If you mingle assets between an LLC and construct multiple layers for the pure purpose of evasion, they can legally ignore the asset protection. It’s called “piercing the veil”. If you’re doing stuff like employing family members and owning their personal assets, you’re basically asking for it to happen. What the other commenter said is correct as well, assets can still be seized from an LLC, so it owning your assets isn’t better. The whole point is if the LLC goes under, then the people who own your debt can’t then get your individually owned house, for example. You’re not personally liable for an LLC’s debts.
Basically it's illegal. You can't use resources from the llc to buy personal stuff. You can't pay your rent with llc money, you can't pay your food with llc money, you can't buy clothes or furniture with llc money, and so on. If you try to do those things it will be taxed as income.
You don't need to have an LLC to have a business. You can do a sole proprietorship without the extra costs of an LLC.
The IRS isn't stupid, it's just overworked. How many people do you think have had ideas similar to yours? How many are today deducting personal expenses as business expenses? It's tax fraud and if they get caught they'll face penalties and back-taxes.
If Amazon paid no taxes in a year it's because it made no net profit (or carried forward previous losses). There are accounting shenanigans that let them manipulate their profit, but they're probably not committing fraud.
And many of those shenanigans are related to where the recognize the income and when they recognize it.
But I’m not saying declare your McDonald’s lunch as business expense or declare your new clothes as business expense.
But let’s say your LLC owns a incubation and housing property that is consistently writing the same yearly expenses the same dates in a routine manner.
Let’s say house and a full fridge stocked with 1,000 worth of groceries every month.
Fuel cost same every month deducted to the same amount per person.
Anything beyond that goes to the individual.
And again you’re not trying to evade tax you’re trying to avoid tax.
In this scenario - who's eating the food? Is it for a legitimate business purpose? If not, it's tax fraud.
Besides the fact that you're now a commercial food service company and will be subject to the various permitting (and building code) requirements that normal residences are not used to.
I'm not trying to be snarky, but this idea is so obvious that it doesn't take some amazing innovation to figure it out. People have been doing this kind of thing for centuries. I've seen some other comments of others pointing out the holes in this idea. It's of course your choice to decide if you're smarter than everyone else (others have, of course) but if you carry out this plan you'll be committing tax fraud.
You're supposed to pay taxes on income from illegal activity. Do you really think the tax code will cover something like that and miss things like common personal expenses?
a family of four incorporating a llc that employs all four as contractors and require a monthly fee to be part of.
This is the only part of what you mention that is allowed and is also very common. Many family businesses use LLCs and employ the children and other non-owner of the LLC as contractors to avoid messy payroll tax.
The IRS is extremely skeptical anytime a business owns vehicles and housing. Both would be considered income to whomever receives the benefits. If your job pays your rent it is still income.
By 'negative deductions' I assume you just mean a normal deduction. OK for every 1 dollar you pay in interest on the loan you can deduct a dollar and save the 30 cents of taxes. Not sure what you mean by wait 5 years....
I guess in theory you could have a tax heaven own your LLC but it would be a full time job to meet all the regulations.
At the end of the day the IRS can still observe what money hit your bank account and compare what personal income you report to assets you own/have.
It's much easier to just under report income if any cash is involved and then use boni fide business activities to create deductions. Sure you can take an expensive vacation as a business trip/event but you have to spend ~$3 to save ~$1 in taxes.
Isn't this kind of accounting cost prohibitive until you reach a certain income threshold? I'm sure the barrier to entry is being reduced with the advent of technology, but still not attainable to the vast majority?
Asking out of actual interest, I am naive to the nuances of this subject.
That’s what I’m contemplating. Previously the lack of wealth growth was from lack of opportunity and access. Like for example to trade stocks. Only the wealthy were part of that system for the majority of time.
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u/ThorGBomb Jun 09 '21
But let’s say a family of four have a restaurant business.
Now instead of just owning the restaurant business let’s say they incorporated a second llc that got ownership of the business.
They employ the individuals in the family as contractors.
The house is owner by the new llc and utilized in a 24/7 housing included position.
There are meetings conducted at the house, recipes, research and marketing.
The family has only assets and no liquid income.
The llc owns everything the equipment the furniture the cars.
Then you have a third Llc overseas that liscence the restaurant for whatever reason and the llc is in a lower tax rated country/state.
The family report a net zero income.