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About a month ago I discovered Mark Kohler on YouTube [1] who runs a little channel talking about wealth management. Once you watch a couple of videos you quick

About a month ago I discovered Mark Kohler on YouTube [1] who runs a little channel talking about wealth management. Once you watch a couple of videos you quickly see the pattern - the biggest cheat code to the US tax system is entrepreneurship and business ownership. But aside from that, it's shocking and eye-opening how many schemes (aka "legal structures") you can employ to preserve your wealth and reduce taxation which are available to everyone regardless of their social status. It's just that... most of us mere mortals don't know anything about them. In fact, some of this stuff seems borderline illegal, but it's not and it's been used by the wealthy to transfer wealth for generations. I think this just demonstrates yet another failure of the education system in the US. [1] https://www.youtube.com/channel/UCHYeaAH3D-wzQyDiXndSfMA https://www.youtube.com/channel/UCHYeaAH3D-wzQyDiXndSfMA

happytoexplain 5y ago
I agree - practical financial education is a huge, glaring omission from most curriculums. However, even if it wasn't, universal availability isn't a good argument for the societal benefit, morality, or legality of these practices, since to say they would still disproportionately benefit the wealthy would be an understatement.
Retric 5y ago
Schemes that get more widely used are removed from the tax code and something else is put in their place. The fact their only used by a small percentage of the population is a feature not a bug. Governments spend mind boggling amounts of money, most people need to hand over a large fraction of their earnings or the system fails.
- oarsinsync 5y ago
  Apologies if the below comes across as inflammatory. It's not the intention, however it's largely the same as what you're saying, only how things actually play out in reality today. It doesn't need to be this way. It shouldn't be this way. Unfortunately, it is this way. > Schemes that get more widely used are removed from the tax code and something else is put in their place. Schemes that benefit the income-class are removed from the tax code > The fact their only used by a small percentage of the population is a feature not a bug. The fact they're only used by the very wealthy is a feature, not a bug. > Governments spend mind boggling amounts of money, most people need to hand over a large fraction of their earnings or the system fails. Governments are paid by the ultra weathly to siphon more money their way, most non-ultra-wealthy people need to hand over a large fraction of their earnings or the system fails.
  - Retric 5y ago
    Well, sure but I try and avoid inflammatory language when it comes to taxes etc. People get really uptight that of course X, when you bring up say ‘business shield their owners from liability’ like whatever is being discussed is some inherent property or the universe rather than simply a social contract subject to change. People pretend anything that is currently benefiting them is simply a forgone conclusion in part to avoid having to defend it. Nobody wants to admit that say “companies should pay taxes” because incorporation brings benefits and those benefits should have an associated cost. I use the liability thing because it’s such an old social contract. Plenty of more recent exceptions evoke similar responses from those who benefit.
    - fallingknife 5y ago
      The problem is you are trying to base a tax code on "should," which is why it's broken in the first place. The problem with taxing corporations is that it isn't clear cut what their income is. Individual income is much more easily defined, (even if it comes from distributions from corporations) so taxes that target individuals tend to be more successful.
      - Retric 5y ago
        I don’t mean should as in an ethical argument. Forcing people to do paperwork to get shielded from liability is simply less efficient than shielding everyone from liability. Yes the second option seems silly, but if there is zero costs to forming a cooperation then why would anyone refrain? The only way such a system is a good idea is if there is some reason for people not to incorporate.
atty 5y ago
I would argue that the failing is not in the education system, but instead that the tax structure of a country should not be built in such a way that those with the time and resources to spend can effectively game the system to pay significantly less of a percentage of their total wealth than those who are less wealthy.
- wolverine876 5y ago
  Notice that the current infrastructure bill before the U.S. Congress includes a provision to increase enforcement resources for the IRS. Those resources have been cut considerably in recent years, and restoring them is expected to pay for itself several times over, by catching people cheating on their taxes. Conservative groups are mobilizing to oppose increasing the funding: https://www.washingtonpost.com/business/2021/07/07/irs-taxes-budget-conservatives/ https://www.washingtonpost.com/business/2021/07/07/irs-taxes...
  - GaryTang 5y ago
    I’d wager the additional people caught “cheating” will likely be small business owners while the fat cats continue business as usual.
    - HeyLaughingBoy 5y ago
      "Fat cat" is a relative term. You might be surprised to know how many people of modest means think that every small business owner is a fat cat. Hell, I used to own a single family house that I rented out and I had to listen to snarky comments from tenants who assumed I was rich. Newsflash: I'm not!
    - wolverine876 5y ago
      Based on what? The IRS does catch cheating wealthy people, but their personnel for doing so has been reduced by ~30%. What do you suggest? Let them keep cheating?
lotsofpulp 5y ago
> It's just that... most of us mere mortals don't know anything about them. I thought it was just that the vast majority of mere mortals simply did not possess the sufficient wealth to take advantage.
- JKCalhoun 5y ago
  Agree. I would love it if someone can rattle off a list of tax havens that I am simply unaware of. Can I buy a major league sports team? Can I get millions of stock options to be valued at pennies on the dollar to put in my Roth IRA? Where has school failed me?
  - selectodude 5y ago
    You can funnel money through an LLC and write it off in addition to your own personal standard deduction.
    - egypturnash 5y ago
      How much will it cost to set up an LLC? How many recurring fees will this incur?
      - deleted 5y ago
        [deleted]
      - freeone3000 5y ago
        Depends on state of incorporation. It's usually a low one-time fee -- Texas is $300. There's also no need to incorporate in a state you are physically present in, but it makes taxes simpler if the state you're in requires state income tax.
        radley 5y ago
        California has a minimum $800 annual tax. The first year is waived for any LLC, LP, & LLP set up during 2021-23 due to the pandemic.
coding123 5y ago
It is actually quite interesting what you can find on youtube these days. There are people that have instead purchased very cheap property and are living debt free. Those people are talking about society as still having slavery - in effect - because they realize, after their freedom, what it actually was the entire time. So it's not just about tax evasion or what have you, there are all sorts of ways to restructure one's life. We don't all need what we think we need.
- PragmaticPulp 5y ago
  > Those people are talking about society as still having slavery - in effect - because they realize, after their freedom, what it actually was the entire time. Comparing a mortgage to slavery is wildly out of touch with the horrors of actual slavery. Let’s pick a different word to discuss the relative inconvenience of having to have a job in modern society.
  - acwan93 5y ago
    Indentured servitude?
andreygrehov 5y ago
It's not a massive news by any means. I know plenty of low income folks who use 1 member corporations to minimize their taxes. I mean, it's a pretty common knowledge.
PragmaticPulp 5y ago
> it's shocking and eye-opening how many schemes (aka "legal structures") you can employ to preserve your wealth and reduce taxation which are available to everyone regardless of their social status. It's just that... most of us mere mortals don't know anything about them. In fact, some of this stuff seems borderline illegal Be careful. There are a lot of creative interpretations of the tax code out there that genuinely are illegal. People who employ them often assume they’re fine because they haven’t been audited or caught yet, but that doesn’t make them legal. Always, always refer to a qualified accountant to review any tax strategies that seem too good to be true. YouTube is a fun place to learn about things, but the goal of YouTube producers is to get more clicks, not necessarily give the most accurate legal advice.
- _jal 5y ago
  > People who employ them often assume they’re fine because they haven’t been audited or caught yet, but that doesn’t make them legal. There's also the pack effect. Kind of like how few folks taking the EITC actively trade stock, it looks 'normal' for rich people to do these things, whereas the same device when used by someone of more modest means is more likely to attract attention. Not to mention having fewer resources to fight if you are audited.
  - SaltyBackendGuy 5y ago
    > Not to mention having fewer resources to fight if you are audited. Can't find the link now, but I read somewhere that the IRS avoids audits if the risk of losing is higher (i.e. the person in question has more resources to fight it $). So their enforcement is heavily skewed towards average people. Which corroborates this statement. > more modest means is more likely to attract attention
    - ASalazarMX 5y ago
      Poor IRS, if only it had some good government contacts, it could ask them to improve the law and close those loopholes. Oh well.
xhrpost 5y ago
Thanks for the link, I've been thinking a lot about this lately. Like: - Why can Trump write off a $70k haircut but I can't write off a $35 haircut? - Why can my employer buy my laptop, and I can use it in my off time for video games but if I buy a laptop, even to help with say an LLC I might own, I can only write off the 'portion' used for work? - Why can my employer buy us lunch but if I work on my own I can't write off a meal except under specific circumstances? At what point is a corporation able to do the above? Can other normal citizens also do it or is the system kinda rigged against us (even if unintentionally)?
- chromaton 5y ago
  >- Why can Trump write off a $70k haircut but I can't write off a $35 haircut? Probably claims it as a necessary expense for being on TV. >Why can my employer buy my laptop, and I can use it in my off time for video games but if I buy a laptop, even to help with say an LLC I might own, I can only write off the 'portion' used for work? Stuff provided to employees for personal use is supposed to be taxed as a benefit. It's just likely that this hasn't been investigated by the IRS. > - Why can my employer buy us lunch but if I work on my own I can't write off a meal except under specific circumstances? That one's a can of worms and I know the rules have changed a number of times on this. You might consider inviting potential client to lunch. Then he or she might invite you next time as a potential vendor to lunch. Similarly: company retreats, teambuilding exercises, and gifts to clients. Consult your tax professional.
fallingknife 5y ago
Technically available to everyone. The issue is that > 90% of people have an income that is majority W-2 wages, and there isn't really a good way to avoid that.
- wang_li 5y ago
  Many people avoid a lot of taxes on their w-2 wages by not earning much money. They never develop much personal human capital. They don’t acquire specialized job skills. As a country the US should be more concerned about the fact that sixty percent of households don’t earn enough to sustain their lifestyle and receive large amounts of government aid in the form of services and transfers.
martincmartin 5y ago
how many schemes (aka "legal structures") you can employ to preserve your wealth and reduce taxation which are available to everyone regardless of their social status. Examples?
Spooky23 5y ago
Alot of the "entrepreneurship" stuff is grey-area stuff that doesn't get enforced well due to complexity and de-funding of IRS enforcement. It's all good until it isn't. The real "cheat" for US taxes is real property. At the small scale, you buy one of more multi-family properties and use cash rents and improvements to get rid of taxable income. At the larger scale, there are many different schemes to defer or eliminate tax liability. Looking at the business model for franchised hotels (Hampton Inns, Holiday Inn, Courtyards, etc) provides alot of perspective.
acdha 5y ago
> It's just that... most of us mere mortals don't know anything about them. It’s less that than that they’re not worth the trouble without a fair amount of capital at stake. It’s not worth hiring accountants and lawyers, setting up trusts, etc. if you don’t have enough tax savings to balance out those upfront costs – for many people, it’d be easier and a better return to put the same money in an index fund.
deleted 5y ago
[deleted]

happytoexplain 5y ago

I agree - practical financial education is a huge, glaring omission from most curriculums. However, even if it wasn't, universal availability isn't a good argument for the societal benefit, morality, or legality of these practices, since to say they would still disproportionately benefit the wealthy would be an understatement.

Retric 5y ago

Schemes that get more widely used are removed from the tax code and something else is put in their place. The fact their only used by a small percentage of the population is a feature not a bug. Governments spend mind boggling amounts of money, most people need to hand over a large fraction of their earnings or the system fails.

oarsinsync 5y ago
Apologies if the below comes across as inflammatory. It's not the intention, however it's largely the same as what you're saying, only how things actually play out in reality today. It doesn't need to be this way. It shouldn't be this way. Unfortunately, it is this way. > Schemes that get more widely used are removed from the tax code and something else is put in their place. Schemes that benefit the income-class are removed from the tax code > The fact their only used by a small percentage of the population is a feature not a bug. The fact they're only used by the very wealthy is a feature, not a bug. > Governments spend mind boggling amounts of money, most people need to hand over a large fraction of their earnings or the system fails. Governments are paid by the ultra weathly to siphon more money their way, most non-ultra-wealthy people need to hand over a large fraction of their earnings or the system fails.
- Retric 5y ago
  Well, sure but I try and avoid inflammatory language when it comes to taxes etc. People get really uptight that of course X, when you bring up say ‘business shield their owners from liability’ like whatever is being discussed is some inherent property or the universe rather than simply a social contract subject to change. People pretend anything that is currently benefiting them is simply a forgone conclusion in part to avoid having to defend it. Nobody wants to admit that say “companies should pay taxes” because incorporation brings benefits and those benefits should have an associated cost. I use the liability thing because it’s such an old social contract. Plenty of more recent exceptions evoke similar responses from those who benefit.
  - fallingknife 5y ago
    The problem is you are trying to base a tax code on "should," which is why it's broken in the first place. The problem with taxing corporations is that it isn't clear cut what their income is. Individual income is much more easily defined, (even if it comes from distributions from corporations) so taxes that target individuals tend to be more successful.
    - Retric 5y ago
      I don’t mean should as in an ethical argument. Forcing people to do paperwork to get shielded from liability is simply less efficient than shielding everyone from liability. Yes the second option seems silly, but if there is zero costs to forming a cooperation then why would anyone refrain? The only way such a system is a good idea is if there is some reason for people not to incorporate.

atty 5y ago

I would argue that the failing is not in the education system, but instead that the tax structure of a country should not be built in such a way that those with the time and resources to spend can effectively game the system to pay significantly less of a percentage of their total wealth than those who are less wealthy.

wolverine876 5y ago
Notice that the current infrastructure bill before the U.S. Congress includes a provision to increase enforcement resources for the IRS. Those resources have been cut considerably in recent years, and restoring them is expected to pay for itself several times over, by catching people cheating on their taxes. Conservative groups are mobilizing to oppose increasing the funding: https://www.washingtonpost.com/business/2021/07/07/irs-taxes-budget-conservatives/ https://www.washingtonpost.com/business/2021/07/07/irs-taxes...
- GaryTang 5y ago
  I’d wager the additional people caught “cheating” will likely be small business owners while the fat cats continue business as usual.
  - HeyLaughingBoy 5y ago
    "Fat cat" is a relative term. You might be surprised to know how many people of modest means think that every small business owner is a fat cat. Hell, I used to own a single family house that I rented out and I had to listen to snarky comments from tenants who assumed I was rich. Newsflash: I'm not!
  - wolverine876 5y ago
    Based on what? The IRS does catch cheating wealthy people, but their personnel for doing so has been reduced by ~30%. What do you suggest? Let them keep cheating?

lotsofpulp 5y ago

> It's just that... most of us mere mortals don't know anything about them. I thought it was just that the vast majority of mere mortals simply did not possess the sufficient wealth to take advantage.

JKCalhoun 5y ago
Agree. I would love it if someone can rattle off a list of tax havens that I am simply unaware of. Can I buy a major league sports team? Can I get millions of stock options to be valued at pennies on the dollar to put in my Roth IRA? Where has school failed me?
- selectodude 5y ago
  You can funnel money through an LLC and write it off in addition to your own personal standard deduction.
  - egypturnash 5y ago
    How much will it cost to set up an LLC? How many recurring fees will this incur?
    - deleted 5y ago
      [deleted]
    - freeone3000 5y ago
      Depends on state of incorporation. It's usually a low one-time fee -- Texas is $300. There's also no need to incorporate in a state you are physically present in, but it makes taxes simpler if the state you're in requires state income tax.
      - radley 5y ago
        California has a minimum $800 annual tax. The first year is waived for any LLC, LP, & LLP set up during 2021-23 due to the pandemic.

coding123 5y ago

It is actually quite interesting what you can find on youtube these days. There are people that have instead purchased very cheap property and are living debt free. Those people are talking about society as still having slavery - in effect - because they realize, after their freedom, what it actually was the entire time. So it's not just about tax evasion or what have you, there are all sorts of ways to restructure one's life. We don't all need what we think we need.

PragmaticPulp 5y ago
> Those people are talking about society as still having slavery - in effect - because they realize, after their freedom, what it actually was the entire time. Comparing a mortgage to slavery is wildly out of touch with the horrors of actual slavery. Let’s pick a different word to discuss the relative inconvenience of having to have a job in modern society.
- acwan93 5y ago
  Indentured servitude?

andreygrehov 5y ago

It's not a massive news by any means. I know plenty of low income folks who use 1 member corporations to minimize their taxes. I mean, it's a pretty common knowledge.

PragmaticPulp 5y ago

> it's shocking and eye-opening how many schemes (aka "legal structures") you can employ to preserve your wealth and reduce taxation which are available to everyone regardless of their social status. It's just that... most of us mere mortals don't know anything about them. In fact, some of this stuff seems borderline illegal Be careful. There are a lot of creative interpretations of the tax code out there that genuinely are illegal. People who employ them often assume they’re fine because they haven’t been audited or caught yet, but that doesn’t make them legal. Always, always refer to a qualified accountant to review any tax strategies that seem too good to be true. YouTube is a fun place to learn about things, but the goal of YouTube producers is to get more clicks, not necessarily give the most accurate legal advice.

_jal 5y ago
> People who employ them often assume they’re fine because they haven’t been audited or caught yet, but that doesn’t make them legal. There's also the pack effect. Kind of like how few folks taking the EITC actively trade stock, it looks 'normal' for rich people to do these things, whereas the same device when used by someone of more modest means is more likely to attract attention. Not to mention having fewer resources to fight if you are audited.
- SaltyBackendGuy 5y ago
  > Not to mention having fewer resources to fight if you are audited. Can't find the link now, but I read somewhere that the IRS avoids audits if the risk of losing is higher (i.e. the person in question has more resources to fight it $). So their enforcement is heavily skewed towards average people. Which corroborates this statement. > more modest means is more likely to attract attention
  - ASalazarMX 5y ago
    Poor IRS, if only it had some good government contacts, it could ask them to improve the law and close those loopholes. Oh well.

xhrpost 5y ago

Thanks for the link, I've been thinking a lot about this lately. Like: - Why can Trump write off a $70k haircut but I can't write off a $35 haircut? - Why can my employer buy my laptop, and I can use it in my off time for video games but if I buy a laptop, even to help with say an LLC I might own, I can only write off the 'portion' used for work? - Why can my employer buy us lunch but if I work on my own I can't write off a meal except under specific circumstances? At what point is a corporation able to do the above? Can other normal citizens also do it or is the system kinda rigged against us (even if unintentionally)?

chromaton 5y ago
>- Why can Trump write off a $70k haircut but I can't write off a $35 haircut? Probably claims it as a necessary expense for being on TV. >Why can my employer buy my laptop, and I can use it in my off time for video games but if I buy a laptop, even to help with say an LLC I might own, I can only write off the 'portion' used for work? Stuff provided to employees for personal use is supposed to be taxed as a benefit. It's just likely that this hasn't been investigated by the IRS. > - Why can my employer buy us lunch but if I work on my own I can't write off a meal except under specific circumstances? That one's a can of worms and I know the rules have changed a number of times on this. You might consider inviting potential client to lunch. Then he or she might invite you next time as a potential vendor to lunch. Similarly: company retreats, teambuilding exercises, and gifts to clients. Consult your tax professional.

fallingknife 5y ago

Technically available to everyone. The issue is that > 90% of people have an income that is majority W-2 wages, and there isn't really a good way to avoid that.

wang_li 5y ago
Many people avoid a lot of taxes on their w-2 wages by not earning much money. They never develop much personal human capital. They don’t acquire specialized job skills. As a country the US should be more concerned about the fact that sixty percent of households don’t earn enough to sustain their lifestyle and receive large amounts of government aid in the form of services and transfers.

martincmartin 5y ago

how many schemes (aka "legal structures") you can employ to preserve your wealth and reduce taxation which are available to everyone regardless of their social status. Examples?

Spooky23 5y ago

Alot of the "entrepreneurship" stuff is grey-area stuff that doesn't get enforced well due to complexity and de-funding of IRS enforcement. It's all good until it isn't. The real "cheat" for US taxes is real property. At the small scale, you buy one of more multi-family properties and use cash rents and improvements to get rid of taxable income. At the larger scale, there are many different schemes to defer or eliminate tax liability. Looking at the business model for franchised hotels (Hampton Inns, Holiday Inn, Courtyards, etc) provides alot of perspective.

acdha 5y ago

> It's just that... most of us mere mortals don't know anything about them. It’s less that than that they’re not worth the trouble without a fair amount of capital at stake. It’s not worth hiring accountants and lawyers, setting up trusts, etc. if you don’t have enough tax savings to balance out those upfront costs – for many people, it’d be easier and a better return to put the same money in an index fund.

deleted 5y ago

[deleted]