Author Topic: Avoiding Tax  (Read 10287 times)

ash7962

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Avoiding Tax
« on: June 30, 2015, 08:28:34 AM »
First of all, its great that there are so many ways to reduce the amount of tax that we pay so we can FIRE earlier.  I have a fairly high income that I pay lots of taxes on now, but in retirement I do not think I will have to pay tax at all (or very little).  Once I retire I know I will still be making use of government services (not to mention ACA subsidies), but won't be contributing to support the services.  I feel like I won't be contributing anything while still taking advantage of the benefits.  Does anyone else feel that way?  Are we (mustachians) increasing the tax burdens on everyone else when we FIRE with large assets but minimal income?  What does everyone think?

Cheddar Stacker

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Re: Avoiding Tax
« Reply #1 on: June 30, 2015, 08:40:31 AM »
I have a fairly high income that I pay lots of taxes on now.

I think this is the key thing you wrote. You might throw up a little if you calculate how much taxes you've paid in your lifetime thus far. You will likely continue to pay sales tax, real estate tax, etc. I don't see paying less/no tax in the future as an issue.

I do think getting government subsidies when you have $1M+ in the bank is a little weird, maybe borderline uncomfortable for me. I don't judge others for doing it, I'm just not sure if it would feel right for me even though it's within the current rules as they're written.

johnny847

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Re: Avoiding Tax
« Reply #2 on: June 30, 2015, 09:04:44 AM »
Maybe we are, maybe we aren't.

To first order, it sure seems that way. But think about how we (generally) live. We try not to buy useless crap, and hence produce less waste. We try to minimize or eliminate our driving needs, so we produce less CO2 emissions. And I'm sure that there are tons of other ways that we do better than the average taxpayer (better in some metric) that benefits society overall.

I really don't think it's just that simple. Your contributions to society are more than just through taxes.


My point of view is that you shouldn't feel bad using services that you are legally entitled to. If the system is set up in an odd way (like how those with $1M+ in the bank can still get ACA subsidies) then that's the fault of those who set up the system. The system should be built to expect rational actors who will try to maximize their benefits.
Hop on madamwitty's thread about FAFSA and the EFC, and you'll see people who can FIRE talk about ways to get the EFC calculation to spit out an automatic zero, despite the fact that they can clearly afford to pay more than that for their kids' educations. I don't see anything wrong with that - they are being rational actors working inside the confines of the law.

(Now I'm ranting a bit) but I do find it ironic when the average Joe, who in all likelihood makes quite an effort to minimize his own tax bill while still in the confines of the law (being a rational actor) hates businesses that engage in all sorts of legal accounting tricks to pay next to nothing in tax. The business is being a rational actor the same way that Joe is - minimizing taxes to maximize profits. If Joe is going to get riled up about that, blame the government who set up the corporate tax code, not the business.
Of course, I specifically said legal accounting tricks.

EricP

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Re: Avoiding Tax
« Reply #3 on: June 30, 2015, 09:15:18 AM »
Most of the time I think the Joe is upset that they are legal.  They want to eliminate the "loopholes" so that the current accounting tricks no longer work.  Unfortunately, it isn't so easy to eliminate them (that's why they exist to begin with). 

I think the best one is when people complain about Wal-Mart employees getting SNAP.  That's how the system is set up, you can't blame Wal-Mart for employing people at a wage they agree to.  If you want to raise Min Wage, or change how Welfare works, then do that, but don't act like Wal-Mart is "evil" because they take advantage of the system, when you would instantly vote out of office anyone who took away whatever tax benefit you're currently using.

johnny847

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Re: Avoiding Tax
« Reply #4 on: June 30, 2015, 09:18:54 AM »
Most of the time I think the Joe is upset that they are legal.  They want to eliminate the "loopholes" so that the current accounting tricks no longer work.  Unfortunately, it isn't so easy to eliminate them (that's why they exist to begin with). 

I think the best one is when people complain about Wal-Mart employees getting SNAP.  That's how the system is set up, you can't blame Wal-Mart for employing people at a wage they agree to.  If you want to raise Min Wage, or change how Welfare works, then do that, but don't act like Wal-Mart is "evil" because they take advantage of the system, when you would instantly vote out of office anyone who took away whatever tax benefit you're currently using.

Perhaps. I see this on my Facebook feed a lot. I really shouldn't be generalizing those who show up on my Facebook feed to average Joe.

forummm

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Re: Avoiding Tax
« Reply #5 on: June 30, 2015, 09:50:01 AM »
Almost everyone pays tax on their income (whether FICA and/or federal) while they are making money during some portion of their working life. People who spend more just pay a lot more of that tax because they have to make more to spend it. We are choosing to spend less and earn less and pay less tax.

The question of whether income-based taxes is the best system is a different issue. They have their benefits and downsides.

Jeremy

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Re: Avoiding Tax
« Reply #6 on: June 30, 2015, 10:06:08 AM »
I think it is a noble ideal to pay your fair share, but it isn't necessary to pay it at the time of use. 

I paid a lot of taxes while working.  Suffice to say, I bought a lifetime membership for all US civil services, and probably over paid

If my opinion on that changes at some point, I rest easy knowing that the Treasury Department accepts donations at any time


Even without paying FICA or Income tax, we still pay use taxes on a regular basis; sales tax when we buy something, fuel taxes when we take a taxi, property taxes when we rent housing, airport taxes when we fly, various fees for passports and visas...

ash7962

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Re: Avoiding Tax
« Reply #7 on: June 30, 2015, 10:26:52 AM »
Interesting points, especially about reducing usage of services happening naturally by being frugal.  I also think that the law can't possibly cover 100% of cases, and is written for the most common type of American (the ones trying to ever increase their income and spending).  I do think that these people are a bigger draw on resources.  Like someone mentioned the amount of waste they produce is probably greater than mine, and same story for resources required for making/transporting the stuff they buy.  I still wonder if I'm taking advantage of a loophole by doing something unexpected which is actually attempting to reduce the amount of income I receive.

Also good point on the fact that when I use services I'm still paying the tax which is built into the price.  That makes it more of a per use basis which I like.

NorCal

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Re: Avoiding Tax
« Reply #8 on: June 30, 2015, 11:27:56 AM »
I don't feel that way.

If you feel like you're not contributing a fair share, you could always offer to pay extra taxes.  There's a new box on the tax forms for this.

Or you could withdraw funds from retirement accounts in a non-tax efficient manner.

I wouldn't make this choice, but don't begrudge anyone who does.

Remember, you're still paying property taxes (or they're being paid on your behalf if you rent) and sales tax.


lostamonkey

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Re: Avoiding Tax
« Reply #9 on: June 30, 2015, 11:45:06 AM »
Another thing to consider is if you have a lot of investments you are paying taxes indirectly.

If you own index funds, you have a tiny portion of thousands of companies. Each of these companies pay tax. If they didn't, they would give you bigger dividends or grow faster. So you are still paying tax.

If you own rental properties, you are still paying property taxes.

johnny847

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Re: Avoiding Tax
« Reply #10 on: June 30, 2015, 11:47:25 AM »
If you own index funds, you have a tiny portion of thousands of companies. Each of these companies pay tax. If they didn't, they would give you bigger dividends or grow faster. So you are still paying tax.


Arguably, this is doubly taxed. Corporate profits are taxed at a corporate level. Then we as investors are taxed on dividends, which come from post tax earnings.

lostamonkey

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Re: Avoiding Tax
« Reply #11 on: June 30, 2015, 12:23:40 PM »
If you own index funds, you have a tiny portion of thousands of companies. Each of these companies pay tax. If they didn't, they would give you bigger dividends or grow faster. So you are still paying tax.


Arguably, this is doubly taxed. Corporate profits are taxed at a corporate level. Then we as investors are taxed on dividends, which come from post tax earnings.

I am not sure how tax works in the States, but in Canada dividends are taxed at very favourable rates to compensate for this.

milesdividendmd

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Avoiding Tax
« Reply #12 on: June 30, 2015, 12:25:38 PM »
If you own index funds, you have a tiny portion of thousands of companies. Each of these companies pay tax. If they didn't, they would give you bigger dividends or grow faster. So you are still paying tax.


Arguably, this is doubly taxed. Corporate profits are taxed at a corporate level. Then we as investors are taxed on dividends, which come from post tax earnings.

I have always found this argument regarding the taxing of capital gains/dividends as double taxation uniquely unconvincing.

As an investor you are only taxed on profits, and there is plenty of evidence that one gets paid more on capital already owned than for labor itself.

How is a worker whose wages are determined by corporation's budget any less double taxed?

My solution:  don't tax corporations at all but tax every penny taken out of a corporation whether in bonuses, salary, dividends, stock options, etc.. Progressively.

As to the morality of minimizing taxes, I feel it is the individuals job to act in the most personally advantageous manner possible, which means legally avoiding taxes whenever possible.

It is the citizens job to advocate for the fairest and most communally beneficial regime possible, which to me means taxing fairly and progressively.

johnny847

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Re: Avoiding Tax
« Reply #13 on: June 30, 2015, 01:42:27 PM »
If you own index funds, you have a tiny portion of thousands of companies. Each of these companies pay tax. If they didn't, they would give you bigger dividends or grow faster. So you are still paying tax.


Arguably, this is doubly taxed. Corporate profits are taxed at a corporate level. Then we as investors are taxed on dividends, which come from post tax earnings.

I have always found this argument regarding the taxing of capital gains/dividends as double taxation uniquely unconvincing.

As an investor you are only taxed on profits, and there is plenty of evidence that one gets paid more on capital already owned than for labor itself.

How is a worker whose wages are determined by corporation's budget any less double taxed?

My solution:  don't tax corporations at all but tax every penny taken out of a corporation whether in bonuses, salary, dividends, stock options, etc.. Progressively.

As to the morality of minimizing taxes, I feel it is the individuals job to act in the most personally advantageous manner possible, which means legally avoiding taxes whenever possible.

It is the citizens job to advocate for the fairest and most communally beneficial regime possible, which to me means taxing fairly and progressively.

Honestly this double taxation really isn't of much concern to most people. The exception being you're both a shareholder and an executive in the company.

And we already "tax every penny taken out of a corporation whether in bonuses, salary, dividends, stock options, etc.. Progressively." All of what you just described becomes somebody's income, and income tax is assessed progressively.

forummm

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Re: Avoiding Tax
« Reply #14 on: June 30, 2015, 02:01:24 PM »
If you own index funds, you have a tiny portion of thousands of companies. Each of these companies pay tax. If they didn't, they would give you bigger dividends or grow faster. So you are still paying tax.


Arguably, this is doubly taxed. Corporate profits are taxed at a corporate level. Then we as investors are taxed on dividends, which come from post tax earnings.

I have always found this argument regarding the taxing of capital gains/dividends as double taxation uniquely unconvincing.

As an investor you are only taxed on profits, and there is plenty of evidence that one gets paid more on capital already owned than for labor itself.

How is a worker whose wages are determined by corporation's budget any less double taxed?

My solution:  don't tax corporations at all but tax every penny taken out of a corporation whether in bonuses, salary, dividends, stock options, etc.. Progressively.

As to the morality of minimizing taxes, I feel it is the individuals job to act in the most personally advantageous manner possible, which means legally avoiding taxes whenever possible.

It is the citizens job to advocate for the fairest and most communally beneficial regime possible, which to me means taxing fairly and progressively.

What about money the corporation holds onto and does not distribute? Would that be taxed under your scheme? I haven't thought it through, but it seems like people would set up personal corporations to avoid paying taxes at all. If the corporation just bought stuff all the time, and maintained ownership of it, it would never provide a distribution.

Midwest

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Re: Avoiding Tax
« Reply #15 on: June 30, 2015, 02:06:05 PM »
If you own index funds, you have a tiny portion of thousands of companies. Each of these companies pay tax. If they didn't, they would give you bigger dividends or grow faster. So you are still paying tax.


Arguably, this is doubly taxed. Corporate profits are taxed at a corporate level. Then we as investors are taxed on dividends, which come from post tax earnings.

I have always found this argument regarding the taxing of capital gains/dividends as double taxation uniquely unconvincing.

As an investor you are only taxed on profits, and there is plenty of evidence that one gets paid more on capital already owned than for labor itself.

How is a worker whose wages are determined by corporation's budget any less double taxed?


The corporation (C-Corp) pays taxes on net income.  Investors are then taxed again when the corporation distributes those same profits as income.  Income is taxed 1x at the corporate level and again at the investor level.  Income is taxed 2x.

The corporation pays the worker wages and receives a deduction for wages paid.  Corp pays no income taxes on the wages to the worker.  Worker pays income taxes on the wages.  Income is taxed 1x.

forummm

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Re: Avoiding Tax
« Reply #16 on: June 30, 2015, 02:20:47 PM »
If you own index funds, you have a tiny portion of thousands of companies. Each of these companies pay tax. If they didn't, they would give you bigger dividends or grow faster. So you are still paying tax.


Arguably, this is doubly taxed. Corporate profits are taxed at a corporate level. Then we as investors are taxed on dividends, which come from post tax earnings.

I have always found this argument regarding the taxing of capital gains/dividends as double taxation uniquely unconvincing.

As an investor you are only taxed on profits, and there is plenty of evidence that one gets paid more on capital already owned than for labor itself.

How is a worker whose wages are determined by corporation's budget any less double taxed?


The corporation (C-Corp) pays taxes on net income.  Investors are then taxed again when the corporation distributes those same profits as income.  Income is taxed 1x at the corporate level and again at the investor level.  Income is taxed 2x.

The corporation pays the worker wages and receives a deduction for wages paid.  Corp pays no income taxes on the wages to the worker.  Worker pays income taxes on the wages.  Income is taxed 1x.

I don't think this is "double taxation"--everything gets taxed at each level. If you work, you pay taxes on that income, you buy something, you pay sales tax, the recipient pays tax on their profit, and the recipient's suppliers pay tax on their profit, etc. Or you work and pay taxes on that, and then pay for a service, and then the service provider pays taxes on that income, and then buys something with it and pays some sales tax and then the seller pays tax on their profits, etc.

milesdividendmd

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Avoiding Tax
« Reply #17 on: June 30, 2015, 02:23:59 PM »
The corporation hires workers only with money available to hire them. If the corporation is taxed more there is less money available for distribution to share holders and employees alike. Would a corporation taxed at 100% have the ability to either hire employees or distribute cash to shareholders?

In other words the number of times you are taxed is far less important then the percentage of your income taxed, and the fact is that investors are taxed at far lower rates than laborers which is the real issue.

milesdividendmd

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Avoiding Tax
« Reply #18 on: June 30, 2015, 02:26:01 PM »
If you own index funds, you have a tiny portion of thousands of companies. Each of these companies pay tax. If they didn't, they would give you bigger dividends or grow faster. So you are still paying tax.


Arguably, this is doubly taxed. Corporate profits are taxed at a corporate level. Then we as investors are taxed on dividends, which come from post tax earnings.

I have always found this argument regarding the taxing of capital gains/dividends as double taxation uniquely unconvincing.

As an investor you are only taxed on profits, and there is plenty of evidence that one gets paid more on capital already owned than for labor itself.

How is a worker whose wages are determined by corporation's budget any less double taxed?

My solution:  don't tax corporations at all but tax every penny taken out of a corporation whether in bonuses, salary, dividends, stock options, etc.. Progressively.

As to the morality of minimizing taxes, I feel it is the individuals job to act in the most personally advantageous manner possible, which means legally avoiding taxes whenever possible.

It is the citizens job to advocate for the fairest and most communally beneficial regime possible, which to me means taxing fairly and progressively.

What about money the corporation holds onto and does not distribute? Would that be taxed under your scheme? I haven't thought it through, but it seems like people would set up personal corporations to avoid paying taxes at all. If the corporation just bought stuff all the time, and maintained ownership of it, it would never provide a distribution.

You would tax value only when taken out of the corporation by people.

So if an officer gets one 10th of a business valued at $1 million in the form of stock compensation, she would be taxed on $100,000 in income.  When she sold her stock at a later date she would be taxed on the appreciation.

« Last Edit: June 30, 2015, 02:36:22 PM by milesdividendmd »

johnny847

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Re: Avoiding Tax
« Reply #19 on: June 30, 2015, 02:26:40 PM »
Oh boy did I open a can of worms.

Midwest

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Re: Avoiding Tax
« Reply #20 on: June 30, 2015, 02:27:12 PM »
If you own index funds, you have a tiny portion of thousands of companies. Each of these companies pay tax. If they didn't, they would give you bigger dividends or grow faster. So you are still paying tax.


Arguably, this is doubly taxed. Corporate profits are taxed at a corporate level. Then we as investors are taxed on dividends, which come from post tax earnings.

I have always found this argument regarding the taxing of capital gains/dividends as double taxation uniquely unconvincing.

As an investor you are only taxed on profits, and there is plenty of evidence that one gets paid more on capital already owned than for labor itself.

How is a worker whose wages are determined by corporation's budget any less double taxed?


The corporation (C-Corp) pays taxes on net income.  Investors are then taxed again when the corporation distributes those same profits as income.  Income is taxed 1x at the corporate level and again at the investor level.  Income is taxed 2x.

The corporation pays the worker wages and receives a deduction for wages paid.  Corp pays no income taxes on the wages to the worker.  Worker pays income taxes on the wages.  Income is taxed 1x.

I don't think this is "double taxation"--everything gets taxed at each level. If you work, you pay taxes on that income, you buy something, you pay sales tax, the recipient pays tax on their profit, and the recipient's suppliers pay tax on their profit, etc. Or you work and pay taxes on that, and then pay for a service, and then the service provider pays taxes on that income, and then buys something with it and pays some sales tax and then the seller pays tax on their profits, etc.

The concept of double taxation refers to corporate profits being taxes 1x at the corporate level and again at the investor level when they are distributed. 

Think of C-Corp owned by 1 person.  Income gets taxed 1x at the corporate level and again as dividends when it is distributed to the owner.  The same income is taxed 2x.

I'm not arguing the morality of it, but that is what is going on.
« Last Edit: June 30, 2015, 02:29:44 PM by Midwest »

MDM

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Re: Avoiding Tax
« Reply #21 on: June 30, 2015, 02:31:24 PM »

milesdividendmd

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Re: Avoiding Tax
« Reply #22 on: June 30, 2015, 02:39:32 PM »

If you own index funds, you have a tiny portion of thousands of companies. Each of these companies pay tax. If they didn't, they would give you bigger dividends or grow faster. So you are still paying tax.


Arguably, this is doubly taxed. Corporate profits are taxed at a corporate level. Then we as investors are taxed on dividends, which come from post tax earnings.

I have always found this argument regarding the taxing of capital gains/dividends as double taxation uniquely unconvincing.

As an investor you are only taxed on profits, and there is plenty of evidence that one gets paid more on capital already owned than for labor itself.

How is a worker whose wages are determined by corporation's budget any less double taxed?

My solution:  don't tax corporations at all but tax every penny taken out of a corporation whether in bonuses, salary, dividends, stock options, etc.. Progressively.

As to the morality of minimizing taxes, I feel it is the individuals job to act in the most personally advantageous manner possible, which means legally avoiding taxes whenever possible.

It is the citizens job to advocate for the fairest and most communally beneficial regime possible, which to me means taxing fairly and progressively.

Honestly this double taxation really isn't of much concern to most people. The exception being you're both a shareholder and an executive in the company.

And we already "tax every penny taken out of a corporation whether in bonuses, salary, dividends, stock options, etc.. Progressively." All of what you just described becomes somebody's income, and income tax is assessed progressively.

Dividends, stock options, capital gains are not taxed as ordinary income, under our progressive income tax rates.

This is why Mitt Romney had to scramble to make it appear that he paid even 13% of his income in taxes.

johnny847

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Re: Avoiding Tax
« Reply #23 on: June 30, 2015, 02:47:12 PM »

If you own index funds, you have a tiny portion of thousands of companies. Each of these companies pay tax. If they didn't, they would give you bigger dividends or grow faster. So you are still paying tax.


Arguably, this is doubly taxed. Corporate profits are taxed at a corporate level. Then we as investors are taxed on dividends, which come from post tax earnings.

I have always found this argument regarding the taxing of capital gains/dividends as double taxation uniquely unconvincing.

As an investor you are only taxed on profits, and there is plenty of evidence that one gets paid more on capital already owned than for labor itself.

How is a worker whose wages are determined by corporation's budget any less double taxed?

My solution:  don't tax corporations at all but tax every penny taken out of a corporation whether in bonuses, salary, dividends, stock options, etc.. Progressively.

As to the morality of minimizing taxes, I feel it is the individuals job to act in the most personally advantageous manner possible, which means legally avoiding taxes whenever possible.

It is the citizens job to advocate for the fairest and most communally beneficial regime possible, which to me means taxing fairly and progressively.

Honestly this double taxation really isn't of much concern to most people. The exception being you're both a shareholder and an executive in the company.

And we already "tax every penny taken out of a corporation whether in bonuses, salary, dividends, stock options, etc.. Progressively." All of what you just described becomes somebody's income, and income tax is assessed progressively.

Dividends, stock options, capital gains are not taxed as ordinary income, under our progressive income tax rates.

This is why Mitt Romney had to scramble to make it appear that he paid even 13% of his income in taxes.

But nowhere did you say that all income should be subject to the same progressive income scale. Dividends, stock options (which are sometimes taxed as ordinary income, as MDM said), and capital gains are still taxed on a progressive scale. The tax brackets are 0%, 15%, 20%, and 23.8% (ACA tax) (though I do not recall - I don't remember if it's actually possible to be in the 20% LTCG bracket and not pay the additional 3.8% ACA tax).

lostamonkey

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Re: Avoiding Tax
« Reply #24 on: June 30, 2015, 02:50:26 PM »
http://images.politico.com/global/2012/02/120208_asidividend.pdf

See the attached link for combined tax rates in the US and other countries. The American tax rate on investment income is pretty high.

These numbers won't completely apply to MMM members because we keep our money in retirement accounts and aren't in the highest tax bracket. The 39% corporate tax rate in the States is higher than most normal people's tax rate at work so American MMMers pay more in taxes than the average American.
« Last Edit: June 30, 2015, 02:57:20 PM by lostamonkey »

milesdividendmd

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Re: Avoiding Tax
« Reply #25 on: June 30, 2015, 03:10:07 PM »

http://images.politico.com/global/2012/02/120208_asidividend.pdf

See the attached link for combined tax rates in the US and other countries. The American tax rate on investment income is pretty high.

These numbers won't completely apply to MMM members because we keep our money in retirement accounts and aren't in the highest tax bracket. The 39% corporate tax rate in the States is higher than most normal people's tax rate at work so American MMMers pay more in taxes than the average American.

Making it simple is my ideal. Tax a dollar as a dollar, and tax progressively. How you make your money should be irrelevant, a dollar gained is a dollar gained.

The tax code is a complex for a reason. The complexity benefits those with the most influence/money.

milesdividendmd

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Avoiding Tax
« Reply #26 on: June 30, 2015, 03:10:58 PM »
And the effective corporate tax rate is low.  But as mentioned above I am all for not taxing on the corporate level at all.

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Re: Avoiding Tax
« Reply #27 on: June 30, 2015, 03:20:51 PM »

I do think getting government subsidies when you have $1M+ in the bank is a little weird, maybe borderline uncomfortable for me. I don't judge others for doing it, I'm just not sure if it would feel right for me even though it's within the current rules as they're written.

First off: I do too.  I feel the same way as you here... but...  I can't opt out.  Sure, I could probably do something that made me not get the tax credit in ACA.  But the system changed the way insurance works in a way that I can't opt out of it.  My insurance now is going to be (before subsidies) more than 2x it was the last time I carried private insurance.   I can no longer get super-high deductibles.  I am forced to carry insurance on various things I'd opt out of. 

And at some point, I just sigh and say: okay, the market has changed in a way I cannot help.  And at that point I just decide to play along.

I feel the same way about social security.  I think it is odd that at some point I'll likely get a check.   Had I been able to opt out of paying in (and investing as I saw fit) -- I would be happy to not take it.  But since I wasn't given the choice: I'll take the check.

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Re: Avoiding Tax
« Reply #28 on: June 30, 2015, 03:34:45 PM »

I do think getting government subsidies when you have $1M+ in the bank is a little weird, maybe borderline uncomfortable for me. I don't judge others for doing it, I'm just not sure if it would feel right for me even though it's within the current rules as they're written.

First off: I do too.  I feel the same way as you here... but...  I can't opt out.  Sure, I could probably do something that made me not get the tax credit in ACA.  But the system changed the way insurance works in a way that I can't opt out of it.  My insurance now is going to be (before subsidies) more than 2x it was the last time I carried private insurance.   I can no longer get super-high deductibles.  I am forced to carry insurance on various things I'd opt out of. 

And at some point, I just sigh and say: okay, the market has changed in a way I cannot help.  And at that point I just decide to play along.

I feel the same way about social security.  I think it is odd that at some point I'll likely get a check.   Had I been able to opt out of paying in (and investing as I saw fit) -- I would be happy to not take it.  But since I wasn't given the choice: I'll take the check.

Understood.

Double taxation - It's been discussed here a lot. Check out this nonsense I described here a few months back: http://forum.mrmoneymustache.com/real-estate-and-landlording/landlords-are-you-a-business/msg445893/#msg445893

But in reality, dollars circulate and are taxed many times over. I pay sales tax when I buy something. The business that sold the thing to me claims the sale as revenue and their net profit is taxed. Then they buy something with those profits and.....it never ends. No big deal, just figure out ways to avoid some of the taxes and you'll be fine.

RootofGood

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Re: Avoiding Tax
« Reply #29 on: June 30, 2015, 08:46:42 PM »
I personally have no problem stepping up to the tax break and government benefits trough and partaking of a healthy serving.  I paid while working (though never a whole lot) and will eventually pay a lot in the future assuming my portfolio grows as projected (thanks, RMD's!). 

That being said, I wouldn't have a problem if the tax structure in the US was redone and the end result was higher taxes for me.  I'd pay what I owe while doing the best to avoid those new or different taxes, too. 

marty998

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Re: Avoiding Tax
« Reply #30 on: July 01, 2015, 06:44:26 AM »
Screw supporting the services, get a free ride. Its the way of the real world, so get used to it.
 

The world would be a pretty crappy place if everyone held attitudes like that.

You have already contributed for years to stuff you haven't used. I've been out of school for 15+ years, but somehow I still got a property tax bill that went to fund a local school where I didn't attend and didn't have children to attend. More to the point, taking benefits without contributing to it is the American way. Big corporate entities get sweetheart tax breaks, corporate welfare, farm subsidies, etc... Why shouldn't you get yours?

Billions of dollars are being horded overseas by multinationals such as Apple and Amazon, and I don't think that is a bad thing at all. They are doing what is legal and in their best financial interest. You should do the same. Spare me the feelings. Go to church, adopt a puppy, give to a charity if it makes you feel better.
 

It is a bad thing. They're not paying the tax they should be, so that means others end up paying more to fund a given level of services.

You may argue about what level of services needs to be funded/quantum, but ceteris paribus if apple isn't paying tax then someone else needs to pay more than they should have to.


johnny847

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Re: Avoiding Tax
« Reply #31 on: July 01, 2015, 07:00:21 AM »
Screw supporting the services, get a free ride. Its the way of the real world, so get used to it.
 

The world would be a pretty crappy place if everyone held attitudes like that.

You have already contributed for years to stuff you haven't used. I've been out of school for 15+ years, but somehow I still got a property tax bill that went to fund a local school where I didn't attend and didn't have children to attend. More to the point, taking benefits without contributing to it is the American way. Big corporate entities get sweetheart tax breaks, corporate welfare, farm subsidies, etc... Why shouldn't you get yours?

Billions of dollars are being horded overseas by multinationals such as Apple and Amazon, and I don't think that is a bad thing at all. They are doing what is legal and in their best financial interest. You should do the same. Spare me the feelings. Go to church, adopt a puppy, give to a charity if it makes you feel better.
 

It is a bad thing. They're not paying the tax they should be, so that means others end up paying more to fund a given level of services.

You may argue about what level of services needs to be funded/quantum, but ceteris paribus if apple isn't paying tax then someone else needs to pay more than they should have to.

It's not your responsibility to decide how much you "should" be paying in taxes. It's the government's. (Of course, you vote into government who make such decisions, so you should vote accordingly. But once the vote is cast it's not your job).

EDIT: Ok if you're a politician then it might actually be your job.

Also, one of the reasons our government exists is to redistribute wealth (unless you don't believe in helping the needy, under whatever definition of needy you would like). There will always be people who receive more in benefits than they put in.

If you think you're not paying your share, then as Jeremy noted above, the Treasury will take donations at any time. Or if you don't want to do it that way, then purposely set your tax withholding really high (interest free loan for them!), tell the IRS to send your refund in the form of a check, and then rip it up.
« Last Edit: July 01, 2015, 09:28:01 AM by johnny847 »

kpd905

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Re: Avoiding Tax
« Reply #32 on: July 01, 2015, 07:10:07 AM »
If you think you're not paying your share, then as Jeremy noted above, the Treasury will take donations at any time. Or if you don't want to do it that way, then purposely set your tax withholding really high (interest free loan for them!), tell the IRS to send your refund in the form of a check, and then rip it up.

Also, be sure to remove your spouse or family member's names as beneficiaries in any of your life insurance and retirement accounts.  Write in "Internal Revenue Service" instead.

Otherwise you could accidentally leave your estate to your family tax-free.

johnny847

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Re: Avoiding Tax
« Reply #33 on: July 01, 2015, 07:13:04 AM »
If you think you're not paying your share, then as Jeremy noted above, the Treasury will take donations at any time. Or if you don't want to do it that way, then purposely set your tax withholding really high (interest free loan for them!), tell the IRS to send your refund in the form of a check, and then rip it up.

Also, be sure to remove your spouse or family member's names as beneficiaries in any of your life insurance and retirement accounts.  Write in "Internal Revenue Service" instead.

Otherwise you could accidentally leave your estate to your family tax-free.

;)

EricP

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Re: Avoiding Tax
« Reply #34 on: July 01, 2015, 08:35:56 AM »
If you own index funds, you have a tiny portion of thousands of companies. Each of these companies pay tax. If they didn't, they would give you bigger dividends or grow faster. So you are still paying tax.


Arguably, this is doubly taxed. Corporate profits are taxed at a corporate level. Then we as investors are taxed on dividends, which come from post tax earnings.

Which will then be taxed whenever you try to buy something, which if you buy certain things will be taxed as long as you own them and then when you die they will be taxed again and when your heirs sell them they will be taxed again.  The "it's double taxation" is one of the most obnoxious arguments ever.  Everything is double, triple, quadruple taxed.  Anytime you move money it's going to be taxed, that's just how it works.  And even with all this "double taxation" we still are in debt.

EricP

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Re: Avoiding Tax
« Reply #35 on: July 01, 2015, 10:09:21 AM »
Please. The government has more money than they know what to do with and when they get more, they usually do bad things with it, like wars of convenience, pet projects, or out of control military spending, etc... 

You seem to be under this delusion that the government is going to do good things if they are given more money.

Yet they're still running deficits... Wars aren't caused because the government looks around and says "Hey, we got some money to spend, let's bomb a country," they're started because the powers to be decide they need to do it for whatever reason.

Again, Military Spending is dictated by what the Pentagon tells the President they need to perform the tasks/capabilities that the President asks for in his National Defense Strategy.  They don't spend money because they have it, they decide what they want to do, do it, and then figure out how to pay for it.

milesdividendmd

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Re: Avoiding Tax
« Reply #36 on: July 01, 2015, 02:25:36 PM »
There is ethically no distinction  between avoiding taxes and optimizing benefits. A dollar not paid in taxes has the exact same effect on the federal budget as a dollar gained from a handout. (Although the handout is arguably more stimulative since it is more likely to  go to citizens who are apt to spend their money.)

As I mentioned above smart individuals will both minimize their own taxes, and maximize their benefits in their personal lives.

At the same time I believe that ethical citizens should advocate for the fairest tax regime and most effective social safety net possible.

It is na´ve to imagine that individuals will not act in their own self interest. And It is cynical to advocate for an unfair regime simply because it is most beneficial to you.

Telecaster

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Re: Avoiding Tax
« Reply #37 on: July 01, 2015, 02:37:25 PM »
First of all, its great that there are so many ways to reduce the amount of tax that we pay so we can FIRE earlier.  I have a fairly high income that I pay lots of taxes on now, but in retirement I do not think I will have to pay tax at all (or very little).  Once I retire I know I will still be making use of government services (not to mention ACA subsidies), but won't be contributing to support the services.  I feel like I won't be contributing anything while still taking advantage of the benefits.  Does anyone else feel that way?  Are we (mustachians) increasing the tax burdens on everyone else when we FIRE with large assets but minimal income?  What does everyone think?

Quite a number of good responses in this thread.   I really think public policy in this area is screwy.   Income from working is taxed  more heavily than income from investing.   It seems to me good public policy should encourage people to work, but that's not what we have. 

Don't feel guilty however.  Congress has created incentives for you to not work, and you are simply following their encouragements.   


Spork

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Re: Avoiding Tax
« Reply #38 on: July 01, 2015, 05:32:56 PM »
There is ethically no distinction  between avoiding taxes and optimizing benefits. A dollar not paid in taxes has the exact same effect on the federal budget as a dollar gained from a handout. (Although the handout is arguably more stimulative since it is more likely to  go to citizens who are apt to spend their money.)


I respectfully disagree.  But I don't really want to argue the point.

johnny847

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Re: Avoiding Tax
« Reply #39 on: July 01, 2015, 05:34:12 PM »
There is ethically no distinction  between avoiding taxes and optimizing benefits. A dollar not paid in taxes has the exact same effect on the federal budget as a dollar gained from a handout. (Although the handout is arguably more stimulative since it is more likely to  go to citizens who are apt to spend their money.)


I respectfully disagree.  But I don't really want to argue the point.

Way to start an argument and then shut down the other side before it even begins.

Spork

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Re: Avoiding Tax
« Reply #40 on: July 01, 2015, 05:57:35 PM »
There is ethically no distinction  between avoiding taxes and optimizing benefits. A dollar not paid in taxes has the exact same effect on the federal budget as a dollar gained from a handout. (Although the handout is arguably more stimulative since it is more likely to  go to citizens who are apt to spend their money.)


I respectfully disagree.  But I don't really want to argue the point.

Way to start an argument and then shut down the other side before it even begins.

Not an argument, obviously.  I suspect an argument would generate a crapload of animosity and leave both sides still believing what they believed before.

johnny847

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Re: Avoiding Tax
« Reply #41 on: July 01, 2015, 06:03:52 PM »
There is ethically no distinction  between avoiding taxes and optimizing benefits. A dollar not paid in taxes has the exact same effect on the federal budget as a dollar gained from a handout. (Although the handout is arguably more stimulative since it is more likely to  go to citizens who are apt to spend their money.)


I respectfully disagree.  But I don't really want to argue the point.

Way to start an argument and then shut down the other side before it even begins.

Not an argument, obviously.  I suspect an argument would generate a crapload of animosity and leave both sides still believing what they believed before.

I still don't see the point of you saying you respectfully disagree and then saying you don't want to argue the point. Just keep it to yourself then.

Spork

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Re: Avoiding Tax
« Reply #42 on: July 01, 2015, 06:10:40 PM »
There is ethically no distinction  between avoiding taxes and optimizing benefits. A dollar not paid in taxes has the exact same effect on the federal budget as a dollar gained from a handout. (Although the handout is arguably more stimulative since it is more likely to  go to citizens who are apt to spend their money.)


I respectfully disagree.  But I don't really want to argue the point.

Way to start an argument and then shut down the other side before it even begins.

Not an argument, obviously.  I suspect an argument would generate a crapload of animosity and leave both sides still believing what they believed before.

I still don't see the point of you saying you respectfully disagree and then saying you don't want to argue the point. Just keep it to yourself then.

My apologies for my outrageous statement!  I was clearly way out of line.

johnny847

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Re: Avoiding Tax
« Reply #43 on: July 01, 2015, 07:02:09 PM »
There is ethically no distinction  between avoiding taxes and optimizing benefits. A dollar not paid in taxes has the exact same effect on the federal budget as a dollar gained from a handout. (Although the handout is arguably more stimulative since it is more likely to  go to citizens who are apt to spend their money.)


I respectfully disagree.  But I don't really want to argue the point.

Way to start an argument and then shut down the other side before it even begins.

Not an argument, obviously.  I suspect an argument would generate a crapload of animosity and leave both sides still believing what they believed before.

I still don't see the point of you saying you respectfully disagree and then saying you don't want to argue the point. Just keep it to yourself then.

My apologies for my outrageous statement!  I was clearly way out of line.

This is a forum. As in, a place for discussion. If you don't want to have a discussion, then just don't discuss it. But don't bring something up and attempt to shut down the discussion for others.
« Last Edit: July 01, 2015, 07:47:26 PM by johnny847 »

milesdividendmd

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Re: Avoiding Tax
« Reply #44 on: July 01, 2015, 08:34:37 PM »

There is ethically no distinction  between avoiding taxes and optimizing benefits. A dollar not paid in taxes has the exact same effect on the federal budget as a dollar gained from a handout. (Although the handout is arguably more stimulative since it is more likely to  go to citizens who are apt to spend their money.)


I respectfully disagree.  But I don't really want to argue the point.

Fair enough, we won't change each others minds. But sometimes it's useful to just put it out there and entertain thoughtful opposition, if only to keep your chops up.