“Deductions” are how you calculate income in an income tax system, it is one side of the equation where revenues - expenses = net income. If there were “no deductions” it is no longer an income tax system, it is a revenue tax system. That carries its own pitfalls. Getting rid of some of the bs deductions like accelerated depreciation, carried interest, and whatever other “special interest” deductions makes sense. But many deductions are actually necessary to an income tax system as they are the “expenses” side of the equation in calculating net income. I am actually in favor of carryforward provisions, as they are necessary to startups, but what needs to be cleaned up are the shell corporations and moving money around between entities, particularly when it comes to foreign subsidiaries (corporate income). Moving money between entities should immediately raise the ire of the IRS. If it’s done purely for the purpose of tax dodging (I.e. the shell exists purely to send and receive money) that is fraud imo. I certainly think the tax code needs to be simplified, but this doesn’t mean dumbing it down so it can be filled out on a postcard (a talking point aimed at moronic rubes), but rather it should be simplified such that taxable income more closely aligns with GAAP income, end the ability to have billions on “paper” income according to GAAP but show no taxable profits. That should almost never happen except in the initial years when a startup first shows a profit. When a long-standing traditional enterprise manages it or has suspiciously low tax liability vs. their stated GAAP income you can be sure they are gaming the system using tax shelters.
I'm sorry, but whether you'll admit it or not, All of these things we are talking about are deductions that apply to your personal tax return... And you've already said you want to keep them, so...
Just one question. If it's necessary to have "skin in the game" should the provision of the IRC allowing real estate professionals to use net negative income from their real estate investments to offset income from other sources frequently resulting in zero income tax liability be repealed? Just a guess but I suspect that's the reason that the former president refuses to disclose his income tax returns, the first presidential candidate to do so in almost 50 years. As a "real estate professional" he probably had several years in which he had no federal income tax liability.
You trying to equate business expenses to deductions on income taxes is just an attempt to deflect. Carry on though.
As much as I want to deny things, we have a system that bends tax responsibilities for certain concepts. One of THE biggest is the idea that folks need to have a better (mandatory?) reason to buy and own real estate. There really is no viable reason for the breaks that landowners receive, versus what other types of tax incur. Another is plainly corporate welfare, and that is basically cronyism. You could say that is why DC is so powerful these days, we have made the most money decisions in such few hands there. But I think what you are implying is a sort of different concept, which is income averaging. In a regressive tax system as ours, not only do you pay for the percentage of your income, but your tax rate can increase when you get "up there." And so, we are allowed to average years of great amounts with those beside them that are meager or even losses. This is a game for both the Uber rich as well as the entrepreneur. That way your rate remains pretty level over a series of years. How about the concept that you don't have any income because you did not sell any stock at a higher value than what you paid for it? VAT is a way to try and get money for increases that does not necessarily produce cash. But it IS an increase. It is just that the elite WILL get away with creative bookkeeping whereas the mom and pops whose house/business is located in a greatly growing value area will pay dearly. They probably would lose it, if they don't have much disposable cash. If it were up to me, we would implement two quite interesting (and to me much more dynamic) ways of dealing with taxes. The first is to make each and every corporation a "S" corp. What that means is when Apple stock increases by say, $100 per share (as determined by the annual valuation study), and you own 1,000 shares, you just made $100,000 in income, whether you keep it in stock or not. And you would pay taxes that year for that income. If you don't realize it, most of the truly rich don't pay income taxes because they don't liquidate much of anything. Us lower types have to have an income to live better, and so we pay more of those kinds of taxes. The other idea is that I would make each and every "executive" level elected position based not on one person-one vote but rather more like stock and a business. The more you can show you pay in taxes, the more votes you get. It would at least give the folks who are not paying those taxes now something for the additional tax liability - you can vote for senators, POTUS's, governors, and mayors in ways that the lower folks cannot. But they still get to get the most votes at the representative, delegate, and council levels. Seems fair to me. And absolutely NO chance of getting implemented. But to your "gotcha" about Trump. If I had to make a guess, what he is most concerned is that he has bloviated about his financial skills and thinks it is his means to many of his ends. If he were to expose the income statements, even if it were within the boundaries of the laws (especially real estate and income averaging), it would look as if he wasn't all what he proclaims. And that is a threat to his psyche. But that is pure conjecture. He is a carnival barker.
I'm not trying to "equate" anything. Business expenses can already be deducted from personal income, that is simply a fact ... You even said it yourself, it's called schedule C... Did you forget what you wrote already? But just to clear, you are in favor of keeping LLC passthrough expenses as a deduction to personal income right? I mean, you've already said it, but want to be clear...
Ok, this one went over my head. Can you let me in on the joke? This one I got since he served 10 days.
Someone in England set aside ahead of iceberg lettuce, and there was a running joke/bet about which would last longer.
One other question, I happen to own a small rental property. Because I am not considered a "real estate professional" under the IRC the amount of paper losses on my property that I can use to offset other income is capped. Do you think that the cap should be lifted for real estate investors who aren't considered professionals?
Business expenses are deducted from a business. Not from personal expenses. When I file an 1120 and a schedule C…all those expenses are associated with an EIN for that business. But you know this and want to play semantics over the reality we are discussing deductions and marginal tax rates for AGI by trying to compare expenses that are not associated with personal income but the operations of a business.
No they are not. That is what a "pass through" is. I mean, if you can't figure out by its name,.let me explain ... The business income and deductions "passes through" to your personal income, and you file one tax return that covers it all.... The IRS defines a schedule C as "the way you report any self employed earnings to the IRS. It's part of your individual tax return" and "Schedule C is also where business owners report their tax-deductible business expenses," And just so you know, for future reference, your individual tax return is filed by your SS number, not your business EIN..
I am glad you bolded “business expenses”. Now we can only you are able to figure out the difference in business expenses and deductions/credits used after one has figured out their AGI which was the context of the discussion. Good luck fighting to equate things like payroll to the standard deduction or credits or itemized deductions one can take on their personal taxes which we were discussing…
I think you are missing the big picture here. When you pass through your business deductions and "paper loses" to your personal tax return, you can pretty easily get to a point where you offset your personal income and pay zero in taxes. Let me give an example, let's say some hypothetical guy runs a small business and pays himself about $100k a year. The business pretty much breaks even after payroll and expenses (by design). Last year was pretty good so he bought some new equipment, and his accountant was immediately able to expense $40k off the business ... So he was able to pass through a business loss deduction of $40k, which gets his personal income to that magic $60k number you mentioned above where a family of four pays zero in taxes...I mean, by all accounts he had a great year, made an above average personal income, and still gets to pay nothing in income taxes. And This is what trump does, on steroids. Using pass throughs to make his personal income disappear. That's all I'm saying. Don't tell me you support eliminating all deductions except charity, -- and making it so everyone has skin in the game -- when you are perfectly fine with this.
The business clearly did not have a good year if it made no money and decided to take a $40K loss by buying a piece of equipment when it is not making money. Now maybe that will be a needed investment going forward leading to the person in your example paying themselves $100K in the future and lots of profit to go with it.
Bro ... you know businesses can take take the full deduction on equipment the first year, even if you financed it over multiple years.. want to try your math again on that? Anyway, just to be clear, you are still good with a person making $100K a year paying zero taxes, right? Yes or no?
