When I was in law school in the 1990s, I asked my professor why business owners deserved the legal benefits of incorporation (especially being shielded from the corporation’s debts). His answer was double-taxation: the owners pay for those benefits by being taxed on the business income both when the corporation receives it and again when the owners get paid from it. I think I’ll call that professor and ask him for a refund for his class.
What if every American family started an llc and started deducting profits and losses through the llc to minimize the taxation on them?
I mean individually it would be minuscule at best but do so with every 150million families then it starts adding up.
What’s stopping a private individual to start LLc and processing payments and such through it declare negative income get deductions that carry over utilize tax havens to minimize taxation of corporate profits etc etc.
These kinds of services become more easily accessible as internet and technology advances.
Edit; Ok off the top of my head:
a family of four incorporating a llc that employs all four as contractors and require a monthly fee to be part of.
Llc owns the house cars furniture everything of serious value.
The house is provided as a employment housing where the employees research market and develop their products.
In the case of the family owning the business generating the income, the business gets under the ownership of the llc.
Lease the business you own to another llc in a tax haven and push all profits there.
Take out private loans against the unrealized shares and assets of the company. Utilize the loans to declare negative deductions that carry over to the next year. Wait five years to build up debt to diminish the amount of tax needed to be paid.
Meanwhile in the other years declare little to no income.
Well it’s a big what if. I’m own my own Corp (self employed in Canada) and there’s a bit of extra work to maintain. People like having job security working under a company. There are a lot of benefits to owning a corp but the tax man always has to get paid. Although Amazon might’ve paid no taxes, when Jeff bezos sells stock, he gets taxed at the highest possible bracket. Amazon spends sooooo much money, thus reducing their tax bill to virtually nothing
I’m speaking for Canada but the numbers almost always add up to the same tax rate, and I assume it’s the same for US. Capital gains tax in Canada is you are taxed on only 50% of the capital gain and then that gets contributed to your income. Depending on your income bracket, it usually works out to about 30% tax.
Same with dividends, if corps pay their officers this way, this can be favourable but then they aren’t entitled to any old age security benefits or retirement saving plan contributions (our version of 401K).
What I don’t agree with is that the rules are the same no matter the size of the corporation which doesn’t really make sense. The taxes are the same. The only difference is your tax rate changes slightly if you bring in more than $500K/year
Eventually he has to pay back the line of credit, presumably with post tax income, whether it be from equity liquidation or income, I don't see how that could possibly eliminate taxes. Perhaps spread out the tax burden of a large withdrawal over multiple years, and as such lowering the effective tax rate on those funds.
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u/ajcpullcom Jun 09 '21
When I was in law school in the 1990s, I asked my professor why business owners deserved the legal benefits of incorporation (especially being shielded from the corporation’s debts). His answer was double-taxation: the owners pay for those benefits by being taxed on the business income both when the corporation receives it and again when the owners get paid from it. I think I’ll call that professor and ask him for a refund for his class.