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HOT TOPIC How many of you guys pay virtually nothing in taxes due to write offs?

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Kal-El1998

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I just filed my taxes and still feel robbed. They took 18% of my money and all they're doing is paying off the interest on their national debt. Doesn't help you or me any. I'm looking to be educated on how I can give big brother the big finger next year.
 

eliquid

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I just filed my taxes and still feel robbed. They took 18% of my money and all they're doing is paying off the interest on their national debt. Doesn't help you or me any. I'm looking to be educated on how I can give big brother the big finger next year.

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Kak

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For the most part, not paying taxes = not making money.

Exactly.

Write offs, deductions, expensing (whatever you call them) are there to make sure that you only count the actual income from a business, not more.

If you sell 10 million worth of shrimp in a given year, and spend...
-2.5 million on boat fuel
-1 million on insurance
-1.5 million on employees and benefits
-650k on boat slips
-1 million on maintaining
-500k on depreciation of the boats
-850k worth of random credit card business expenses

You made- $2,000,000 in net income. Depending on your tax election, you pay taxes on that $2,000,000 in some form or fashion. Whether it remains corporate or flows through.

End of story. That’s why you keep track of what you spent money on to run the business and try to stay organized.

After that, there are personal deductions if you exceed the standard deduction.

So basically the people who “write everything off” and “don’t pay taxes” because of it, are probably running up that random expense category full of personal shit and are actually filing fraudulent tax returns.

Now, if you want to LEGALLY pay less taxes. Your only two options are make less money or move. From a high tax state to a low tax state. From the mainland states to Puerto Rico or the US Virgin Islands. Or immigrate to a country with lower taxes and renounce.
 
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biophase

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I just filed my taxes and still feel robbed. They took 18% of my money and all they're doing is paying off the interest on their national debt. Doesn't help you or me any. I'm looking to be educated on how I can give big brother the big finger next year.
Just be happy they only took 18%. I would gladly do that every year!
 

Lyinx

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Someone complained about how much he had to pay in taxes, and my dad told him to be happy, that means he is making money. in fact, he should try to pay more in taxes (so that he is making even more money)

there are some situations where someone doesn't pay taxes (up-front) but ends up paying years later, such as when you buy a business, or other asset, and depreciate it for a few years.. problem with that plan is that sooner or later you will end up with a lot of stuff and either have to throw it away or sell it at an auction and pay taxes on it. At least your company should have top-of-the line equipment if you follow this plan.
 

Lyinx

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Just be happy they only took 18%. I would gladly do that every year!
I wish I'd make enough profit that they went after me for the top brackets :)
 

Kak

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Just be happy they only took 18%. I would gladly do that every year!

Yeah, I’d promise to be a total bootlicker for an 18% federal tax rate.
 

MJ DeMarco

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Wow, if 18% is triggering, wait until you start paying 50%.

Well, I'm exaggerating, actually I only pay 45% in income taxes. But I'm sure with sales taxes, property taxes, telecom taxes, and gas taxes I'm in way above 50%.

A business does help, but a "write off" only reduces the net owed. Moreover, it makes no sense to trivially spend $1 now so I can save 45 cents later on taxes.
 

Johnny boy

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Okay okay cool I see a lot of “make less money” but let’s talk about this

can a foreign company avoid paying taxes on income it gets online?

can that company pay for things in America with a foreign bank account?

can that company offer “consulting” services to the tune of about 150,000 or more per year to a lawn care company in Washington state?

can I just so happen to own that foreign company?

or

can I hire someone who lives in the Cayman Islands to be the “owner” of that business, and I have access to all banking information, so the money is charged to the Cayman Islands business which makes hundreds of thousands and pays no taxes, my business breaks even, and the Cayman Islands business bank account pays for everything.
 
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biophase

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Wow, if 18% is triggering, wait until you start paying 50%.

Well, I'm exaggerating, actually I only pay 45% in income taxes. But I'm sure with sales taxes, property taxes, telecom taxes, and gas taxes I'm in way above 50%.

A business does help, but a "write off" only reduces the net owed. Moreover, it makes no sense to trivially spend $1 now so I can save 45 cents later on taxes.

Yeah, he will be complaining like a MF later. High taxes definitely helped me make my decision to close some of my lower profitability businesses.
 

CareCPA

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Okay okay cool I see a lot of “make less money” but let’s talk about this

can a foreign company avoid paying taxes on income it gets online?

can that company pay for things in America with a foreign bank account?

can that company offer “consulting” services to the tune of about 150,000 or more per year to a lawn care company in Washington state?

can I just so happen to own that foreign company?

or

can I hire someone who lives in the Cayman Islands to be the “owner” of that business, and I have access to all banking information, so the money is charged to the Cayman Islands business which makes hundreds of thousands and pays no taxes, my business breaks even, and the Cayman Islands business bank account pays for everything.
No.

I mean, maybe you can get away with this for a bit, but foreign control rules have gotten a lot more strict over the last couple years. If you have control over a foreign corp, then all that income gets pulled back into the US. You even put "owner" in quotes, do you think the IRS won't see right through it?

Further, if you don't report it and the government finds out, penalties start at $10k per missed filing (plus the penalties and interest you'll face on the tax itself).

Are there ways around it? Maybe, but you'd probably have to have a pretty high income for the compliance costs to make sense.
 

CJRealEstate

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Well I always get with my accountant before the end of the year and see if I can purchase a house or two in cash. I’m also not making big millions yet like some of you though. I will buy a house or two in cash to lower my tax bracket and income levels. The banks already won’t loan me any mortgages. Self employed fun stuff. After I purchase I will go to the bank and get a line of credit or mortgage after the house is paid in cash. It’s a work around, but I would like to pay 45 percent in tax. This would be because I would be making a killing at that bracket.
 

biophase

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Well I always get with my accountant before the end of the year and see if I can purchase a house or two in cash. I’m also not making big millions yet like some of you though. I will buy a house or two in cash to lower my tax bracket and income levels. The banks already won’t loan me any mortgages. Self employed fun stuff. After I purchase I will go to the bank and get a line of credit or mortgage after the house is paid in cash. It’s a work around, but I would like to pay 45 percent in tax. This would be because I would be making a killing at that bracket.
I'm not understanding how buying a house at the end of the year lowers your income level?

Unless you are talking about taking depreciation from cost aggregation study fully in the first year. By your RE handle I assume that you are a real estate professional.
 

CJRealEstate

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I'm not understanding how buying a house at the end of the year lowers your income level?

Unless you are talking about taking depreciation from cost aggregation study fully in the first year. By your RE handle I assume that you are a real estate professional.
Yes, I am a real estate investor /agent. I’ll try to help explain. This doesn’t factor in depreciation fully in the year though. I operate a few LLCs taxed as an S Corp. I usually am set up for a salary at a percentage income tax level. I add up rents and sales income around October. I Figure out if the year ends like it is going now I will show a profit of let’s say 500k. I will owe around 20% which should be 100k. Option 1 I can 1031 exchange into a larger property and roll taxes down the line as some have stated. Option 2 I can go buy two 200k houses before the end of the year. This would take my taxable business pass through income owed from 100k down to 20k. Not including other expenses. So instead of paying 100k I can get two houses, which would be be my goal the entire time. Since the bank won’t loan I’d just pay cash. I do get the years of depreciation after I buy. I believe it’s 27.5 years I might be wrong on exact figures. I can then go to the bank and pull 70 percent back out to use for more investment properties. That should be about 280k minus closing cost. It reduces taxes gives me more equity, depreciation increase, more rental income, a cash out refi, and the ability to acquire more properties. Hopefully this explains a little better. I know there are multiple strategies, but for my situation this works well for my goals.
 

biophase

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Yes, I am a real estate investor /agent. I’ll try to help explain. This doesn’t factor in depreciation fully in the year though. I operate a few LLCs taxed as an S Corp. I usually am set up for a salary at a percentage income tax level. I add up rents and sales income around October. I Figure out if the year ends like it is going now I will show a profit of let’s say 500k. I will owe around 20% which should be 100k. Option 1 I can 1031 exchange into a larger property and roll taxes down the line as some have stated. Option 2 I can go buy two 200k houses before the end of the year. This would take my taxable business pass through income owed from 100k down to 20k. Not including other expenses. So instead of paying 100k I can get two houses, which would be be my goal the entire time. Since the bank won’t loan I’d just pay cash. I do get the years of depreciation after I buy. I believe it’s 27.5 years I might be wrong on exact figures. I can then go to the bank and pull 70 percent back out to use for more investment properties. That should be about 280k minus closing cost. It reduces taxes gives me more equity, depreciation increase, more rental income, a cash out refi, and the ability to acquire more properties. Hopefully this explains a little better. I know there are multiple strategies, but for my situation this works well for my goals.

I still don't understand. When you go purchase a home, it's not a business expense. So how does your income go from $500k down to $100k by buying $400k in real estate?

You might be missing out on depreciation. You should look up The Tax Cuts and Jobs Act 2017, rules on bonus depreciation.
 

Private Witt

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Once you experience tax free living like in the state of Washington like I've had the last 5 years its hard to go back. Just the fact you dont have to file personal state taxes is beyond amazing.
 

CJRealEstate

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I still don't understand. When you go purchase a home, it's not a business expense. So how does your income go from $500k down to $100k by buying $400k in real estate?
Sorry for the confusion. I’ll try to help. Basically In my state I have my business classified as a real estate rental Company. These are rental properties I’m buying. Therefore they are for bringing in more rental income to my business entity. That allows me to subtract the cost from the business. It’s common practice here, but not sure on other state laws or regulations.
 

biophase

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Sorry for the confusion. I’ll try to help. Basically In my state I have my business classified as a real estate rental Company. These are rental properties I’m buying. Therefore they are for bringing in more rental income to my business entity. That allows me to subtract the cost from the business. It’s common practice here, but not sure on other state laws or regulations.
This still doesn't sound correct to me. You can't just go purchase a home and subtract its purchase price from your income. If this was the case, everyone would be doing this every year. But, I'll wait until someone who knows more than me to chime in @CareCPA.

Are you in the United States?
 

redshift

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This still doesn't sound correct to me. You can't just go purchase a home and subtract its purchase price from your income. If this was the case, everyone would be doing this every year. But, I'll wait until someone who knows more than me to chime in @CareCPA.

Are you in the United States?

I would think it should be fine in this case, since they said they are a real estate professional and the main activity of the business is real estate. I'm guessing the scorp owns all the properties so this would be a business expense and reduce the distribution to the owners (hence their tax bracket)? It's effectively just deferring the tax to the rental income and eventual sale/transfer. Most people wouldn't be able to do this since they aren't classified as real estate professionals or own an active real estate company, so the alternative would be the 1031 exchange or other deductions for them.

Once you experience tax free living like in the state of Washington like I've had the last 5 years its hard to go back. Just the fact you dont have to file personal state taxes is beyond amazing.

You still have a gross receipts B&O tax in Washington though correct ? So, its not completely tax free for business owners.
 
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Raoul Duke

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You try'n to become the next Robert Brockman?
 

Ing

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Write offs are only expenses you had and if you are clever, expenses you will have in future.
Having a business does it make easier to not pay taxes on things you need to earn money, but writing off will never make you rich . Only make you a bit less poor in the end.

With no business I pay about 44%, with the business I pay a bit less now. (But would love to pay more due to the weak business.;). )
 

CareCPA

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This still doesn't sound correct to me. You can't just go purchase a home and subtract its purchase price from your income. If this was the case, everyone would be doing this every year. But, I'll wait until someone who knows more than me to chime in @CareCPA.

Are you in the United States?
Assuming he is in the US, I am not aware of any situation where you could take a full deduction for buying a house in the year you buy it.

There are two scenarios:

Scenario 1. You buy and hold for rental. In this case, the cost of the house is depreciated over 27.5 years based on when it is placed in service. So if you buy a house December 2020, spend 6 months renovating it, and it's available to rent in June 2021, then depreciation does not begin until June 2021. No deduction for this house in 2020.

Scenario 2. You are a flipper. In this case, the house is treated as inventory. You get no deduction until you sell the house, in which case it is factored in to calculate your profit.
Example: buy a house December 2020 for $50k, put $70k in renovations into it over 6 months, sell for $200k in June 2021.
In this case, no deductions in 2020, profit in 2021 of $200 - 50 - 70 = $80k
 

CJRealEstate

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Assuming he is in the US, I am not aware of any situation where you could take a full deduction for buying a house in the year you buy it.
There are two scenarios:

Scenario 1. You buy and hold for rental. In this case, the cost of the house is depreciated over 27.5 years based on when it is placed in service. So if you buy a house December 2020, spend 6 months renovating it, and it's available to rent in June 2021, then depreciation does not begin until June 2021. No deduction for this house in 2020.

Scenario 2. You are a flipper. In this case, the house is treated as inventory. You get no deduction until you sell the house, in which case it is factored in to calculate your profit.
Example: buy a house December 2020 for $50k, put $70k in renovations into it over 6 months, sell for $200k in June 2021.
In this case, no deductions in 2020, profit in 2021 of $200 - 50 - 70 = $
I think it would be fine in this case, since they said they are a real estate professional and the main activity of the business is real estate. I'm guessing the scorp owns all the properties so this would be a business expense and reduce the distribution to the owners (hence their tax bracket). It's effectively just deferring the tax to the rental income and eventual sale/transfer. Most people wouldn't be able to do this since they aren't classified as real estate professionals or own an active real estate company, so the alternative would be the 1031 exchange or other deductions for them.



You still have a gross receipts B&O tax in Washington though correct ? So, its not completely tax free for business owners.
You would be correct. It is not completely tax free. Taxes will always get paid. Thank you for the input.
 
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CareCPA

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Exactly.

Write offs, deductions, expensing (whatever you call them) are there to make sure that you only count the actual income from a business, not more.

If you sell 10 million worth of shrimp in a given year, and spend...
-2.5 million on boat fuel
-1 million on insurance
-1.5 million on employees and benefits
-650k on boat slips
-1 million on maintaining
-500k on depreciation of the boats
-850k worth of random credit card business expenses

You made- $2,000,000 in net income. Depending on your tax election, you pay taxes on that $2,000,000 in some form or fashion. Whether it remains corporate or flows through.

End of story. That’s why you keep track of what you spent money on to run the business and try to stay organized.

After that, there are personal deductions if you exceed the standard deduction.

So basically the people who “write everything off” and “don’t pay taxes” because of it, are probably running up that random expense category full of personal shit and are actually filing fraudulent tax returns.

Now, if you want to LEGALLY pay less taxes. Your only two options are make less money or move. From a high tax state to a low tax state. From the mainland states to Puerto Rico or the US Virgin Islands. Or immigrate to a country with lower taxes and renounce.
I always tell people that if they want to lower their taxable income, I will happily increase my fees and take on the tax burden for them.

So far, zero people have taken me up on that offer.
 

CJRealEstate

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I think it would be fine in this case, since they said they are a real estate professional and the main activity of the business is real estate. I'm guessing the scorp owns all the properties so this would be a business expense and reduce the distribution to the owners (hence their tax bracket). It's effectively just deferring the tax to the rental income and eventual sale/transfer. Most people wouldn't be able to do this since they aren't classified as real estate professionals or own an active real estate company, so the alternative would be the 1031 exchange or other deductions for them.



You still have a gross receipts B&O tax in Washington though correct ? So, its not completely tax free for business owners.
Yes, you would be correct. You would still owe taxes. Nothing is ever tax free.
 

Johnny boy

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No.

I mean, maybe you can get away with this for a bit, but foreign control rules have gotten a lot more strict over the last couple years. If you have control over a foreign corp, then all that income gets pulled back into the US. You even put "owner" in quotes, do you think the IRS won't see right through it?

Further, if you don't report it and the government finds out, penalties start at $10k per missed filing (plus the penalties and interest you'll face on the tax itself).

Are there ways around it? Maybe, but you'd probably have to have a pretty high income for the compliance costs to make sense.


Screenshot (27).png

got it, thanks!
 

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