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Some of the tax laws can be complex, so let me provide you with a simple example of how tax avoidance and tax evasion works.
(Thread) https://twitter.com/AltWASONPS/status/1047275249572691968
(Thread) https://twitter.com/AltWASONPS/status/1047275249572691968
First I'm not going to get into the intricacies of what is legal and what is not. Instead, I'm going to show you how it works.
Now let's take a look at the corporate income tax brackets from 2017. I'm intentionally using an older year as the older rates amplified the effect.
Now let's take a look at the corporate income tax brackets from 2017. I'm intentionally using an older year as the older rates amplified the effect.
Now, let's assume for a moment that I have a business that makes $300,000 a year in profit. My total gross income (what I make before paying bills, employees, etc.) doesn't matter.
What does matter though is that I'm in a 39% tax bracket. This sucks... So let's get creative.
What does matter though is that I'm in a 39% tax bracket. This sucks... So let's get creative.
Now granted I'm not taxed 39% on everything...
I'm taxed 15% on my first $50k, then 25% on the next $25k, then 34% on the next $25k then 39% on the next $200k (remember I'm at $300k).
But still that's a lot of money and I want to pay less.
I'm taxed 15% on my first $50k, then 25% on the next $25k, then 34% on the next $25k then 39% on the next $200k (remember I'm at $300k).
But still that's a lot of money and I want to pay less.
Ok so.. let me think about this.
If I only made $100k, I'd be taxed at 34%.
Hmm, ok what if I split up my single business into three businesses?
I mean they would still do the exact same thing.. but if I split them up. All of the business would only be taxes on $100k...
If I only made $100k, I'd be taxed at 34%.
Hmm, ok what if I split up my single business into three businesses?
I mean they would still do the exact same thing.. but if I split them up. All of the business would only be taxes on $100k...
... of income each. And that extra $200k which is currently taxed at 39% would now only be taxed at 34%.
That's a 5% savings, a whole $10,000 and I want MY MONEY!!!!
Ok let's do this.
That's a 5% savings, a whole $10,000 and I want MY MONEY!!!!
Ok let's do this.
So I split my single company into 3 companies. I will call them WASO-HR, WASO-Supplies, and WASO-Sales.
Now it's going to get a little bit more complicated from here....
Ok, so WASO-Sales, needs things to sell and make a profit.. so it buys them from WASO-Supplies....
Now it's going to get a little bit more complicated from here....
Ok, so WASO-Sales, needs things to sell and make a profit.. so it buys them from WASO-Supplies....
I structure this in a way so that $150k can be written off as business expenses...
Because of this, now both WASO-Sales and WASO-Supplies now only have $150k in profit each..but I'm still not there.. I need to get to $100k in 3 businesses.
Because of this, now both WASO-Sales and WASO-Supplies now only have $150k in profit each..but I'm still not there.. I need to get to $100k in 3 businesses.
Also.. each of these companies kinda needs people. I mean robots are cool and all..they just aren't there yet. So what to do.. what to do.
Oh, I know.
I hire WASO-HR to provide me with human resources via a contract!
Oh, I know.
I hire WASO-HR to provide me with human resources via a contract!
So WASO-Sales and WASO-Supplies each hire WASO-HR and pay them $50k for the people who will actually do the work. (Technically, more than $50k bit we are keeping it simple).
See, easy as can be...
But hmm.. well this was really, really simple and I'd like to keep more money...
See, easy as can be...
But hmm.. well this was really, really simple and I'd like to keep more money...
Oh I know.
I will have SASO-Supplies purchase, I dunno... Laptops for $1,000.
And then they will sell them to WASO-Sales for $1,500. Genius.
At first you would be like.. well I'm just dumb and moving money from one company to another...
But, alas... As a business...
I will have SASO-Supplies purchase, I dunno... Laptops for $1,000.
And then they will sell them to WASO-Sales for $1,500. Genius.
At first you would be like.. well I'm just dumb and moving money from one company to another...
But, alas... As a business...
... I can consider those as assets, and depreciate them (and again I'm really, really, over simplifiying this).
So instead of only being able to deduct $1,000 for those assets, I now get to deduct $1,500 (per laptop).. and a little bit more shifting of where that $300k goes...
So instead of only being able to deduct $1,000 for those assets, I now get to deduct $1,500 (per laptop).. and a little bit more shifting of where that $300k goes...
And I keep all 3 businesses under $100k.
A little bit of work, and a little complicated.. but not too much so.
And I saved a whole bunch of money.
Now there is just one more thing...
A little bit of work, and a little complicated.. but not too much so.
And I saved a whole bunch of money.
Now there is just one more thing...
I could do a whole lot more...
Why stop at 3, why not make it, 10
Why not 100...
Why not 1,000
Just like Trump
(Source: https://www.wired.com/2017/01/kim-albrecht-trump-data-viz/)
Why stop at 3, why not make it, 10
Why not 100...
Why not 1,000
Just like Trump
(Source: https://www.wired.com/2017/01/kim-albrecht-trump-data-viz/)
You see when people do that...
It's because they are trying to scam the IRS and not pay taxes.
It's because they are trying to scam the IRS and not pay taxes.
