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In Ted Turner's autobiography [0] (highly recommended) he describes how wealth individuals got around the very high income taxes in the 1960s-1970s: - Person A
by alexpotato 8mo ago
In Ted Turner's autobiography [0] (highly recommended) he describes how wealth individuals got around the very high income taxes in the 1960s-1970s:
- Person A is selling their company to Person B
- The total price is very high (let's say millions)
- I B pays A the millions, A will have to pay a large tax burden
- Instead, A "loans" the money to B so that B can "buy" the business
- This creates a stream of small payments (less tax), spread out over time
I mention this only b/c smart people will eventually figure out ways around these taxes.
For example, there are already "barter networks" in Scandinavia where Person 1 does plumbing for Person 2, Person 2 does legal work for Person 3 who in turn does accounting for Person 1. All so there is less income reported.
0 - https://amzn.to/40a8Z67 https://amzn.to/40a8Z67
- nerdsniper 8mo agoAlso, uniquely in the USA, interest payments on debt can be deducted from your income. There are some caveats to deducting this from personal taxes rather than business taxes, but in general if you can show your personally used the loan for business purposes, you can use the Schedule C form to deduct the interest on it from your personal income to lower taxes paid.
- bombcar 8mo agoDeduction of interest against revenue isn't allowed in other countries for business purposes? I know the home mortgage deduction might be somewhat unique, but interest costs seem a business expense pretty clearly.
- exceptione 8mo agoIn the NL the one who provides the loan is supposed to do that against a normal interest rate, which is a capital gain subject to tax. So this trick would not work here afaik, because now there is still a party paying taxes.
- spwa4 8mo agoWhat about the "default on the loan" backdoor? Would that work? Let's say I sell you my business for $1 million. You give me a loan for $1,2 million. The money is transferred into my account. I pay 2% interest for 10 years and then I default on the loan. You do nothing to recover the money. Tax free sale, no?
- lbreakjai 8mo agoI had a few colleagues in the UK that tried this to avoid taxes. The tax services generally don't look too kindly on that sort of arrangements. Searching for "Loan charge" should surface quite a few distressed stories.
- bombcar 8mo agoIn the USA this is taxed as if the loan was forgiven - so one side or the other pays the tax. There are ways to abuse the bankruptcy laws, but they are difficult and time consuming and usually not worth it.
- nerdsniper 8mo agoYou may be right. I might be misremembering or overgeneralizing some articles about mortgage interest deductions.