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What's your delusion : Swingers Discussion 2203221021
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TOPIC: What's your delusion
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"Do you pay corporate, and then again personal, income taxes on the operations of your business?"

I doubt that even one percent of small businesses are formed using a traditional C-corp structure. Almost all elect Subchapter S; everything gets passed through to the owner almost as if no corporation even existed, from a tax standpoint.

Belle Chasse LA
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"So if you sell your business-owned vehicle for $5,000 - even though the IRS says it's worth $0, why aren't you claiming it as a capital gain?"

The IRS will "recapture" part of the depreciation I took, to the extent of what I receive from the sale. So that's a partial offset, down the road, to all those write-offs I took years back.

Belle Chasse LA
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"I have some mixed feelings about it. One counter argument to the double-taxation argument is that everything gets taxed as it works its way through the cycle. Why pay sales tax? The product has already been taxed via the income tax on the company that made it. See what I mean?"

I do. The thing is if I own a share of stock, it's MY company, in part. Do you pay corporate, and then again personal, income taxes on the operations of your business? It's akin to that - except that you own 100% of the "stock".

Chesapeake VA
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OK OK I get what you're saying now. To some extent it makes sense, and to some it doesn't. This is a major hassle of business accounting in general.

So if you sell your business-owned vehicle for $5,000 - even though the IRS says it's worth $0, why aren't you claiming it as a capital gain?

Chesapeake VA
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"1. I have a serious problem with taxing a dividend at all. You are a part owner of a corporation, and that income was already taxed as corporate taxes. Taxing it substantially again is wholly unfair in my opinion."

One if the most common complaints, especially by peeps who own a lot of stock.

Two things: there are ways for lots of companies to avoid doing it that way. I mentioned REITS earlier. Limited partnership shares versus traditional C-corporations is another.

I have some mixed feelings about it. One counter argument to the double-taxation argument is that everything gets taxed as it works its way through the cycle. Why pay sales tax? The product has already been taxed via the income tax on the company that made it. See what I mean?

Belle Chasse LA
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"Well, has something actually depreciated by $150,000, or are you just saying it did?"

No, the IRS depreciation tables tell you what you can claim. Example, I fully depreciated a vehicle used in my business. According to the IRS it is now (and for several years has been) worth zero. But I could sell it tomorrow for prolly $5,000 or more. Instead, since I no longer use any business funds to maintain or operate it, I just let my son use it as a personal vehicle. But before that, every tax year there was a reduction "on paper" of my AGI.

Some businesses, especially the oil drillers, get exceptional depletion allowances. If the AGI on their return says $1 billion, you can bet that their cash operations generated well in excess of that, perhaps even by factors.

Belle Chasse LA
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btw - 2 more quickie points..

1. I have a serious problem with taxing a dividend at all. You are a part owner of a corporation, and that income was already taxed as corporate taxes. Taxing it substantially again is wholly unfair in my opinion.

2. The people the taxes hurt the worst are really more of the high-end professionals - small to medium-sized business owners - people who have jobs or businesses with incomes in the $250-$500k range... once you're up around $400+k, the escalation of tax rates begins to level off... and all of their income is taxed as exactly that.

p.s. none of this matters with the FairStress :P

Chesapeake VA
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"But it claims $150,000 depreciation, so the K-1 form you get (and transfer to your personal return) shows a $50,000 loss even though you pocketed $100,000 cash from operations. All perfectly legal; happens all the time, and no IRS auditor would raise an eyebrow over it. "

Well, has something actually depreciated by $150,000, or are you just saying it did? Do you have a means of realizing the loss? If so, you eventually need to account for that, no?

I'm not going to pretend I understand all of these things.. I am somewhat learning these hideous rules... but I *do* want to draw a distinction between "dirty tricks" and "real" accounting practices......

p.s. none of this matters with FairStress :P

Chesapeake VA
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My longwinded point being: when you say that "the rich" pay an average of x% in taxes, and base that on the AGI numbers reported by the IRS, you can pretty much count on that percentage looking higher than it really is.

Belle Chasse LA
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Well, I intended it primarily as an example (and that was the worst example of the ones I gave) of how AGI numbers don't accurately reflect actual income. So when we say "the wealthy pay x% of their income in taxes," we are basing that on an AGI number that is usually understated to begin with. 

But the example scenario does show how special tax rates give sweet deals to those who have the liquidity to use them. That interest deduction can be used to offset income that would otherwise be taxed at ordinary income rates; e.g., rental/royalty income, earned income, or dividends that don't already meet the qualifications for favorable (15%) tax treatment. For example, non-qualified REIT dividends. 

The bigger tax break (and bigger cloud on the accuracy of those AGI reports) comes when your investment makes, say, $100,000  profit from operations and distributes it to you. But it claims $150,000 depreciation, so the K-1 form you get (and transfer to your personal return) shows a $50,000 loss even though you pocketed $100,000 cash from operations. All perfectly legal; happens all the time, and no IRS auditor would raise an eyebrow over it. 

Belle Chasse LA
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TOPIC: What's your delusion