2 ms·

I hadn't thought through the numbers, but here goes. The Wiki article in my parent post says that the US federal corporate tax rate once beyond the lowest brac

by T-hawk 14y ago

I hadn't thought through the numbers, but here goes. The Wiki article in my parent post says that the US federal corporate tax rate once beyond the lowest brackets is 34% or 35%. The personal tax rate on capital gains is 15% of the 65% that remains after the corporate taxation step, so 10% of the original total. The total of 45% is higher than the top personal bracket of 35%. (And it's reasonable that it should be, as the child comment points out, the corporation is buying legally protected limitation of liability. The notion that business owners pay less tax than workaday individuals is a media-created myth.)

rayiner 14y ago
Say someone earns a million dollars a year driving a cab. If he negligently hits and kills someone, and gets a $3 million wrongful-death judgment against him, he is personally on the hook for the whole $3 million. If an individual earns a million dollars a year by owning a fleet of cabs, each organized as a separate corporation with the legally-required $50k or whatever of insurance,[1] and one of the cabs hits and kills someone resulting in a $3 million wrongful death lawsuit, the individual is out at most the assets of that single corporation (say $50k + legal fees). It would be ridiculous if the individual paid the same %-age of taxes on that million dollars in both cases. [1] This is actually how many (most?) cab companies are structured.
yequalsx 14y ago
You are looking at the nominal corporate tax rate. What is relevant in such considerations is the effective tax rate.
rprasad 14y ago
Corporations don't care what the base corporate tax rate is. They care about their effective tax rate, which is what they will actually pay in taxes after all deductions, credits, and deferrals are accounted for. Aside: I knew a guy who relied on wikipedia to give out tax advice. He was sued for malpractice and lost. He now owes his former clients $2 million (the amount of additional taxes they had to pay as a result of his erroneous advice).
rayiner 14y ago
It's important to distinguish between a business owner and a passive shareholder. Someone who runs a corporation they own can pay themselves a salary, at market rates, for the work they do, and that money is not taxed when received by the corporation.
Aloisius 14y ago
The notion that business owners pay less tax than workaday individuals is a media-created myth. Uh, except that corporations pay taxes on net while individuals pay taxes on gross. It is entirely possible to structure your corporate income such that you would pay less tax than a normal individual. You simply use your company to pay for all your expenses, take no salary and instead pull in dividends and/or stock that can be sold at long-term capital gains rates in a year. I'm not sure how you missed all those stories about the selfless CEOs taking $1 salaries (and millions of dollars in stock) in order to do just that.
mistermann 14y ago
> The notion that business owners pay less tax than workaday individuals is a media-created myth. I'm one of those media-created myths. I am a programmer, but I work under a "corporation". And I know I pay way less taxes than friends who work as employees with pure earned income. I don't see how this would be any different if I, for example, ran a corner store. (Actually, the possibilities increase even more there, as you can use creative accounting on your taxes, PLUS, very easily run a significant portion of your business "off the books".)

by T-hawk 14y ago

rayiner 14y ago

Say someone earns a million dollars a year driving a cab. If he negligently hits and kills someone, and gets a $3 million wrongful-death judgment against him, he is personally on the hook for the whole $3 million. If an individual earns a million dollars a year by owning a fleet of cabs, each organized as a separate corporation with the legally-required $50k or whatever of insurance,[1] and one of the cabs hits and kills someone resulting in a $3 million wrongful death lawsuit, the individual is out at most the assets of that single corporation (say $50k + legal fees). It would be ridiculous if the individual paid the same %-age of taxes on that million dollars in both cases. [1] This is actually how many (most?) cab companies are structured.

yequalsx 14y ago

You are looking at the nominal corporate tax rate. What is relevant in such considerations is the effective tax rate.

rprasad 14y ago

Corporations don't care what the base corporate tax rate is. They care about their effective tax rate, which is what they will actually pay in taxes after all deductions, credits, and deferrals are accounted for. Aside: I knew a guy who relied on wikipedia to give out tax advice. He was sued for malpractice and lost. He now owes his former clients $2 million (the amount of additional taxes they had to pay as a result of his erroneous advice).

rayiner 14y ago

It's important to distinguish between a business owner and a passive shareholder. Someone who runs a corporation they own can pay themselves a salary, at market rates, for the work they do, and that money is not taxed when received by the corporation.

Aloisius 14y ago

The notion that business owners pay less tax than workaday individuals is a media-created myth. Uh, except that corporations pay taxes on net while individuals pay taxes on gross. It is entirely possible to structure your corporate income such that you would pay less tax than a normal individual. You simply use your company to pay for all your expenses, take no salary and instead pull in dividends and/or stock that can be sold at long-term capital gains rates in a year. I'm not sure how you missed all those stories about the selfless CEOs taking $1 salaries (and millions of dollars in stock) in order to do just that.

mistermann 14y ago

> The notion that business owners pay less tax than workaday individuals is a media-created myth. I'm one of those media-created myths. I am a programmer, but I work under a "corporation". And I know I pay way less taxes than friends who work as employees with pure earned income. I don't see how this would be any different if I, for example, ran a corner store. (Actually, the possibilities increase even more there, as you can use creative accounting on your taxes, PLUS, very easily run a significant portion of your business "off the books".)