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Loophole doesn’t have a strict definition. Almost any deduction could be a loophole. Usually it is referring to anything that helps people with high incomes avo

Loophole doesn’t have a strict definition. Almost any deduction could be a loophole. Usually it is referring to anything that helps people with high incomes avoid paying taxes.

kaycebasques 7y ago
The definition is very straightforward. It’s a loophole when others do it, especially those I don’t like, but it’s a tax break when I do it.
- Finnucane 7y ago
  True, and if poor people could hire lobbyists and tax attorneys, they’d get more loopholes too.
  - zaroth 7y ago
    Progressive tax rates, the doubled standard deduction, child tax credit, EITC, and Medicaid expansion are all pretty sweet “loopholes” for those on the lower end of the AGI spectrum.
    - thepangolino 7y ago
      For me a loophole is something that requires a certain amount of work to benefit from. Much more than ticking in a box in a standard form.
      - zaroth 7y ago
        For what it’s worth, QSBS is just a matter of filling in the dollar amount and writing “Section 1202 exclusion”. To me a loophole is something where you have to perform some sort of otherwise unnecessary accounting procedure in order to qualify. For example, forming an S Corp to funnel contracting income through, solely for the purpose of avoiding the 3.8% payroll surtax.
        betterunix2 7y ago
        A classic example of "we didn't intend for people to do that when we wrote the law!" One of the costs of living in a rule-of-law society is that sometimes the law winds up working in unexpected ways.
        zaroth 7y ago
        What do you mean? Section 1202 was very explicitly amended as written to stimulate investment in small business. It is a huge incentive for Series AA and A investment, particularly for smaller early stage investors where it can effectively double the return. It’s a fantastic policy to help small business raise money and also retain top talent versus the Goliaths. There is nothing unintentional about Section 1202. The value of the tax break was strengthened during the Bush stimulus, and then extended and eventually made permanent under Obama. It is a nice bit of tax policy with bipartisan support.
        betterunix2 7y ago
        I was referring to your definition of what a loophole is and the example of that (forming an S corp to avoid payroll taxes).
    - Finnucane 7y ago
      Yeah, it’s why everyone likes being poor.
      - zaroth 7y ago
        Being poor sucks. But the absolute best thing about earning little to no income in a year is a) not paying taxes, followed by b) not paying for health insurance. Free visits to Whole Foods might be on the top 10? If you don't earn any income for a few years, you might even be able to add on some free housing while you're at it. That's one I've never done personally. Of course, it helps to have some savings to draw from during this time. Because most welfare programs just look at annual income now, and not assets. They used to look at assets, but in many states they no longer do.
clamprecht 7y ago
The 5th Amendment is a loophole that gives defendants due process.
- Finnucane 7y ago
  If you have to invoke it on your taxes, you might have taken a wrong turn somewhere.
SilasX 7y ago
It only feels right to call something a loophole, IMHO, if it's clearly out of the scope of the intent of the law. Not a loophole: Government passes electric car tax credit to promote electric vehicles -> Entrepreneur starts a successful business selling them due to a relative advantage over conventional vehicles. Government taxes businesses based on how profitable they are -> Business pays none of the tax because it hasn't made back its initial expenses. Loophole: IRS doesn't consider it a kind of compensation when employers provide meals to coal miners, since it's really not feasible to eat at a coal mine any other way, and so exempts employer-provided onsite meals. -> Tech companies in urban areas provide all meals, and employees get all of a day's food, through untaxed onsite meals. Government allows deduction of business expenses from taxable income. -> Business mysteriously never has taxable income because it blows all profits on "consulting services" from an untaxed non-profit that the owner runs.

Loophole doesn’t have a strict definition. Almost any deduction could be a loophole. Usually it is referring to anything that helps people with high incomes avoid paying taxes.

kaycebasques 7y ago

The definition is very straightforward. It’s a loophole when others do it, especially those I don’t like, but it’s a tax break when I do it.

Finnucane 7y ago
True, and if poor people could hire lobbyists and tax attorneys, they’d get more loopholes too.
- zaroth 7y ago
  Progressive tax rates, the doubled standard deduction, child tax credit, EITC, and Medicaid expansion are all pretty sweet “loopholes” for those on the lower end of the AGI spectrum.
  - thepangolino 7y ago
    For me a loophole is something that requires a certain amount of work to benefit from. Much more than ticking in a box in a standard form.
    - zaroth 7y ago
      For what it’s worth, QSBS is just a matter of filling in the dollar amount and writing “Section 1202 exclusion”. To me a loophole is something where you have to perform some sort of otherwise unnecessary accounting procedure in order to qualify. For example, forming an S Corp to funnel contracting income through, solely for the purpose of avoiding the 3.8% payroll surtax.
      - betterunix2 7y ago
        A classic example of "we didn't intend for people to do that when we wrote the law!" One of the costs of living in a rule-of-law society is that sometimes the law winds up working in unexpected ways.
        zaroth 7y ago
        What do you mean? Section 1202 was very explicitly amended as written to stimulate investment in small business. It is a huge incentive for Series AA and A investment, particularly for smaller early stage investors where it can effectively double the return. It’s a fantastic policy to help small business raise money and also retain top talent versus the Goliaths. There is nothing unintentional about Section 1202. The value of the tax break was strengthened during the Bush stimulus, and then extended and eventually made permanent under Obama. It is a nice bit of tax policy with bipartisan support.
        betterunix2 7y ago
        I was referring to your definition of what a loophole is and the example of that (forming an S corp to avoid payroll taxes).
  - Finnucane 7y ago
    Yeah, it’s why everyone likes being poor.
    - zaroth 7y ago
      Being poor sucks. But the absolute best thing about earning little to no income in a year is a) not paying taxes, followed by b) not paying for health insurance. Free visits to Whole Foods might be on the top 10? If you don't earn any income for a few years, you might even be able to add on some free housing while you're at it. That's one I've never done personally. Of course, it helps to have some savings to draw from during this time. Because most welfare programs just look at annual income now, and not assets. They used to look at assets, but in many states they no longer do.

clamprecht 7y ago

The 5th Amendment is a loophole that gives defendants due process.

Finnucane 7y ago
If you have to invoke it on your taxes, you might have taken a wrong turn somewhere.

SilasX 7y ago

It only feels right to call something a loophole, IMHO, if it's clearly out of the scope of the intent of the law. Not a loophole: Government passes electric car tax credit to promote electric vehicles -> Entrepreneur starts a successful business selling them due to a relative advantage over conventional vehicles. Government taxes businesses based on how profitable they are -> Business pays none of the tax because it hasn't made back its initial expenses. Loophole: IRS doesn't consider it a kind of compensation when employers provide meals to coal miners, since it's really not feasible to eat at a coal mine any other way, and so exempts employer-provided onsite meals. -> Tech companies in urban areas provide all meals, and employees get all of a day's food, through untaxed onsite meals. Government allows deduction of business expenses from taxable income. -> Business mysteriously never has taxable income because it blows all profits on "consulting services" from an untaxed non-profit that the owner runs.