I just assumed frogman was a Stardock partner. I had no idea Brad liked being a chameleon. I suppose #1 doesn't change.  btw, today I have posted a blog on Nanny.

 "rich people don't pay much in taxes because of the loopholes"

No, it applies to almost everyone, but because the well-off have more bucks and have many avenues of shelter they manage to put away much more for a rainy day than do most others. May I suggest you look up Daschle's tax consultant? You might be able to write off your Porsche.

so... if they don't LIVE here... its tax dodging? Why should I be entitled to get roads paid for by someone who lives in another country?

They avoid PROPERTY tax by having a buziness in a different city from where they live? why should they be obligated to run a business in the same location as where they live? business move to whereever they are most wanted (aka, whereever they are treated best).

They are paying taxes, they are just paying them to someone else, someone who might be less greedy and demand lower taxes.

Who decides what someone needs to "make ends meet"?

I worked 91 hours last week and nearly that many hours the week before.  Had I note done that, a major project would have failed and we would have to lay off 23 people over the next 90 days.

What percentage of people have both a valuable skillset and a willingness to work insane hours (away from their wife and children)?  Not many.  And for that, I am well compensated.

But if you tax away my incentive to use my valuable skillset in the way I do and you end up with a lot fewer jobs -- 23 in just that one example.  And in turn, those 23 highly paid (average salary $65k so we're talking well over a million in salary) are now in a tighter job market. And of course, all the things they were doing (buying houses, cars, etc.) are put off.

Obviously, statistically, there aren't that many people like me.  Less than 1% of the population. Let's say 2 million as a ballpark.  Those 2 million create jobs for over 40 million of our highest skilled people and those jobs only exist because people like me are willing to use a very specialized set of skills and talents in a way and for a duration that most humans are simply unwilling to do.  

Now, as others have pointed out, I support a progressive tax system. I agree with the argument that the wealthier should pay more, even as a %, of what they earn.

However, what I don't agree to is that the "rich" are somehow getting out of paying taxes they should be paying.  No one here has been able to list a single loophole that the rich can legally use. Not a single example.  

It irritates me to no one for people (and not saying you) who probably pay trivial amounts in taxes (half the population pays no net income taxes) to complain that the people who pay almost all the taxes are somehow skipping out on paying their "fair share".

First off, people who talk about the Cayman Islands or Swiss bank accounts are typically living off of urban legends. The 50s are long gone.  Today, you cannot legally shelter income in the Cayman Islands or any other off shore account.  What you can do is illegally hide investment income by having it done through an off shore account.

There are a lot of scams that don't really work in the real world. For instance, the tax system wouldn't let make Stardock a Cayman Island corporation where my people are physically located in Michigan.  Where you are resident matters.

Now, if you live in say Michigan but claim you're in the Cayman islands, that's not a loophole, that's fraud. That would be like saying insider trading is a typical activity on the stock market. I know a lot of "rich" people and they all pay monster amounts of taxes.

But let's talk about the propery tax scam:

I have 4 properties.  My home which I pay $N on.  I have a cottage upstate that I pay $M + a penalty because it isn't my primary residence (which is ridiculous since I don't use their services).  I have a property where I'm building future house which is $O + a penalty because it's not my primary residence. And I have my business property where Stardock is located which I pay $Q.

Now, on the business property, I get some tax abatements because the city, county, and state want my business there. It's still tens of thousands a year but it's less than it could be.

But here's the scam:

The state values the property based on what the person actually spends money to develop. 

For example, my 13 acre vacant land is valued by the city for something like $500k.  But if I build on it, that value goes up.  What's up with that? The city had nothing to do with that. If I invest more on the property, I'm penalized for it in the form of taxes. What right does the city have to tax me for what improvements I make? It's a total scam that penalizes making improvements.

And because people recognize it as a scam, people do all kinds of quasi-illegal things to get around having their property re-assessed. I'm not talking "rich people" I'm taking people everwyhere.  Playing games to avoid having their property re-assessed is one of the most common "loopholes" that the middle class play because people inherently understand that the city is ripping them off by increasing their property taxes based on anything other than the *land* itself.

Now you are talking! My sentiments exactly.

Property taxes should be for the land value (and the complete land value) but not the improvements.

The current system rewards speculators who keep land idle in order to make money from people who need land to produce. (But then I think this is pretty much the idea of the current system. Absentee land lords made good members of parliament. They had the time to serve and the money to get elected.)

I have to completely agree about that frogboy. Land taxes should be based on land, not on improvements.

Let me get this straight - if someone spends money improving something (i.e. making it more valuable), it's strange that it's value should increase as a result? If the tax is to be based on property, then it is only right that money spent improving the property/land should be factored in and cause the value to change. Otherwise if improvements to land and property are ignored you'll end up with the bizarre situation of people wanting to buy a blank plot of land and spending a load of money improving it by building a house on it, yet only paying taxes on the plot of land. Meanwhile a tax solely on land rather than property wouldn't make too much sense either - the primary reason for taxing property is it is a very easy way of gauging someones wealth, and property taxes are in effect wealth taxes. It's virtually impossible to get someones actual wealth and tax that, so if you do want to tax wealth property (which will be the combined value of the land and any buildings on it, whose value will increase if they are improved) is the next best thing.

Also since you asked for loopholes, a common one with progressive tax systems (depending on the specific tax legislation) is income splitting. That is, lets say you earn $1m, and you have a close family member (or very close friend) who you like to give money to. Rather than earning the money yourself, and getting taxed at the much higher rate (because you're rich) and then giving it to them, you find a way to get them to earn some of your income. So for example a business owner could employ that person to do a job even if they're not the best person for that job/are paid too much for what they do (within reason, of course - you would be unlikely to get away with employing your son and paying them $100k for filing).

Another 'loophole' is where differences in the treatment of capital gains and income exist, with capital gains often getting more prefential tax treatment, meaning if you can structure your income in a particular way you might get away with classing some of your income as a capital gain. Again the specifics of the tax legislation will affect how the two are defined and are unlikely to give that much scope, but it can still be done especially with a business that hasn't paid a close attention to such issues. Off the top of my head take shares where you can earn an income (dividends) or a capital gain (share increases in value). Since you have double taxation issues the treatment will vary but you are likely to have a difference one way or the other between the tax treatment of the dividend income and the tax treatment of the capital gain. Meanwhile a company can influence which will occur - if it has a load of profits, it can issue them as dividends to shareholders, or it can use the profits to buy up shares, causing their price to rise (given certain assumptions) resulting in a capital gain for the holders instead.

If you can't get away with classing income as capital gains, then you can still always look at that income itself - maybe you can get a non-cash benefit instead of traditional income that happens to get around the various tax rules and not be taxed fully (again the specifics of the tax system would affect the extent to which this is possible, but they've usually got a few incentives put in to allow some items to not be counted fully as income which in turn creates loopholes that can be used).

If I build a house on the land, the property tax (originally meant as a land tax) goes up.  

I have heard liberals call for an "asset" tax. The fact is, we already do since property taxes have morphed into that very tax.

How it works:

So I earn $1M. The federal government takes $.35M of it. The state takes another $.05M. 

With my remaining $.60M I decide to build a house. The state then taxes me another $.05M on building it (sales tax).

Then, every year, having taken $.45M from me to build my $.6M house the township is going to tax me about $.02M every year for it because I chose to build a house there. Before, the land was worthless but now they are not just taxing the land, they are taxing the asset (the house) I put on the land. 

So even if I get sick and I've paid off my house, I still have to pay the $.02M a year in taxes and if I don't, they'll kick me out.  

We never truly own anything anymore, it's all really owned by the government.

How exactly is that a loophole?

So I earn $1M and I pay/give someone else more than they should. I'm still out of the money. 

To use your example: I make $1M. I give my uncle $100k to mow my lawn.  I save $35k in taxes but have given out $100k. I'm $65k worse off.

Now maybe the uncle gives me the money back. That's illegal unless I claim it as income which brings us back where I started from.

No, that doesn't work either because in the example you give, the company can't claim the dividends as an expense. The most you can do is reduce your payroll tax.

When I pay myself, the company can claim that as an expense.  But if the company pays me as a dividend, I can claim that at the capital gains tax rate (15%) but the company can't deduct that money so now I've paid 15% in taxes PLUS my company has to pay the 35% in taxes still on it. So now, that's not a loophole. The only benefit is that I avoid payroll except again, payroll is 12% (both sides) whereas capital gains is 15% so I end up losing 3%.

Other than reducing payroll taxes you're still out of luck.

For instance, you can set yourself up as an LLC and then have your company pay you as an LLC (like a contract).  As the owner of the LLC, you give yourself a disbursement which avoids payroll taxes and the company can still deduct the cost still.

But the government knows this "loophole" and doing this greatly increases the odds of an audit and all you've saved is some payroll taxes (and SS tops out at $100k anyway so you're only saving Medicare).

Now if Obama eliminates the cap on SS taxes, then you'll see a lot more of that.

The John Edwards Method.  Champion of the common man that he was, he took nearly all his money as capital gains (if reports are to be believed).  Funny how some people talk some talk while walking some other walk altogether (actually not).

the purpose of taxing the improvements on the land are indeed to tax the so called rich. simply a straight forward "wealth tax". At least in theory, in practice it leads to land speculation, undervaluing of property and a disincentive to invest and improve your property. Oh, and lots of urban sprawl, pollution, wasted energy, destruction of land, etc etc etc.

If you only taxed land it would have incentivised people to use as little land as possible, resulting in more efficient larger structures. A transition from single houses to town houses, to apartment complexes, to sky scrapers, to arcologies. Increasing population density, decreasing car use, increasing mass transit use and walking, decreasing land waste, increasing air conditioning efficiency (its more efficient to cool down an apartment complex then a single home), and so on.

http://en.wikipedia.org/wiki/Arcology

With a land tax having a single home would not make much sense due to land taxes, it would be better to build up on the same little plot. The rich would still have massive mansions and end up paying lots of money... much MORE so then they do now, because what happens is that the rich just buy a HUGE massive plot of land, leave most of it as a forest, lakes, etc (their "yard") and build a relatively small mansion on top of it. If you taxed the land only then the waste of land around the house will be taxed higher, it will either balance itself out, cost them even MORE money then before, or cost them less, depending on how extravagant they are.

http://www.youtube.com/watch?v=T6ZPq1LJroM

http://en.wikipedia.org/wiki/Bill_Gates's_house

In the end, this "progressive tax" hurts the middle class (especially upper middle), it hurts EVERYONE a little (undeveloped land due to speculation), and it hurts the environment a whole lot.

here is a question, if you do have a land tax instead of a property tax. How would you go about valuing the land / tax? that is, would the tax be based on the value of the land? would you dare opening the can of worms of valuing it based on its intended use? could you instead tax based on a specific "zone" of the city it is located (square feet x taxrate per square foot)

There are several methods you can use.

They are already in place now. The results are used and are part of the valuation of the entire property (including improvements).

yes, but which of those is the BEST way and why? I gave a whole list of reasons why taxing land is better than taxing land improvements.

I don't know which is best.

But I assume that any of them will be better than the current system. (They have to be since whatever error they create is already part of the current system.)

Look at the net effect. Lets say you want your uncle to gain $100k. If you employ your uncle then you're saving taxes at 35% while he's suffering them at a lower rate. That means that it is cheaper to give him $100k net of taxes than it is to suffer the tax yourself and then give it to him. You're also not $65k worse off, because you were going to give him that money anyway. Obviously if you don't want to give him any money in the first place then the loophole wouldn't be of any use. It's basically a way of converting something that normally wouldn't be classed as an expense for tax purposes into an expense.

Well the aim is to get away with paying less taxes overall, so if payroll taxes are reduced (and other taxes aren't increased by an equal or greater amount) then that aim is achieved.

not everyone gives their money to their relatives... in fact I would say very few people do. Not to mention that employing and overpaying your uncle stinks of nepotism and lowers morale in the company, as well as reducing your overall profit as a company (since there is most likely someone more qualified to do his job).

and unless you are the sole propriator, then it is theft of money from the other stockholders. Which makes it illegal, not a "loophole".

http://www.cracked.com/article_17240_7-retarded-tax-evasion-schemes-people-are-actually-trying.html

So far most of the "loop-hole" "suggestions" would have netted brad a prison sentence for tax evasion had he used them. Which is probably why he is rich and you guys are busy bitching about the rich not paying taxes via their magic "loop-holes".

Legally avoiding paying tax is not tax evasion, is not illegal, and will not net you a prison sentence. Of course if you're an idiot and you try and take a loophole that works in very specific circumstances and use it in completely different circumstances then it likely will.

Oh and I've little interest in providing the full details of various tax loopholes that are tailored to brad's situation - for starters that sort of advice is worth a lot of money (as his tax accountant's fees will probably demonstrate) and would involve a fair amount of time, hence why I kept my examples nice and general so that they'd apply to various people in different countries without being so specific as to both be giving away highly valuable information for free and to be giving information incorrect in many tax jurisdictions.

And none of the so called "loop-holes" listed by people here was legal or real.

And that is a flimsy excuse aeortar, there has not been a SINGLE real loophole mensioned here, yet claims that the "rich don't pay taxes" because of loopholes abound.

The closest to a loophole I saw was the concept of ruining your company with nepotism, and assuming you do it in a legal way that doesn't net you in prison for tax evasion, you still only gave "free money" to a relative instead of actually cutting your tax burden (news flash, your uncle is not yourself, it is not YOUR tax burden that goes down if you pay him).

What??

If I have earned $1.00 and if I do nothing I will be forced to give $0.35 to the government I'm NOT better off if I get that $1.00 to my uncle.  

In the first scenario, I still have $0.65. In your scenario, I have nothing.

He's saying if you're going to give him a buck, do it pre-tax as wages, on the assumption that the total tax paid between the two of you would be less than if you simply earned then gave him the buck.  Only two problems with this scenario:

First, you have to earn the buck.

Second, you'll have to match the FICA deduction in addition to the buck as well as bear the cost of payroll accounting, employee benefits & a few other odds & ends.  Cutting payroll checks isn't free.

Might end up with a lower net cost by hiring the uncle, might not.  'Course, that assumes you've got some other motivation to give the uncle some of your money in the first place.

This is the discussion I have with my wife every tax season when she asks 'How come we can't get bigger charity deductions like everybody else?'  You have to have earned the money in the first place and giving away $10k to avoid $3k in taxes does not leave you better off - you've still parted with a net $7k.  It's like talking about all the money she 'saved' by buying a whole bunch of stuff we didn't need on sale.

Ha, yea, I am always amused by the concept of "sale = save"... in the end of the day i am still out of money that i would have otherwise kept, and instead have a product i don't need or don't really want. (well, theoretically, in reality i don't do that).

by following logic, they might as well claim that the evil rich don't pay taxes because they give most of their money to charity, which is tax deductible... damn rich person loopholes! [/sarcasm]