4 ms·

> How many of you were taught in school that if you pay yourself a minimum wage and make up the rest as a dividend/bonus you can avoid paying a significant amou

by wtn 14y ago

> How many of you were taught in school that if you pay yourself a minimum wage and make up the rest as a dividend/bonus you can avoid paying a significant amount of tax (legally)? You shouldn't do that, it's not permissible under current tax rules… IRS requires that officer shareholders be paid a reasonable salary, and if you're making enough money to pay dividends, minimum wage will be hard to justify as "reasonable." I'm not sure how paying bonuses will help with tax avoidance as those are taxable like regular wage income.

sparkie 14y ago
IRS only applies to US companies. Each country has it's own different loopholes that allow you to pay less tax if you're earning more. The big corps pay far less tax than they should. Note to term, "tax avoidance". "Tax evasion" is illegal, but there are plenty of legal ways to avoid tax, many of which I'm not aware of myself, but will be grateful for anyone willing to share. And that's a big part of it - people don't share the knowledge - it's "insider" knowledge, and you aren't in the club. The fewer that know, the more money those who do, can make.
- hij7898 14y ago
  1) Wealth is not zero-sum. 2) You're recommending that we defraud our federal government in your original post. Just stop.
  - sparkie 14y ago
    I'm not recommending you defraud your government, or do anything illegal - I'm recommending you do the same thing that every big corp does - pay the minimum tax they are required to by law, and no more. People are led to believe that the richest pay ~40-50% in tax, or whatnot depending on where you are - but that couldn't be further from the truth - they generally pay less (as a percentage of their total earnings) than the middle or working classes. You know, when these bankers pay themselves a $9 million tax free bonus at the end of the year - are they defrauding the government? Work it out, say a banker is on a nice $1m salary, which he pays 50% in tax, but pays zero tax on his fat $9 million bonus.
    - hij7898 14y ago
      You seem quite naive. I'm assuming you're fairly young. 1) Top marginal tax rate is 35%. 2) Bonuses are taxed as income as well. 3) The rich pay the majority of taxes. (http://www.usatoday.com/money/perfi/taxes/story/2011-09-20/buffett-tax-millionaires/50480226/1 http://www.usatoday.com/money/perfi/taxes/story/2011-09-20/b...) The world isn't out to screw you.
      - sparkie 14y ago
        I'm less naive than I was a few years ago since learning somewhat how the system works. 1) Perhaps you missed the part where I said IRS only applies to US? Tax rates do differ in different countries, if you weren't aware. That's one of the major tax avoidance methods - do what you can offshore, wherever you benefit by paying less. 2) Again, depends where you are. While all bonuses may not be tax free, they are usually taxed differently to income tax anyway - such that less tax is paid. Why do you think people pay bonuses rather than just increasing salaries? 3) I wasn't claiming otherwise - my claim is that the rich don't aren't paying more as a proportion of their total earnings, which is what is claimed to be the case by the system. Whether the world is out to screw you or not I'd debate. It's more like the world is out to get as rich as possible, and you get screwed as a side effect.
        rprasad 14y ago
        You have now suggested two forms of tax evasion: falsely allocating income to "dividends" and using offshore tax shelters. Please stop trying to give tax advice. Bonuses are income. They are taxed as ordinary income (or the equivalent of ordinary income in E.U. nations). Bonuses are not given lower rates; if anything, certain types of bonuses are subject to higher rates than ordinary income. Companies pay bonuses because bonuses are discretionary, while salaries are contractual. In other words, giving a bonus one year does not commit them to paying the bonus again the following year.
        sparkie 14y ago
        If you're taking my points as advice, you probably deserve to be screwed. I'm not trying to give it. Falsely allocating dividends, using offshore tax accounts are what big companies are actively doing, and many getting away with it. And yes, these include your favorite tech companies and such. (http://www.ibtimes.com/articles/334737/20120429/apple-avoid-taxes-nytimes-profits.htm http://www.ibtimes.com/articles/334737/20120429/apple-avoid-...) The banking secrecy in some countries is the real enabler of tax evasion though - because corporations can simply fudge the numbers to reduce the tax bill.
  - sparkie 14y ago
    Perhaps relevant: yesterday's news. (http://www.bbc.co.uk/news/uk-politics-18521468 http://www.bbc.co.uk/news/uk-politics-18521468). Those are just few of the tax avoidance schemes that come to light - which it should be noted are not necessarily illegal. The reality is that the rich and famous are involved in these schemes - earning big money and paying less tax than hard working, honest men. The government doesn't take the necessary steps to put an end to these kinds of schemes in any haste - probably because they're involved in many themselves, along with their friends. If everyone was doing it, the schemes would be closed. I therefore recommend everyone do it, when legal.
    - rprasad 14y ago
      I suggest you read the article more carefully. The comedian in the article is being investigated for using a tax shelter to evade British taxes. If you read more about the K2 tax shelter, you will learn that British tax authorities consider it to be illegal (obviously, taxpayers using the K2 do not) and are launching enforcement actions.
      - sparkie 14y ago
        The article doesn't say K2 is considered illegal, rather, it clearly states "legal, but aggressive." It does say the scheme is under investigation, but it's not declared illegal yet. The icebreaker one is. My linking to the article wasn't just to point out these specific schemes, but more to just highlight the scope of tax avoidance/evasion. There are many loopholes that get abused, some get fixed, although not always in a timely manner.
- gigantor 14y ago
  In Canada, the minimum wage + large dividend payment system is allowed and encouraged. Encouraged because it's a transparent way of declaring your income and earnings without using any complex loopholes to bypass the system. Encouraged because: 1) Having your own company is more risky as opposed to a Permanent employee role in the government's eyes, hence more opportunities to pay less taxes 2) Companies are far more likely to work towards creating employment than individuals working for companies, benefiting the economy 3) Dividend income is taxed at a reduced bracket to stimulate investment, regardless whether you're investing in your own company or getting dividends from a large public corporation by being a shareholder 10 years of filing corporate taxes, having every accountant follow this practice, and an official audit with no complaints shows the Canadian Revenue Agency has no issues with this system.
  - sparkie 14y ago
    Hey, thanks for your input. The Canadian system seems similar to the UK. Every accountant is doing this, but there just doesn't seem to be an openness about it. It seems you only know how to do this if you're an accountant, or know an accountant - which was the point I was trying to get across in my original post - you aren't told this in school - they only tell you how to get a job, where none of it applies.
    - mibbitier 14y ago
      It's extremely open. If you're in the position of running a company, either you find out it's a good idea, or you get an accountant, who will tell you it's a good idea. Sure, they don't teach you it at school, because most people at school won't start their own companies.

by wtn 14y ago

sparkie 14y ago

IRS only applies to US companies. Each country has it's own different loopholes that allow you to pay less tax if you're earning more. The big corps pay far less tax than they should. Note to term, "tax avoidance". "Tax evasion" is illegal, but there are plenty of legal ways to avoid tax, many of which I'm not aware of myself, but will be grateful for anyone willing to share. And that's a big part of it - people don't share the knowledge - it's "insider" knowledge, and you aren't in the club. The fewer that know, the more money those who do, can make.

hij7898 14y ago
1) Wealth is not zero-sum. 2) You're recommending that we defraud our federal government in your original post. Just stop.
- sparkie 14y ago
  I'm not recommending you defraud your government, or do anything illegal - I'm recommending you do the same thing that every big corp does - pay the minimum tax they are required to by law, and no more. People are led to believe that the richest pay ~40-50% in tax, or whatnot depending on where you are - but that couldn't be further from the truth - they generally pay less (as a percentage of their total earnings) than the middle or working classes. You know, when these bankers pay themselves a $9 million tax free bonus at the end of the year - are they defrauding the government? Work it out, say a banker is on a nice $1m salary, which he pays 50% in tax, but pays zero tax on his fat $9 million bonus.
  - hij7898 14y ago
    You seem quite naive. I'm assuming you're fairly young. 1) Top marginal tax rate is 35%. 2) Bonuses are taxed as income as well. 3) The rich pay the majority of taxes. (http://www.usatoday.com/money/perfi/taxes/story/2011-09-20/buffett-tax-millionaires/50480226/1 http://www.usatoday.com/money/perfi/taxes/story/2011-09-20/b...) The world isn't out to screw you.
    - sparkie 14y ago
      I'm less naive than I was a few years ago since learning somewhat how the system works. 1) Perhaps you missed the part where I said IRS only applies to US? Tax rates do differ in different countries, if you weren't aware. That's one of the major tax avoidance methods - do what you can offshore, wherever you benefit by paying less. 2) Again, depends where you are. While all bonuses may not be tax free, they are usually taxed differently to income tax anyway - such that less tax is paid. Why do you think people pay bonuses rather than just increasing salaries? 3) I wasn't claiming otherwise - my claim is that the rich don't aren't paying more as a proportion of their total earnings, which is what is claimed to be the case by the system. Whether the world is out to screw you or not I'd debate. It's more like the world is out to get as rich as possible, and you get screwed as a side effect.
      - rprasad 14y ago
        You have now suggested two forms of tax evasion: falsely allocating income to "dividends" and using offshore tax shelters. Please stop trying to give tax advice. Bonuses are income. They are taxed as ordinary income (or the equivalent of ordinary income in E.U. nations). Bonuses are not given lower rates; if anything, certain types of bonuses are subject to higher rates than ordinary income. Companies pay bonuses because bonuses are discretionary, while salaries are contractual. In other words, giving a bonus one year does not commit them to paying the bonus again the following year.
        sparkie 14y ago
        If you're taking my points as advice, you probably deserve to be screwed. I'm not trying to give it. Falsely allocating dividends, using offshore tax accounts are what big companies are actively doing, and many getting away with it. And yes, these include your favorite tech companies and such. (http://www.ibtimes.com/articles/334737/20120429/apple-avoid-taxes-nytimes-profits.htm http://www.ibtimes.com/articles/334737/20120429/apple-avoid-...) The banking secrecy in some countries is the real enabler of tax evasion though - because corporations can simply fudge the numbers to reduce the tax bill.
- sparkie 14y ago
  Perhaps relevant: yesterday's news. (http://www.bbc.co.uk/news/uk-politics-18521468 http://www.bbc.co.uk/news/uk-politics-18521468). Those are just few of the tax avoidance schemes that come to light - which it should be noted are not necessarily illegal. The reality is that the rich and famous are involved in these schemes - earning big money and paying less tax than hard working, honest men. The government doesn't take the necessary steps to put an end to these kinds of schemes in any haste - probably because they're involved in many themselves, along with their friends. If everyone was doing it, the schemes would be closed. I therefore recommend everyone do it, when legal.
  - rprasad 14y ago
    I suggest you read the article more carefully. The comedian in the article is being investigated for using a tax shelter to evade British taxes. If you read more about the K2 tax shelter, you will learn that British tax authorities consider it to be illegal (obviously, taxpayers using the K2 do not) and are launching enforcement actions.
    - sparkie 14y ago
      The article doesn't say K2 is considered illegal, rather, it clearly states "legal, but aggressive." It does say the scheme is under investigation, but it's not declared illegal yet. The icebreaker one is. My linking to the article wasn't just to point out these specific schemes, but more to just highlight the scope of tax avoidance/evasion. There are many loopholes that get abused, some get fixed, although not always in a timely manner.
gigantor 14y ago
In Canada, the minimum wage + large dividend payment system is allowed and encouraged. Encouraged because it's a transparent way of declaring your income and earnings without using any complex loopholes to bypass the system. Encouraged because: 1) Having your own company is more risky as opposed to a Permanent employee role in the government's eyes, hence more opportunities to pay less taxes 2) Companies are far more likely to work towards creating employment than individuals working for companies, benefiting the economy 3) Dividend income is taxed at a reduced bracket to stimulate investment, regardless whether you're investing in your own company or getting dividends from a large public corporation by being a shareholder 10 years of filing corporate taxes, having every accountant follow this practice, and an official audit with no complaints shows the Canadian Revenue Agency has no issues with this system.
- sparkie 14y ago
  Hey, thanks for your input. The Canadian system seems similar to the UK. Every accountant is doing this, but there just doesn't seem to be an openness about it. It seems you only know how to do this if you're an accountant, or know an accountant - which was the point I was trying to get across in my original post - you aren't told this in school - they only tell you how to get a job, where none of it applies.
  - mibbitier 14y ago
    It's extremely open. If you're in the position of running a company, either you find out it's a good idea, or you get an accountant, who will tell you it's a good idea. Sure, they don't teach you it at school, because most people at school won't start their own companies.