What about the people who do work, but get tax credits, giving them two to three times more money back at the end of the year than they paid in? I only bring this up because most of the people complaining about where their tax money goes aren't the ones support the poor. Your little pittance of a tax contribution, if you don't get it all back at the end of the year, isn't really doing much. You should probably calm down.
I have no idea what bracket that would apply to. I'd really like to know how it works, it could be nice to not have to pay my own contract. My old man would like to know, too, because that money could put my sister through college.
The way it works it simple.
1. Using things like a 401k or HSA you shield as much pre tax income as possible.
2. Investing in stocks and the like then taking capital loss as a deduction.
3. If you have said stocks- consider an LLC or similar structure to “manage” several of your investments. This takes them out of your personal taxes and places them in business taxes where they may well get a better rate.
4. If you have the money (and you may surprisingly even if you’re barely middle class-) finding a small plot of otherwise worthless land in an area where there’s over development and then creating a trust with it is a huge potential tax shield that can be less than the cost of a new car.
5. Charitable donations.
6. Offset capital gains by donating to special urban development zones.
7. Where/when/if able write off depreciation of property.
8. Use mortgage law strategically to manage property for maximum deductions or credits.
Many of these require itemizing taxes- which means a single person will need over $12k in deductions to beat the standard deduction. Hence why tax law favors the rich. But.. anyone falling below a certain income qualifies for things like EIC, renters credit, and more. Kids or dependents can be worth $2500 a pop- and with some work one can often easily claim older relatives as dependents. There are tons of tax credits and deductions available- moving expenses for jobs, education, training, contractors and certain professionals can write off anything from clothes to entertaining clients to their phone bills, internet, laptop, even their car potentially.
Most Americans get a tax refund which means they overpaid taxes. Your actually tax burden gets an automatic $12k deduction if you’re filing singly so if you made less than $20k you’ll likely end up paying little or no tax as is. Certain professions or organizations can also qualify for tax breaks or forgiveness.
Taxes are a structures game. It’s not as simple as “that guy didn’t pay taxes!” But it’s kinda close. Say you want to take a $10k trip to some paradise. That means you made $10k at least, will be taxed on that, and then will spend it on the trip. Ouch. But what if you take the trip as part of your business! What if you form a business or NPO and the NPO makes the $10k? Now you aren’t taxed for that income. You take the trip at a net cost of $0, and your expenses become tax deductions. Wow.
You enjoy hiking? Ok- you buy that stretch of land for next to nothing over by the sewage plant or whatever. You start a trust. You work for the trust or even volunteer- ok. Now those assets are shielded from taxes. If the trust allows you to develop say a visitor center or concession stand leased on its land- you can claim the structure, depreciation, expenses, but you aren’t paying property tax. What’s more- in your “service” to the trust- you walk the trails and acts as a docent. So that sweet pair of boots and that camel back are deductions. Hell- if the trust can fund it- they belong to the trust and the trust pays them. Maybe a Jeep to patrol too- a Jeep you personally aren’t taxed on. Or you use your Jeep and wrote off miles and depreciation. Whatever favors you most.
That’s how the game is played. So when someone is “rich” and has all these cool things and cars and travels or whatever- much of the time they aren’t paying for it. More often than not they are essentially being paid for it- in effect it becomes “free” as the “payment” is the tax burden they aren’t carrying that you or I would to do the same thing if you just went to pay cash and do it without fore thought or structuring.
Even on the lower income end this can benefit you. A single person making $38,000 a year is burdened by the same 25% tax responsibility as a single person making $91,000! If this single person making $38,000 puts even a small amount a month into a 401k, they’ll drop into the 15% tax bracket- an instant savings of 10% on taxes and they get to KEEP that money which will even grow for them while they wait!
But there’s more! Say you barely make enough to get by- you’re paying $800 a month to rent a place and Saving nothing living in a place where a home costs around $125k? You can let the 401 shield your income while growing on the market, then borrow back from it and put that on a home. Your mortgage is now less than your rent- making your total cost to own very close to what you were paying in rent but now you own a home which will go up in value while supplying equity and security for credit, increasing your on paper wealth, and you aren’t paying someone else to get richer but yourself. You’ll have to pay back the 401- but you’re paying back a loan to yourself instead of a bank- and you keep the interest. Wow. And that home can be a tax shelter or source of credit- and if managed right the equity can be used to get a rental property!
Likewise instead of a 401- using a health savings account- you can also shield income from the irs. Even if you aren’t on the cusp of a tax bracket where the shielded income will offer a significant savings- check this out. You know you’re going to need Lasic. You’ve wanted it and you need to see. It’s let’s say- $2k. So if you make $10k this year you’ll be taxed on $10k- 15%. Take home becomes $8500, -$2k for lasic- leaving $6500. If you put that $2k in an HSA, you’re taxed 10% saving $500 on taxes- you still get the lasic, And you keep an extra $500. What’s more- you get the lasic at the start of the benefits period and it’s deducted from your pay check in small installments throughout the rest of the year. That means you keep more in liquidity.
That’s an important concept and feeds into this whole thing. Liquidity. See- tax returns are generally bad. If you get money back on your taxes- it’s your money you over paid on payroll taxes. In other words- you have the government a 12 month interest free loan. Financially having potentially thousands of dollars sitting doing nothing for a year but not available to use is a bad thing. If you adjusted your payroll deductions so that at the end of the year you’re getting $0 in refund- that means that $200,2,000 didn’t sit with the government for their use for a year. It went into your pocket. It went into savings and collected (tiny) interest, it went into stocks or a 401 or IRA, or it went into property or other equity investments. Even the shitty return on most savings accounts is better than 0% interest for 12 months on a free loan to Uncle Sam.
In general it usually makes sense to amortize expenses- to make payments save for critical materiel and things which you can get a substantial real cost benefit of you own. This is because of you are making small monthly payments the bulk of your money is available to use when and as needed as opposed to not having it. Your best bet for building wealth is to start with a large enough sum that you can see a return. Unless you’re trading high risk stocks or selling drugs it’s hard to turn $3000 into a fortune but really easy to live off $3 million.
You can take $3 million, with proper investment and structuring you can live as though you make $75-100k a year- basically forever- and never have less than $3 million dollars in your net worth. Money makes money. Without compound interest or anything- a 10% annual return on a million is $100k. Most people am easily live off of that. But that $100k is on top of the million which you still own. What’s more? If you do things right and balance with things like losing investments- you can offset your taxes and pay nothing. While theoretically possible with less money, at a point the costs are greater than the gains- and if you aren’t using big dollars your returns are more like $50 a year- hardly worth the effort and with no real ability to shield income. But that’s right- you can lose money to make yourself richer.
Ever ask: “why did they make this total crap movie? How did they not know...?” There’s a good chance they did. By making that movie they can claim a huge loss on taxes. In fact- with good accounting even a huge successful movie can show a huge loss. So in a year you need more tax protection you bank this terrible movie. It bombs- the next year you claim profit off merchandise, licensing and home markets, international sales, etc etc. in fact some movies have actually made studios mad by succeeding because they expected it to flip and to give a tax shelter and when it was a surprise hit they needed to figure something else out. Similar plots can be used with stocks, properties etc.
I know a few guys who make movies- they aren’t rich rich. They aren’t Spielberg’s either. They make those really gnarly rated B type films that are often rip offs like “transmorphers” or “Tai Chi Koala..” Most of the money isn’t theirs. They get backers, make a film, party, get to run B lost elbows and play Hollywood “bigshot,” they pay their friends and family to work on the picture, meet real celebrities and the like- and then after either no showing or a sad limited release someone like Netflix or some foreign cable company needs a cheap filler and pays them to show it. Over the next few years the film becomes profitable- they just have to float the money until then and take the tax breaks to stay even- and if lucky they make a “sharknado” or the like of a cult classic riff trax type film and they make big dough. Basically you turn $100k of your money into a return of like $150k but you get to have fun doing it and might make way more.
There’s a million and one hustles and most wont work for everyone. Structure, structure, structure. It generally takes planning and diligence to execute a proper tax racket. Selecting the method(s) that fit you best is also key. I won’t get into it but there’s also a host of frauds people Iliad that generally you’ll get away with but are still not legal- but as I’ve described these taxes can get very complex and have lots of money bouncing around. That makes it very easy to just make money vanish into a black hole or pull off shenanigans that a simple tax packet with less than a few hundred grand can’t do.
A guy in a clown suit masturbating will stand right out on Main Street of a small farm town on a Sunday after church- but the same guy might be completely unnoticed or undisturbed on a crowded New Years in time square. In between outright fraud and totally safe is “creative accounting,” the type that makes a studio say a record breaking summer blockbuster lost $100 million dollars when it only cost $20 million to make and raked in billions. Creative accounting is an art as well- and even without it this stuff is complex which is why the rich and corporations tend to use certain well regarded accountants to keep track of it all for them.
Taxes are like D&D or a good RPG or RTS etc. a total noob or fodder just shows up and clicks away trying to play the game. A better player might know what spells or gear a power player uses- may have some stats or effects memorized etc. a power player knows all the charts by heart. Every algorithm and equation used to calculate every single thing. DPS, crit, what stacks with what, all the meta stuff to grind and break the game by gaming the stats and the engine. These guys make their money because the individual finances of people tend to be varied enough that there isn’t a one size fits all approach to maximizing your holdings.
But what mucks most people up beyond lacking the required surplus to leverage many of these tools is that they aren’t willing to change. “This is what I have- how do I leverage it?” Well- that’s not exactly how it works. You have to say “what can I leverage?” And then make what you have match that. So it’s less about finding the tax loop holes that work for you and more about making your situation for the loopholes that can maximize your advantage.
The less a person had the less likely they are to be able to do this. The way it’s set up is reverse video game. The more you level and power up financially- the easier it becomes to reach the next level. So a lv1 character will need to spend decades fighting hell beasts to get to lv2 but a lv 60 can level up in 5 minutes fighting bunnies.
So when people in the middle and lower middle class look and say: “oh- my money is paying for these lazy poor people!” Not actually. Your money is subsidizing the money that isn’t being paid by the wealthy because they’ve structured so they basically have a free ride. If you won the lottery tomorrow and got prudent financial planning you could also literally just coast through life and never burn through your winnings unless you tried. If you happen to be born into wealth that’s more or less how it works. You’re holding up the share of someone with way more than you who is paying way less. Who often tikes is actually working less the the person on welfare but living 500x as lavish as you are. Keeping people angry at the poor is a great way to distract from being upset at the wealthy.
@catfluff- it would be an honor- but I must strongly caution against giving your social security and financial information to random people spouting financial advice online. Lol.
Sorry bro, but when I bust my ass to work and some guy who refuses to get a job and complains about being poor gets to take my money, it pisses me off. It just be like that
A lot of people on welfare actually do everything they're supposed to and it still doesn't work out. Yes, some people are lazy or refuse to get a job but a lot of people genuinely need social assistance. For instance, I need medicaid to cover my medical expenses because I can't work a job with an insurance plan that covers everything I need covered. I work full time, but I still need some assistance.
random fact: 20% of people in new mexico are on food stamps however that only counts up to less than half a million people which, when compared to florida which has 15%ish people on food stamps, new mexico has less than 1/6th the total people on food stamps with florida having more than 3 million people on food stamps
1. Using things like a 401k or HSA you shield as much pre tax income as possible.
2. Investing in stocks and the like then taking capital loss as a deduction.
3. If you have said stocks- consider an LLC or similar structure to “manage” several of your investments. This takes them out of your personal taxes and places them in business taxes where they may well get a better rate.
4. If you have the money (and you may surprisingly even if you’re barely middle class-) finding a small plot of otherwise worthless land in an area where there’s over development and then creating a trust with it is a huge potential tax shield that can be less than the cost of a new car.
5. Charitable donations.
6. Offset capital gains by donating to special urban development zones.
7. Where/when/if able write off depreciation of property.
8. Use mortgage law strategically to manage property for maximum deductions or credits.