you remove the incentives and reason for investing back into the company and the economy. Exemptions need to stay based on expenses incurred, not free money, it does not get back into the economy.

The_Jazz · 03-21-2011, 12:36 PM

Umm, bonuses are only initially taxed at a lower tax rate, which is 25%, not 15%. At the end of the year, an individual's net income is taxed, and the bonus would then be taxed at the same rate as the rest of the income. I'll say this as nicely as I can, but your statement above about taxed bonuses is false.

As far as your claim about highly paid CEO's not paying the listed tax rates, I'd like to see your proof for such a claim. Many of those returns are matters of public record, so please let me know which CEO's you believe aren't paying the correct tax rate.

Now, there are no "loopholes" for CEO's of the industries you described. There are no person-specific loopholes at all. There are no exemptions for "Wall Street bonuses", and I have no idea what a "offshore clause" would be that would eliminate a tax burden. There's simply no such animal in my experience.

I understand your theory about short term gains, and I don't disagree with it, but there's a point where the system can't penalize for those sorts of gains (or reward the losses).

audioguru · 03-21-2011, 02:54 PM

Quote:

Originally Posted by The_Jazz

I think you're confusing personal taxes and corporate taxes, at least if you're talking about the US tax code. They're very different animals. For instance, your friend buying the new Mercedes is almost certainly not doing so with his personal funds; he controls a business that purchases it for him. It is a deduction for the business but not for him personally.

I do in fact know the difference between corporate and personal taxes, and my point was that the closely held corporation is going to do as much as possible to balance expenses to income including salaries, compensations, and perks so as to have as low a tax profile as is possible.

I'm also willing to bet that you've never been a small business owner - I could be wrong, but it seems like a safe bet - so I don't know if you understand the ramifications of a small business bumping compensation and perks for the owners. That's going to create some significant tax liabilities for them personally, most specifically with compensation. For instance, a salary going from $75k to $100k is going to result in a change in tax brackets and an increase in personal income tax by roughly $10k. But maybe you're talking about something completely different.

I've actually had several, from a bird food manufacturing and packaging operation with about 15 to 20 employees, a bindery business for the print industry with 145 employees, and a high end stereo home theater business to name the bigger entities. Where the real experience and exposure to corporate logistics came in was doing turnaround consulting with failing and struggling businesses. I also dated Senator Petris's aide and the California Senate Oversight Chairperson who had personal control of somewhere around 300 to 500 million a week in override appropriations. I have an insider's perspective on how businesses as well as the government are run. It would be relatively easy to initiate oversight programs that would save staggering amounts of money if there weren't such a ridiculous degree of opposition by the GOP to monitor how money is spent and what we get for it.

If you have $50k in tax personal liabilities for last year - 2010 - you need to get a new investment advisor. You're making over $400k, so you can afford it. There are many ways - municipal bonds for instance - that allow you to grow money with little or no penalty.

My wife inherited some money last year and the way her dad had investment accounts set up it made the cash assets directly payable to my wife as taxable income. Fortunately the rest is in probate from the sale of a paid for house and commercial property in Los Angeles.

Now, your current advisor's recommendation is fraudulent. I can easily check with a tax attorney if you'd like (I'm related to more than one), but I'm certain that there's no provision that allows an individual to purchase a corporation's losses to claim as their own. Perhaps you haven't described the theory well enough, but as it stands, what you've described is blatantly - and obviously to me - illegal.

You may be correct about the tax shelter my accountant is recommending being gray area fraudulent, but he showed us the statute that defines how it is to be done and it is there in black and white. The tax code on obscure and senseless exemptions and credits needs to be cleaned up and brought back to a basics state. As I had stated we are not interested in paying someone $25k to save $50k, it smells of subversion even if it is legal. Unfortunately wealthier people that actively manage investments are generally prone to taking advantage of every little obscure loophole they can bend to fit their circumstances. Investments are made so as to profile and shelter money by those who have enough extra money to change their profile. Meanwhile those just moderately getting by are stuck paying more taxes than those who are making more.

If we're talking about the US, I think you're getting some pretty bad information from someone.

We are talking about the US and I know how to read tax codes that are pointed out to me. I can't fault a sharp accountant for profiling a business or personal income so that there are as little taxes as possible. The problem is with a tax code that has been made to favor special industry circumstances. Quite frankly it isn't worth it to me to go through the trouble jumping through a lot of extra hoops to avoid paying taxes.

I am going to be publishing a couple of books this year, one of which is being looked at for a television series. That is the kind of potential income that ends up poorly sheltered because it comes in too fast and in too big of chunks. I really have no problems getting hit with 25 or 30 percent (or more) as long as other people making excellent money pay the same kind of rate without shelters. Executives making over $50 million a year typically pay around 15% give or take 7%. Certain select industries such as wallstreet have managed a tax code that is under that for bonuses, that is what needs to be addressed and the argument that taxing that class income hurts the economy of this country simply doesn't hold water.

The_Jazz · 03-21-2011, 03:15 PM

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I would love to see the tax code that you're citing since what you're describing is the complete opposite of my experience.

I also expect that you either don't fully understand the tax shelter your accountant is recommending or that you're just not describing it well enough for me to recognize what you mean. But, as you've described it, there is no grey area. It is illegal. Period.

If you really are going to have that much money coming in from your books and TV opportunities, then it is entirely possible to lessen the taxable burden significantly. For instance, you can transfer those properties to a corporate entity owned solely by you and/or your wife, with the expected proceeds paid to you personally as a forgivable loan. I'm not sure who's telling you that it's the kind of income that is difficult to shelter, because that's just not true. Not only do I know people who have done it, but I've done it myself. I know lots of traders who have the same issue, and they have multiple ways of dealing with tax liabilities.

That said, I still do not see your list of CEO's that are paying 15-22% on income over $1M. Again, that should be fairly easy to come by if you know where to look. But I don't believe your claim.

Corporate taxation is a completely different story and much more prone to loophole-grabbing and abuse. When ExxonMobile pays $0 in taxes in 2008, there's a problem.

audioguru · 03-21-2011, 03:26 PM

Quote:

Originally Posted by The_Jazz

Umm, bonuses are only initially taxed at a lower tax rate, which is 25%, not 15%. At the end of the year, an individual's net income is taxed, and the bonus would then be taxed at the same rate as the rest of the income. I'll say this as nicely as I can, but your statement above about taxed bonuses is false.

As far as your claim about highly paid CEO's not paying the listed tax rates, I'd like to see your proof for such a claim. Many of those returns are matters of public record, so please let me know which CEO's you believe aren't paying the correct tax rate.

Now, there are no "loopholes" for CEO's of the industries you described. There are no person-specific loopholes at all. There are no exemptions for "Wall Street bonuses", and I have no idea what a "offshore clause" would be that would eliminate a tax burden. There's simply no such animal in my experience.

I understand your theory about short term gains, and I don't disagree with it, but there's a point where the system can't penalize for those sorts of gains (or reward the losses).

One proof that was very publicly visible is Warren Buffet's tax filing for a claimed income of fifty million dollars back in 2007 or so when he testified to the senate for repealing Bush tax cuts, if my recollection serves me well I think it was 14% and he made note of further tax shelters he could have made use of that would reduce his tax burden down to 7%, which he chose not to exercise.

I'm not sure how an interested person or group would access broad base information such as what the tax bite is on say 100 people making over 50 million a year. Warren Buffet, and I'm not sure how he accesses this information, claims it's at about 7% to 14%.

I had personal finances between my wife and I where our incomes easily exceeded $200k a year, between a house payment, her veterinary clinic being in a second house on the property, leased cars for business purposes, medical equipment purchase/leases, etc. we have never until this last year paid over $12k in taxes for a year, usually it was $6,000 to $8,000. I know working class people that pay that, they just aren't aware of it because it comes out of their paychecks.

You are using the "prove it" argument as a rebuttal. Talk to any tax accountant or attorney handling an array of wealthier people's finances and you won't see anyone paying anywhere near the listed tax amount, it just isn't happening. The only two persons I have ever known that got hammered for more was a woman whose husband died at an unexpected working age which left millions of dollars in full valued stock to get hammered at a time when it's price was depressed and all of it had to be sold to satisfy an exaggerated price, and my cousin who was worth $60 million overnight when the company he was head engineer of (Ciara) sold to Redback for $4.5 billion.
He got brutalized by the government with taxes. All he could do was try to do was scramble to shelter the liquid remainder he had left after the initial taxes. That's where municipal bonds and such came in for him.

Just out of curiousity are you supportive of a GOP opposition to taxes in general, and of the opinion that "raising taxes" (which isn't raising them at all, it's putting them back to where they were before they got a Bush exemption), will hurt the economy? The only thing raising taxes will curtail is the rising deficit and debt.

The_Jazz · 03-21-2011, 03:42 PM

I don't support any GOP tax efforts that don't involve realistic simplification of the tax code.

As I've said, I'm related to several tax attorneys, most of whom are/were corporate attorneys and a few of whom are personal tax attorneys. They will tell you that the two are completely separate disciplines. I've emailed one who does personal taxes to get his take on your opinion on that specific shelter as well as the averate tax rate for the wealthy. My guess is that he will disagree.

I routinely pay significantly more than $12k/year in taxes. I haven't paid less in at least 10 years, probably longer, and this year was multiples of your number. But your results may vary.

I'm really curious where you're getting your information since some of it is very clearly wrong - the tax rate on bonuses, the ability to shelter large single payment, etc. I have the feeling that you need to shop for a new advisor since many of your "facts" fly in the face of what I know to be true.

ASU2003 · 03-21-2011, 08:54 PM

I'm sure Steve Jobs isn't the only one doing this, or that there aren't people 'gaming' the tax code to get even lower rates...

Steve Jobs Thrives on Dividend Income - Seeking Alpha

Quote:

Dividend investors also benefit from favorable tax rates on dividend income. If Apple paid Steve Jobs a “standard” CEO package, he would undoubtedly be in the 35% tax bracket. However, his dividend income will only be taxed at 15% providing him with millions in after-tax savings.

03-21-2011, 12:24 AM	#1 (permalink)
audioguru Upright	Realities Of Tax Exemptions Most of us know that there is a political philosophy regarding tax exemptions to wealthy corporations magically getting back into the economy. Those weakly making that argument could find a way to argue the facts I am going to talk about, but it would be a lot of gobbledygook that has no relation. The fact of the matter is that generally smaller closely held corporations don't claim much in the way of profits. A company can be doing fantastic and it simply bumps the salaries and compensation to it's owners and management. If a corporation is posting a substantial profit after all expenses and investments have been used as write offs against the profits taxes are going to stimulate the desire for that corporation to invest more money into equipment and research and development which means more employees. If I'm looking at a tax against a hundred million dollars of thirty million I'm going to look at what things I could invest in for the company rather than paying taxes. Give this company an exemption on thirty million dollars that should be paid in taxes and you have just taken away all reasons and incentive to invest a lot of money in that business that is fantastic for it's future revenues. I don't know the wealthy person that does anything differently with tax exemptions they should be paying except put more in the bank, right now that's buying up foreclosed real estate. The wealthy people I know take advantage of so many loopholes that they don't pay any taxes at all. One friend buys two new Mercedes a year, of course they are largely business write offs. He does my taxes and is always recommending tax exemptions that are too much like evasions for our comfort. Here's an example, and I will get the tax code number if anyone wants to really look at the wording. We are going to owe about $50k in taxes for the 2010 year. His suggestion is that we pay someone he will provide that has set up multiple businesses that were designed to post substantial losses. The losses exceed the write offs needed by that business and are excess, so this clause allows another person to buy the losses of that corporation so as to offset the need for more write offs to eliminate a tax obligation at all. So... instead of us having to pay IRS $50k, we only pay $25k to this guy who is ripping off our government in multiple ways. It's in the tax code and my wife and I read it thoroughly. We are going to pass on this one.

03-21-2011, 04:58 AM	#2 (permalink)
Xazy People in masks cannot be trusted Location: NYC	That is not a tax exemption that is using the loophole to do fraud and is illegal. That is the problem of fraud rather then the tax exemption. By the way if the profit goes to salary the salaries are taxed, and that does not change how much the corporation profit is. __________________ Now, a clever man would put the poison into his own goblet, because he would know that only a great fool would reach for what he was given. I am not a great fool, so I can clearly not choose the wine in front of you. But you must have known I was not a great fool, you would have counted on it, so I can clearly not choose the wine in front of me.

03-21-2011, 05:23 AM	#3 (permalink)
The_Jazz Asshole Administrator Location: Chicago	I think you're confusing personal taxes and corporate taxes, at least if you're talking about the US tax code. They're very different animals. For instance, your friend buying the new Mercedes is almost certainly not doing so with his personal funds; he controls a business that purchases it for him. It is a deduction for the business but not for him personally. I'm also willing to bet that you've never been a small business owner - I could be wrong, but it seems like a safe bet - so I don't know if you understand the ramifications of a small business bumping compensation and perks for the owners. That's going to create some significant tax liabilities for them personally, most specifically with compensation. For instance, a salary going from $75k to $100k is going to result in a change in tax brackets and an increase in personal income tax by roughly $10k. But maybe you're talking about something completely different. If you have $50k in tax personal liabilities for last year - 2010 - you need to get a new investment advisor. You're making over $400k, so you can afford it. There are many ways - municipal bonds for instance - that allow you to grow money with little or no penalty. Now, your current advisor's recommendation is fraudulent. I can easily check with a tax attorney if you'd like (I'm related to more than one), but I'm certain that there's no provision that allows an individual to purchase a corporation's losses to claim as their own. Perhaps you haven't described the theory well enough, but as it stands, what you've described is blatantly - and obviously to me - illegal. If we're talking about the US, I think you're getting some pretty bad information from someone. __________________ "They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." - B. Franklin "There ought to be limits to freedom." - George W. Bush "We have met the enemy and he is us." - Pogo

03-21-2011, 12:36 PM	#5 (permalink)
The_Jazz Asshole Administrator Location: Chicago	Umm, bonuses are only initially taxed at a lower tax rate, which is 25%, not 15%. At the end of the year, an individual's net income is taxed, and the bonus would then be taxed at the same rate as the rest of the income. I'll say this as nicely as I can, but your statement above about taxed bonuses is false. As far as your claim about highly paid CEO's not paying the listed tax rates, I'd like to see your proof for such a claim. Many of those returns are matters of public record, so please let me know which CEO's you believe aren't paying the correct tax rate. Now, there are no "loopholes" for CEO's of the industries you described. There are no person-specific loopholes at all. There are no exemptions for "Wall Street bonuses", and I have no idea what a "offshore clause" would be that would eliminate a tax burden. There's simply no such animal in my experience. I understand your theory about short term gains, and I don't disagree with it, but there's a point where the system can't penalize for those sorts of gains (or reward the losses). __________________ "They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." - B. Franklin "There ought to be limits to freedom." - George W. Bush "We have met the enemy and he is us." - Pogo

03-21-2011, 03:42 PM	#9 (permalink)
The_Jazz Asshole Administrator Location: Chicago	I don't support any GOP tax efforts that don't involve realistic simplification of the tax code. As I've said, I'm related to several tax attorneys, most of whom are/were corporate attorneys and a few of whom are personal tax attorneys. They will tell you that the two are completely separate disciplines. I've emailed one who does personal taxes to get his take on your opinion on that specific shelter as well as the averate tax rate for the wealthy. My guess is that he will disagree. I routinely pay significantly more than $12k/year in taxes. I haven't paid less in at least 10 years, probably longer, and this year was multiples of your number. But your results may vary. I'm really curious where you're getting your information since some of it is very clearly wrong - the tax rate on bonuses, the ability to shelter large single payment, etc. I have the feeling that you need to shop for a new advisor since many of your "facts" fly in the face of what I know to be true. __________________ "They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." - B. Franklin "There ought to be limits to freedom." - George W. Bush "We have met the enemy and he is us." - Pogo