Hacker News Reader

Comment by dougk16 | Hacker News Reader

Could you link to any "for dummies"-type resources that show how you can incorporate and use that corporation to reduce your taxes? Something that would hopefully be applicable to your typical middle-class homeowner in their 30s with young kids and a 9-5 making enough to get by but is looking for any edge they can find?

Edit: (in the US)

View on HN

Tax shelters are not made for people like you.

The middle class is best served by collective bargaining to increase their wages and benefits, strong consumer protections, and access to affordable health care.

Up to about your first 5-10 million (depending on where you live) you need to play by the rules. After that, you can think about hiring a tax advisor to start scamming the system. But the downmarket financial advisors that serve people with a paltry million or two are mostly focused on selling high-commission financial products.

There are tax shelters and loopholes for upper middle class workers. The whole tIRA -> Roth IRA conversion is a trivial way to avoid the Roth IRA income contribution cap. The 401(k) system is itself a tax shelter, and is a larger portion of middle class earners' salary than it is for those with tens of millions. Need I mention HSAs which are like triply-tax protected?

Retirement savings is tax advantaged, however most people consider that a feature of the tax code, rather than a loophole. The traditional to Roth conversion will be of benefit only to those whose post-retirement income puts them in a higher tax bracket than they are currently in. Most middle-class wage earners would not be in that category unless they keep working well into retirement age.

Health Savings Accounts are highly dependent on the circumstances of the individual. Many people with employer-provided health care plans receive minimal benefit from an HSA.

That being sad, you've made you point, in that there are portions of the tax code with deductions accessible to the middle class, like home interest deductions and deductions for charitable giving.

But the, "I'm going to start 12 shell companies and park my money offshore" kind of tax dodges are not really feasible until after your first ten million.

The traditional to Roth conversion can help those who remain in the same bracket as well. This is because by spending Roth dollars one can avoid pushing one's taxable income into the next bracket. Technically, that's what you said, but this can be a significant issue even if one's expenses don't require that income, because of RMDs for tIRA but not Roth IRA. Likely to be an issue for those in the low-single millions of assets which is actually quite a few people who consistently save a large portion of income.

The OP mentioned starting their strategy when they were 25, implying they are/were a "normal" person, which is why I asked, since my vague understanding of the situation in the US matches what you describe, that you have to have gobs of money to begin with before you can really start gaming things.

It sounds like what they are doing may not be 100% audit proof. Do you want to play the shady taxes game and hope you don't get caught?

I will agree with brianwawok. Amount of BS I hear from friends "optimizing" their taxes is staggering. Be very careful about any advice you receive from such entrepreneur. Most of them either breaking laws, or breaking IRS rules, which, unless you got plenty of time and money to challenge in the court, is equivalent of laws for you (I guess until you get to these 10m+ where you can afford to fight IRS - I am not there yet, so can't comment)

No link, but the gist in the US is this:

1) Start Business

2) Get Real Clients to buy your stuff

3) Deduct Expenses

4) Pay 40%* of whatever is left over to the Government

* The 40% number can go up and down depending on your income amount [and local tax commitments].

That doesn't reduce your taxes, that just has you personally take on the accounting for an enterprise.

It would only work if you could relabel personal expenses as a business expense, which is what I think the parent was looking for (and which is a time-honored practice with its own dangers, of course, but is hard for the IRS to stamp out entirely -- you "lose" a "business" pen and keep using it for personal stuff; how does the IRS know?).

Use a company car, and company pay for gas. You can deduct that as expense.

Company phone. Company pays your data plan. Deduct.

You register your company at home, okay you can make an office, you can then deduct some expense as facility operational costs. (Of course there are a lot of regulations for this, and you have to document how big the office is, and it can't be bigger than X% of the house, otherwise it'd be income tax hiding - because it'd be the company paying your rent or just giving you money to heat your bedroom, which is not a business expense.)

Company sends you overseas on work? Business expense. But if you go there for 2 weeks and then post beach photos on Facebook for every day, you're in big trouble.

What is that responding to? I said it has its own dangers and the IRS stamps it out but there are some minor ways where it cant.

I wouldn't consider these minor.

As always talk to an accountant.

But, the 'deduct expenses' will help reduce taxes.

Start by getting paid on a 1099 instead of a w2

Which means immediately higher taxes because you get to pay the employer side of payroll taxes, plus no pretax benefits like health care and no vacation or other untaxed benefits.

You can elect to have your LLC taxed as an S-corp to avoid some of the self-employment tax [1].

1. https://www.thebalance.com/what-is-a-reasonable-salary-for-a...

this applies to the certain degree.. if you make less than FICA threshold - yes, you are right. If you make more from multiple contracts/jobs - it is more efficient to be paid as contractor (assuming that client will pay you your employee taxes share, which would otherwise be paid by employer in case of W-2 employment)

I wonder then why those Uber drivers so adamantly oppose a path to riches.

Because if you are a contractor then it's your responsibility to provide healthcare for yourself and think of the costs of that and factor that into your prices.

But if you don't set your prices, because you're a one-of-a-million driver, then you're shit out of luck.

Reply on news.ycombinator.com