Who will run for governor in 2010 from GOP if Pawlenty doesn't? (Anoka: attorney, wedding)

[marmac]

Originally Posted by golfgal

A lot of the loop holes are there for business owners. If you are a W-2 employee you don't have the benefits. There are plenty of deductions, tax shelters, etc. that you can take advantage of if you have the means. Do you own rental property? What is your charitable giving like? If you are a business owner you can deduct all kinds of things like health insurance costs, employee benefit costs, office expenses, etc. Warren Buffet had a good article on several months ago, maybe around election time, that outlined how he paid less proportionally in taxes then most of the people that worked for him.

goilfgal, you list business expenses as an example --"loop holes"

I would expect business owners to be taxed on net income rather than gross income.

net income is gross income minus expense.

[MN-Born-n-Raised]

Originally Posted by golfgal

A lot of the loop holes are there for business owners. If you are a W-2 employee you don't have the benefits. There are plenty of deductions, tax shelters, etc. that you can take advantage of if you have the means. Do you own rental property? What is your charitable giving like? If you are a business owner you can deduct all kinds of things like health insurance costs, employee benefit costs, office expenses, etc. Warren Buffet had a good article on several months ago, maybe around election time, that outlined how he paid less proportionally in taxes then most of the people that worked for him.

As Marmac pointed out, you listed expenses as "loop holes".

I would agree that deducting a suite at a pro sports team should not be considered a business expense. If any business looked at the return on investment of this $100,000 expenditure, it would not yield anything close to a smart expenditure. As a side note, all entertainment deductions are 1/2 of what they were before.

Same thing a few years back when insurance agents (as an example) were buying huge trucks and SUV's because it fell under higher depreciation SUVs for Business Are Big Tax Savers This Year - Kiplinger.com . If you are an insurance agent and bought a big truck for "work", I'd be nervous of an audit. My accountant warned against it because that was not the intent of the deduction.

Those examples are not the typical and they should be shut down. I'm sure there are some more of I think about it longer.

But be careful what you wish for. If you think that the expense of health care and benefits should not be deducted, then any smart business owner will pass that on your W-2.

[MN-Born-n-Raised]

Here are some tax "loopholes" need some clarification. These are common ones that I hear about when people think that business owners are not paying my fair share in taxes.

1.)Mileage "loophole".

Fiction: Business owners can deduct their mileage and a W-2 person cannot.

Fact: A business owner cannot deduct their mileage to their 1st job of the day. That represents their commute miles. All other miles are considered an expense. In order to pass an audit, millage needs to be documented daily.

2.) Rental Income "loophole".

Fiction: Rental property owners can buy a home for their personal use and "write off" all of their expenses making it a free home.

Fact: Expenses reduce your rental income. But, any time the property sits empty with no renters, it is considered personal usage (those expenses cannot be deducted). If you physically use the property, then those days of usage are removed as a percentage and you cannot exceed 14 days of personal usage. While you can deduct depreciation, when you sell, you will be taxed on the sale price minus the depreciated price. Any benefit from "depreciation" then turns back into income when you sell. So there was no free money.

3.) Tax Shelter "loophole".

Fiction: Rich people don't pay a lot in taxes because they have tax shelters.

Fact: There is no free rides. These shelters that people talk about are nothing more than prolonging the inevitable. If a company takes a one time write off (as an example) they just push it from one year to another. It's basically like a short term 401K. One day you will be paying those taxes. As a side note, how smart was it to prolong your income when the tax rates seem to be going towards a European style bracket / rate?? I feel brilliant about now because I have zero in my tax deferred retirement account.

If you reinvest your profits into the business, then those profits are not taxed. Basically, (again) you are prolonging the inevitable. Whenever that business is sold, someone will have to pay on their gains.

But those high paid accountants can shelter the super rich, right?? Most of those are scams (see How the Super Rich Avoided Taxes; Despite Making Millions - ABC News )


The bottom line is you run a business and are able to right it down a lot so you pay very little in taxes, then you are working for close to free or you are cheating. There are very few real tax loopholes that exist because most of them have been shut down.

As an example, you may hear your neighbor brag on how little they pay in taxes for their wives daycare businesses. That is because they cheat by buying food for their family and deducting it for their daycare, exaggerate their area they use for daycare that allows for taking a higher depreciation etc.

Expenses are allowed to be deducted for a reason. If your income gets eroded for these write-offs, you really are not making much so you are working for free.

[Slig]

Great discussion but you're all going way off topic. If you want to argue about taxes make your own topic about taxes.

[marmac]

True, but the 2010 Governor race will have --taxes--as the #1 issue regardless who the candidates are.

[MN-Born-n-Raised]

Originally Posted by Slig

Great discussion but you're all going way off topic. If you want to argue about taxes make your own topic about taxes.

Slig is right. It's pretty far off topic. The topic took a big swerve because TimPaw (and people who are like minded) are disliked by people who think he is letting those rich Minnesotans off the hook. You know, those tax payers who amount to 1% of our State population and pay 28% of our MN taxes.

I guess I understand why they are upset if they inaccurately assume that the top 1% can manipulate their taxes to pay even less of a percentage than the guy making $40K gross. That is positively false information. If you can find an example then it is a statistical outlier and not the norm. Percentage wise, the "average" Minnesotan (after typical deductions) pays diddly squat. The two income families who work their butts off have a reason to complain but they should be transferring the blame where it belongs. The blame is shared by corporate welfare as well as personal welfare (welfare defined as in getting stuff that you don't pay into).

I hope that whoever becomes our governor will be fiscally responsible and trim all forms of government give-aways. I don't want to see freebies for NWA, rich sport team owners, ethanol subsidies, "free" health care, subsidized housing, free college, etc. Let's have great schools K through college, quality roads, and take care of the people who have physical and mental issue beyond their control.

[rcsteiner]

Originally Posted by MN-Born-n-Raised

I hope that whoever becomes our governor will be fiscally responsible and trim all forms of government give-aways. I don't want to see freebies for NWA, rich sport team owners, ethanol subsidies, "free" health care, subsidized housing, free college, etc. Let's have great schools K through college, quality roads, and take care of the people who have physical and mental issue beyond their control.

You seem to have forgotten that NWA doesn't exist anymore. It's Delta, now, and Atlanta owns your behinds.

[MN-Born-n-Raised]

Originally Posted by rcsteiner

You seem to have forgotten that NWA doesn't exist anymore. It's Delta, now, and Atlanta owns your behinds.

I didn't forget. Go ahead and type in www.NWA.com.

It seems Delta has forgotten they don't exist, not me.

[Clifford63]

I would just like to add to what Born-n-Raised. There seems to be this notion that the solution to all revenue problems is to increase taxes on the "rich". This notion has been carefully fed and nutured for a very long time, but if you really look into the facts, it is a gross oversimplification of the issues.

The first issue is that we don't have a lot of people making over 250K which seems to be the number thrown around as entry point to higher taxation. For example, if you raised the rate 10% on these people, this will only apply to the income above 250K, not the entire income. For example if you have a person making $500K, you are looking at $25,000 in additional tax. This would mean it takes 40 people making $500K to increase revenue by $1,000,000. We are looking for more the 2 Billion, so that mean it would take 80,000 people making 500K to close this gap. MN clearly does not have anything near these numbers of "rich" people. If people can get past the sound bites of, they will quickly understand that we have a spending problem in MN.

It is often said that the middle class are the ones carrying the burden, but this is also misleading. The middle class are clearly getting huge tax breaks if they own a home, have children in day care, etc. It is not uncommon at all for a family that makes 100K to have between 10K and 20K of deductions. If you divide adjusted gross by net income, this will give you a percentage of income that you are being taxed on. The lower your income, the lower the percentage of income you pay tax on, in addition to having a lower tax rate. This is true even if you cannot itemize and use standard deductions.

There is three main varibles with income taxes.
1. The percentage of your gross income that is taxed (how much income is exempt)
2. The percentage rate that you pay for income tax
3. What is income? For example if I make $10 in income, pay taxes on that $10 and then invest the remaining $7 into a investment property, business etc. Is the money this $7 makes subject to regular income tax rates, or should it be classified as capital gains witch is subject lower tax rates and allowed to be defered until gains are actually realized? The intent of this "loop hole" is incent people to invest money into the economy. There are a lot of scams that do try to convert regular income into capital gains, but this is not really a loophole. It is criminal activity.

In the current system, big salary earners pay higher percentage rate on a larger pecentage of income. For example a person making 72,000 and taking the standard deduction of $7,200 is getting a free pass on 10 percent of the income. A person with income of $500,000 would need deductions of $50,000 to be at the same level. This is very difficult to do, and should show just how far off base many people are when they talk of "loopholes". The vast majority of people making $500K are business owners.

I am not a huge fan of the flat tax because it is not going to be progressive. I will say it is very simple and simple is a good thing when it comes to taxes.

I support a more fundamental change to the system
1. Remove all deductions
2. Remove all Tax Credits
3. Eliminate income tax for all people below poverty line.
4. Create enforcable accounting rules for business so profits are taxed fairly.
5. Create a new progressive schedule for taxation
6. Remove tax breaks as motivation to change behavior. Do this with grants instead.

The article Golfgal is refering to is a a couple years old by now. Warren Buffet made reference to the fact that he paid about 17.7% income tax and his secretary paid about 30%. He commited $31 Billion to the Bill and Melinda Gates Foundation. Stuff like this will lower your tax liability for sure and makes you question how truly concerned he is about how fair the tax system is. It is also very likely that a good portion of his "income" is coming from capital gains which is taxed at 15%. Capital gains tax rate is very often changed by congress as well. It is low right now.

At the end of the day most everyone hates taxes and will complaing about them if you bring up the topic. Some people would say if everybody thinks they are getting screwed, then it is probably not too far off from fair.

[MN-Born-n-Raised]

Clifford63

That is what I meant by a statistical outlier (the fact that he gave $31B for charity). While that shows a deep amount of compassion even with a tax deduction, part of me wonders if he did that to prove a point. Because in reality, that isn't how it works. If you make more, you pay more and the scale is positively progressive while you lose your deductions. So I stand my my point. Don't believe what I say or what Warren Buffet says, simply look at the tax tables. If you believe otherwise, you are selling yourself.