Slashdot Mirror
IRS Nails CPA For Copying Steve Jobs, Google Execs
theodp writes "It seems $1 salaries are only for super-wealthy tech execs. The WSJ reports that CPA David Watson incurred the wrath of the IRS by only paying himself $24,000 a year and declaring the rest of his take profit. It's a common tax-cutting maneuver that most computer consultants working through an S Corporation have probably considered. Unlike profit distributions, all salary is subject to a 2.9% Medicare tax and the first $106,800 is subject to a 12.4% Social Security tax (FICA). By reducing his salary, Watson didn't save any income taxes on the $379k in profit distributions he received in 2002 and 2003, but he did save nearly $20,000 in payroll taxes for the two years, the IRS argued, pegging Watson's true pay at $91,044 for each year. Judge Robert W. Pratt agreed that Watson's salary was too low, ruling that the CPA owed the extra tax plus interest and penalties. So why, you ask, don't members of the much-ballyhooed $1 Executive club like Steve Jobs, Larry Ellison, Sergey Brin, Larry Page, and Eric Schmidt get in hot water for their low-ball salaries? After all, how inequitable would it be if billionaires working full-time didn't have to kick in more than 15 cents into the Medicare and Social Security kitty? Sorry kids, the rich are different, and the New Global Elite have much better tax advisors than you!"
Remember all, when you are an employee, the government always has the first share of your pay-pie.... if the cpa was smart, he'd have set up a proper LLC shell, and worked through it. I'm sure he has the skills to do so. and the appeals verdict on this should be interesting...... Also, yaaahooo, my first first-post!!!
These $1.00 salaries are usually morale boosters. . .This article implies they make plenty of money without the salary. I think the difference is if you are just given stock. . .if the company performs you get money, but your taking a big risk.
if the cpa was smart
CPA's aren't very smart, that's what CA's are for.
But in all seriousness, CPA is a really easy designation to get. I've got friends who have done both (due to working in firms who were CPA, and CA only), and the CPA is a piece of cake compared to the CA. So, the CPA is far less a symbol of being good at accounting than the CA is. Though I hear it's a little different in the US.
Anyone care to shed some light? Particularly if you're originally from a commonwealth country.
This is my footer. There are many like it, but this one is mine.
At the end of the day the super wealthy can only protect their position by sharing their wealth or suppressing dissent. In an age when everyone on the wage spectrum can dial up stories on how much the super-wealthy earn and how much they give back dissent is likely to grow in times of hardship. While some might argue we need these innovators, innovation is not strictly related to wealth but is very much reliant on the resources and infrastructure funded by tax payers. It's not therefore how good their tax advisors are, it is more what people think. And in the fickle tech world empires could crumble if figure-heads fall foul of public opinion. I would say being a good citizen and being seen to share, to pay a fair contribution, is increasingly the only realistic option.
It's because this guy paid himself the same amount, he just funneled a lot of it through his corporation, of which he owned the dominant share (if he was going through an S-Corp, he only needs at least one other shareholder, I believe). S-Corps don't pay corporate taxes either. Google, Apple, et al are public corporations which pay corporate taxes (though not much, usually, by taking advantage of various loopholes). Most of them don't even pay a dividend, so even if Steve Jobs does have a significant number of Apple shares, he's not getting any direct payment of the company profits.
The distinction between Mr. Watson and Mssrs. Jobs, Ellison, Brin, et al, is that the salaries of the latter are set by independent boards of directors of public companies. Mr. Watson set his own salary, which the court found was not commensurate with the market rate for that sort of work.
The SCO lawsuit makes me wish my company were in Utah. We need a new building.
will tell you that the company in question falls under different tax law than Google or Apple. Apparently, companies with more than 100 shareholders are subject to an additional level of taxation on profits. I don't know any details, but I think that it would be worth looking into before crying foul. At the very least, one would expect the submitter to have read the article, which doesn't seem to be the case.
So if this is the future...where's my jet pack?
Just what the hell did you smoke that created this fairy land?
Tunesia recently revolted after DECADES of abuse by the superrich where they did no longer bother with tax evasion but just stole gold and killed those that protested. Oh and don't forget decades of poverty and a hopeless future for the majority.
If it takes that much negative karma, Bill Gates and Steve Jobs and the likes have NOTHING to worry about. The average voter ain't even smart enough to realize that their tax avoidance schemes ultimately cause the non-super rich to pay higher taxes. They just blame Obama and vote in the tea-party. Extended tax-cuts for everyone who has more then a billion folks!
Bread and circusses. The only risk the super-rich face is if the American Dream dies, and that dream is not about actually being able to afford a car, a house and a huge tv, but about being able to work very very hard to get a loan that always puts you one pay check away from loosing it all. Keeps the folks on their toes, unwilling to do anything to risk upsetting the status quo lest they miss a credit card payment and loose it all.
Why do you think ALL the elite were HORRIFIED over the housing crisis? Because poor people lost their home? Yeah right. No, because poor people found out that they aren't all that tied down to their debt. Default and walk away and start over new, maybe somewhere different with a different kind of politician. Don't let the poor money to get themselves in debt and they just might not be in debt anymore and then how do you control them?
But that is not the worry of the super-rich. They are a few hours away from leaving the country anyway. It is the layer below that should be worried but the situation in the west is still far to tempting for the ones to get screwed to ask themselves, is it worth getting it up the ass so hard for the tiniest impossible change to one day strike it rich and screw every one else? 99% of voters in the US? Yes, yes it is.
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
Don't let reality stand in the way of your snark, but a major portion of Steve Jobs' reward is later granted by the board as stock options.
Options awarded in this way are a very different topic than hiding income as Sub S profit.
Publishing this article this way is as stupid as publishing Paris Hilton whining about network protocols would be.
"It is our blasphemy which has made us great, and will sustain us, and which the gods secretly admire in us." - Zelazny
They make laws go "poof".
I wish a judge would rule that I don't make enough commensurate with the market. Maybe this tax season the IRS will see that I don't make enough.
Custom electronics and digital signage for your business: www.evcircuits.com
Half the world lives on less than $2.50 a day.
80% lives on less than $10 a day.
We are the super wealthy.
Believing something doesn't make it true. Not believing something doesn't make it false.
http://www.bls.gov/bls/blswage.htm
The SCO lawsuit makes me wish my company were in Utah. We need a new building.
The rich aren't different from us. They just have more cents than we do.
Care killed the cat, but satisfaction brought it back.
If he gets sick he'll just pay out of pocket. So if he's taxed for it, it's not like insurance - it's just paying other people's Medicare or Social Security.
Tell me something, do you honestly believe that the rich NEED the SS?
The rich need the EI?
The rich need the Medicare?
Anybody, do you think that Bill Gates needs to pay SS and EI and Medicare contributions?
Why?
I hear a lot of people argue that they are paying the SS and EI and thus they should get it back for some reason even though they are wrong, those are not insurance programs, where money is saved and invested and just sitting there invested, those are welfare programs, and the money are gone immediately to pay those on top of these pyramid scams, while the rest of the money is used to pay for whatever your politicians promised you, so you can't have your same dollar paid twice to you - once on some program/war and then the second time - to you, if you need SS/EI/Medicare etc. All of those programs are unfunded liabilities, they are all debt based, to 'fund' them US gov't must sell the US bonds first and that's debt. There is no money there.
But tell me something: WHY SHOULD ANY RICH PERSON PAY INTO SS?
By that same logic that people apply, when they argue that their SS payments are somehow actual insurance payments, by that very logic anybody who does not need to get any of that money because they have enough, shouldn't be paying into that pot. But it IS a scam, it IS a pyramid, this is NOT about insurance, this is about taking your money and buying a very expensive gov't, that does not do what you want, but does whatever it wants, that's why the richest people now are found in the government, in Senate, in House, in White House, even under the president's table sucking his cock.
--
It is time for the sheeple to realize they are being scammed. It is time to stop paying all taxes to the US government and to revolt and take the government down or at least, it is time for the separate States to declare annulment of the federal government. Federal government is a cancer of the society, it is eating all of the lunch, it is printing all of the dollars.
You think Obama has lowered your taxes, right? But what about the gigantic, enormous tax of INFLATION? The Fed is printing the US dollar, inflating it away (it's also amusing to see how the US is complaining that China is manipulating currency, while it is simply trying to anchor their money to something, and is making a mistake of anchoring it against another currency rather than against gold. Many countries are anchoring their money against US dollar, the problem US has with China is that China also produces all of the goods that USA is consuming. It is in the best interest of China to no longer peg their currency to the US dollar and to appreciate their currency, but USA will be FUCKED. FUCKED. USA has no production capacity to supply itself with almost anything anymore, except for weapons of mass destruction.)
So do yourself a FAVOR, move all your money out of US dollar - this will help you to avoid the BIGGEST TAX that USA government is imposing on you.
Also realize, that the US gov't is the cause of all of the economic disasters and it's crashing the economy, destroying capital and jobs, and without productive jobs USA is fucked. However you can avoid the biggest tax of all - inflation - by moving your money into other flawed currencies or into something tangible - monetary metals or FOREIGN equities. That's right, foreign equities, not USA equities, because eventually the US gov't will be bailing out its monopolies and will be destroying competition completely but the companies that still will have some profit because they are catering to the foreign consumers will most likely be taxes more - windfall taxes, and you will NOT see your dividends.
You are robbed blind by your government, do something about it.
Stop giving it money, cut all spending by 99.9%. Fire all government workers. Stop all government contracts. Dismantle all government institutions and departments. Repeal all government laws.
All of this needs to stop and money must be made solid again, it must be
You can't handle the truth.
The rules for C-corporations and S-corporations are different. Steve Jobs, Larry Ellison, and Larry Page all work for C-corporations. If David Watson wants to take a $1 salary he too should set up a C-corporation. But he'd probably come out ahead by taking a reasonable salary, paying the extra 15% SS tax, and keeping is S-corporation status. An S-corporation pays no tax; instead the tax liability flows down to the shareholders. In a C-corporation, both the corporation and the shareholders pay taxes on profits - double taxation. So the S-corporation really has the better deal. But there are restrictions on S-corporations, such as a limited number of shareholders (24 is the number that pops into my mind, but it might be more) and the fact that officers must take reasonable salaries.
You have to follow the rules. You can't pick and choose (unless you want to end up in tax court like Mr. Watson).
I am sure that anyone in the 'much-ballyhooed $1 Executive club' who is not pursued by the IRS has been giving contributions to the party in power or to members of congress that are connected with IRS oversight. Our American government, as well as all other governments in the world, have become completely corrupted.
While I'm from the UK - and occasional poster, trying to offer real information rather than Pro-{whatever} rhetoric - and so unaware of the full implications of this to the USA; I believe that the concept of IR35 / 'disguised employee' is relevant to the discussion.
For those of you interested in real information (and the patience / skill to read a whole article): http://en.wikipedia.org/wiki/IR35
I recall a lot of IT contractors getting stung for this in the UK when the concept was introduced 10+ years ago. Even sub-contracting through a 2nd company has become less protected as the Inland Revenue (now: HM Revenue & Customs) found it easier to target these larger money-routers rather than individual contractors.
The tax 'avoidance' isn't as lucrative in the UK as the USA as I think corporations still have to pay 21% tax on profits upto £300K (but can still pay their employees upto the top of their personal 20% tax rate).
These taxes and compulsory schemes were poorly designed and now the judicial system is being asked to make sense of the mess.
Most economists agree that a consumption tax combined with some state sponsored welfare system is far, far better.
The real news is that there is no law which requires you to pay federal income tax.
There are supreme court cases backing up the claim. See for yourself:
http://video.google.com/videoplay?docid=-1656880303867390173#
Why isn't "profit" considered "income"?
Have you spent any time in a poorer country? If so you'll know what a precarious living a lot of people have, and how many literally die on the streets from starvation or disease. 2.50 might get you more, but not a lot more.
People rioted this year in India over the price of onions rising. People have rioted in Tunisia and Algeria over the prices of cooking oil and flour. These are not wealthy people. These are not people rioting over not being able to put enough gas in their 8 litre SUV, or not being able to upgrade to the latest games console.
These are people rioting over not being able to eat enough to live. Onions, cooking oil, flour.
You should be ashamed of yourself. Or at least offer to live on the equivalent salary in your own country, a living so close to starvation that if the price of onions goes up you might die.
This can also reduce your eventual social security benefits
Social security benefits are capped at relatively low levels, he wouldn't get but a small part of those $379k/year after he retired.
According to this link he would get about $11k if he paid taxes on $24k/year and about $26k if he paid taxes on $379k.
The reason it doesn't go after $1 CEOs is because the IRS realized a long time ago that CEOs are really only worth a few bucks anyway.
The only problem the IRS has now is they can't for the life of them figure out why the hell anyone gives CEOs any money at all considering they aren't accountable for anything either.
Persistent Volume manager for Kubernetes - https://github.com/dwimsey/openshift-pvmanager
You only get taxed on SS and Medicade up to a tiny portion of what somebody like Jobs makes. And yet who will argue that what Jobs has done hasn't employed thousands of people at Apple, all of which who pay taxes? Who would argue that there is not a thriving business for iPhone accessories and "app for that" apps again putting food on many, many people's plates? How many people does that CPA employ? Is it really that unfair? One could argue that people like Jobs produce so much more for the economy and many, many people than that lowly CPA does. Now is that fair?!? We need Jobs - many, many more jobs!
A simple consumption tax system would rid us of these problems, but Congress would lose their power to grant favors and impose penalties on entities of their choosing.
An income based tax system with this many different requirements and exceptions is designed to be abused. A consumption system is not because what good is their wealth if they don't spend it. If you want to soak the rich you simply implement a consumption tax and void all taxes paid up to a specified amount. As in, you determine the amount of spending required to keep people happy and whole and refund it, all beyond that goes into the coffers. This includes taxing services as consumption as well so that getting around the system becomes less likely.
* Winners compare their achievements to their goals, losers compare theirs to that of others.
The rules for an S-Corp and much more have changed in the past year. He should have done his homework.
Executives aren't saving themselves any money at all. They will take the salary they want, but it will cost the entire company more money. More importantly, why are you angry at THEM? They didn't design the system, the IRS did. If we did away with the tax system and went with a consumption based tax, then this problem wouldn't exist.
There's a difference between owning/doing business as an S Corp like he does (and I do, as do a lot of independent professionals) and being the CEO of a conventional C Corp. As CEO of a C Corp, you're not the owner, you work for the company. Steve Jobs and other people who get $1 in compensation get paid primarily in stock grants. If the stock rises, they cash it in and get money out when they want to. If the company doesn't do well, worst case is they get nothing - for practical purposes most boards will re-price or reissue options so they get some pay out of it. Lower level execs are usually paid with a combination of more cash pay and fewer options, but current thinking seems to be that a CEO is most directly tied to stock value.
Also, in many cases with "rock star" CEOs like the ones in tech, they have som much stock from taking the company public in the first place that they don't need much cash compensation, and it doesn't look as cool if they take it.
In the S Corp world, I think most of us do it for the liability protection. At least at mine, I pay myself a pretty good salary. I take out occasional payments that I pay taxes on - it's usually easier to do it as a bonus in my payroll and have taxes dealt with, especially because I pay bonuses to my employees. The flip side is that owning an S Corp does let you expense things that ordinarily might not be deductible as a regular company employee, like cars and at least part of your housing (as a previous poster mentioned). I keep things very above board - pretty much the only things that the company expenses in my life are my car and its related costs, my cell phone, and any tech I buy that isn't specifically for the house. I could push more stuff on the company if I wanted to be really aggressive, but it's not worth the potential hassle to me.
The one place where I get hit in return as an S Corp owner is in health insurance - I don't get as much of a tax benefit for my own insurance as I do for that of my employees.
What this CPA did was pay himself a token paycheck and then push a lot more off as profits. Had he paid himself a higher base - say, $50-$60k he likely wouldn't have had a problem with it and still would have had a nice profit distribution.
-- Josh Turiel
"2. Do not eat iPod Shuffle."
I love it how people just ohhh & ahhh and just go nuts when they see people like Jobs and company take one dollar salaries, and think how good they are, how wonderful it is that they take such a low salary. These executives are laughing all the way to the bank because they are SMART enough to AVOID the tax man.
An S-corp with one employee can deduct the cost of health care for that employee. A sole proprietor can not deduct healthcare costs. THis is kind of a big subsidy for corporations.
The tax code favors off-shoring jobs, off-shoring profits, tax breaks for hedge fund managers, huge farms over family farms etc.and federal mandates are passed to the states with regressive taxation policies for funding. Not to mention that corporations get all the benifits of personhood but none of the responsibilities.
Who wrote this stuff? Why is it so complicated? Why are middle class wages falling while the incomes of the super-rich rising dramatically? Where are the jobs?
The answer is pretty clear.
"...public corporate taxes (though not much, usually...") I believe one of Apple's current advantages is that its doing a good job of managing taxes globally. Good job meaning: 25% of earnings (not including payroll taxes). 30% would be more typical. Marginal US tax rates for families earning under $200K is currently around 28%. Additionally, corporate earnings (either distributed as dividends or recognized at the sale of shares) are subject to additional taxes (dividend and capital gains rates). Summary: ethical US corporations pay comparable taxes to typical earners.
The "S" Conundrum: Can Dividends be Wages or Vice Versa?: Any knowledgeable practitioner reading this newsletter will quickly realize that the potential IRS argument that wages are too low is the flip side of the question, when is compensation too high in order to eliminate income for a regular "C" corporation? In both "S" and "C" situations the issue is what is reasonable compensation.
Social security could close this loophole by taxing all income and capital gains the same as wage income up to the income limit. Then there would be no need to hide wage income as profits as the tax would be the same.
In the sidebar of the WSJ CPA story - Google Gives $100 Million Award to Outgoing CEO: "Google Inc., fresh off announcing a management shake-up, will give a $100 million equity award to outgoing Chief Executive Eric Schmidt, who in April will be succeeded by company co-founder Larry Page. Poornima Gupta, a spokeswoman for Google, confirmed on Saturday that it was the first such award for Mr. Schmidt since he joined the company in 2001. It includes stock and options. She declined to comment further...On Thursday, Mr. Schmidt filed paperwork to sell company shares currently valued at $335 million this year, his first such sale in more than three years. He currently owns 9.2 million Google shares, which are valued at nearly $5.8 billion"
The aqueduct? http://www.youtube.com/watch?v=ExWfh6sGyso
"rich is what keeps the elephants from murdering the grass ." --the world
Napoleon Bonaparte needs more most...
--
When poor fight it is the atheists under their feet that suffers the Religion.
(utilizing Wm. Burroughs cut up method of rearranging text to find the true meaning of communications we can extrapolate what you really are saying to the world from your heart. After all, "Language is a virus, from outer space and it's better to hear your name, than to see your face.)
*Repent!Quit Your Job!Slack Off!The World Ends Tomorrow and You May Die!
Jobs et al do not get in trouble with the IRS because they do not, after having paid themselves $1 salaries, turn around and distribute their companies' entire profits to themselves at the end of the year. Profits are retained by the corp and taxed at a pretty high rate, or distributed to shareholders and taxed. Whereas with an S corp, all profits flow through to the shareholders, and the corp itself pays no taxes.
And yes, they pay taxes on their stock options. In fact, gains from stock options at the moment they're exercised are treated as ordinary income and subject to normal income tax rates + FICA + Medicare. I don't know about the treatment of stock grants...
My accountant has used this strategy to reduce my payroll taxes for as long as I can remember. Remember a self-employed individual pays both the employee and the employer contribution. I'm not sure why this loophole exists, but it works.
None of the people mentioned in the summary are sole owners and sole shareholders of the companies for which they work.
Soulskill and theop should stop sucking each other off long enough to grow some brains and learn the difference between the two situations.
Which equals free money given the time value of money. Read about it.
This is just plain wrong: "Unlike profit distributions, all salary is subject to a 2.9% Medicare tax and the first $106,800 is subject to a 12.4% Social Security tax (FICA)."
Not only FICA applies to all your income regardless if it is W2 or 1099 income, you actually pay self-employment tax on 1099 portion.
Unlike this dimwit CPA Jobs at all do not actually get any taxable distributions: they receive stock option grants that will be taxable at exercise.
There are other ways to lower your tax exposure but switching your W2 income to 1099 only increases it.
He has refused his Assent to Laws, the most wholesome and necessary for the public good.
- random stuff, there are too many laws on the books now, instead laws need to be abolished.
He has forbidden his Governors to pass Laws of immediate and pressing importance, unless suspended in their operation till his Assent should be obtained; and when so suspended, he has utterly neglected to attend to them.
- same.
He has refused to pass other Laws for the accommodation of large districts of people, unless those people would relinquish the right of Representation in the Legislature, a right inestimable to them and formidable to tyrants only.
- same
He has called together legislative bodies at places unusual, uncomfortable, and distant from the depository of their public Records, for the sole purpose of fatiguing them into compliance with his measures.
- I wouldn't say Washington DC is that terrible of a place...
He has dissolved Representative Houses repeatedly, for opposing with manly firmness his invasions on the rights of the people.
- the representative houses today need to be dissolved, how many of the representatives are in their double digit re-elections? Professional politicians need to go home.
He has refused for a long time, after such disolutions, to cause others to be elected; whereby the Legislative powers, incapable of Annihilation, have returned to the People at large for their exercise; the State remaining in the mean time exposed to all the dangers of invasion from without, and convulsions within.
- the current problem is that the same people are there for decades.
He has endeavoured to prevent the population of these States; for that purpose obstructing the Laws for Naturalization of Foreigners; refusing to pass others to encourage their migrations hither, and raising the conditions of new Appropriations of Lands.
- yeah, that seems to be the same problem now. But it's even worse, do people actually OWN their property today or is it all property of the state and banks?
He has obstructed the Administration of Justice, by refusing his Assent to Laws for establishing Judiciary powers.
- appointed Judges.
He has made Judges dependent on his Will alone, for the tenure of their offices, and the amount and payment of their salaries.
- activist / party Judges
He has erected a multitude of New Offices, and sent hither swarms of Officers to harrass [sic] our people, and eat out their substance.
- income taxes, payroll taxes, inflation through printing and borrowing, future taxes based on debt
He has kept among us, in times of peace, Standing Armies without the Consent of our legislatures.
- aside from the fact that physically the military is not sharing your quarters, the military is always there, with all that spending. You might as well say they are living in your house and you are paying their rent and everything.
He has affected to render the Military independent of and superior to the Civil power.
- and today military is in the pocket of politicians, who use it for their own gain to keep being re-elected, because the military industrial complex never sees any spending cuts and military is always in a war of some sort
He has combined with others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws; giving his Assent to their Acts of pretended Legislation:
- UN, NAFTA
For Quartering large bodies of armed troops among us:
- or just spending obscene amounts of money, printed, borrowed and taxed
For protecting them, by a
You can't handle the truth.
The reason $1 execs don't have to deal with this is simple. Their salary is $1 and they don't make money off of company 'profits.'
But, you might say, they own stock! In fact, the only reason these folks might agree to such a compensation scheme is the stock!
And you'd be right, partly. They agree to this for two reasons: 1.) Stock options and 2.) they're already wealthy.
But this doesn't matter for income purposes. Why? These $1 executives aren't getting profit disbursements or dividends on their stocks. Therefore, they can only make money on the stock options if they sell the stock. (Which, by the way, they're often prevented from doing for a number of years.)
In contrast, this CPA had a small corporation where he was likely the sole stockholder. (I say likely because I didn't read the link. I'm lazy. Besides, I wanted to show off this knowledge. Oh, and another reason it's likely he's a sole stockholder is because it's likely a professional corporation where only other CPAs can be shareholders. Lawyers, doctors, and other professional get these restraints, too.)
Trying to 'trick' the IRS by paying yourself a meager salary and then taking the rest in profits won't fly. The IRS can, at their option, treat solely owned corporations like this as sole proprietorships under the tax code. Corporations and LLCs aren't tax vehicles per se; they're liability reduction vehicles under state law. The tax code has simply been designed to allow for tax benefits in certain circumstances, but these are not dependent upon 'structure' as much as it is 'actual use.'
Basically it comes down to if it looks like a duck, quacks like a duck, and walks like a duck, then the IRS will call it a duck even if the duck calls itself a goose. Similarly, if a CPA tries to avoid tax liabilities by calling himself a corporation, setting himself a salary, and then giving himself a dividend on the rest of the profits then the IRS will call that not a 'profit' but, rather, an 'income.'
This is totally different from a $1 executive who only gets $1, gets stock options he can't use for 3-10 years, and 'realizes' no income because all he's gotten are stock interests that can't be sold and picture of Georgia Washington.
The Slashdot contributor is right about one thing -- rich folks do have better tax advisers. Then again, going to bloody H&R Block or simply spending 30 minutes reading the IRS website can give you this information, too.
It's not rocket science.
This happened in 2002-2003.
This is a very different scenario than a 1$ CEO. The 1$ CEO actually takes a real pay cut and banks it all on their stock options. They are not trying to cheat on their taxes, though if their gamble pays off they do end up paying fewer taxes as a side benefit. They still pay all the taxes they are required to.
The CPA in the story was trying to cheat on his taxes. He took a salary that was far below the average compensation of a green CPA, let alone a CPA with 20 years experience. He then took an extra $380k in profit distributions over the course of two years. He did this specifically to avoid payroll taxes.
He might have gotten away with it if he payed himself $50k a year, but $24k was just too obvious. Why not just go for broke and pay yourself $1?
Security is mostly a superstition... Avoiding danger is no safer in the long run than outright exposure. - Helen Keller
The Oracle CEO makes $85 million per year.
What's your point, exactly?
Security is mostly a superstition... Avoiding danger is no safer in the long run than outright exposure. - Helen Keller
Geez I thought it was bad in Canada where the first (about) $40,000 of income has a social security tax of (about) 10% - half from the employee and half from the employer... but 12.4% on the entire income? Yikes!!!
The Medicare tax seems to work out to be about the same as the average person pays here on the first $30,000 of income.
The tyrant will always find a pretext for his tyranny - Aesop
That is to insure adequate "earned income" taxes on which social security and medicare are based. At this point in time earned income is higher than capital gains too.
The IRS frequently audits small corporations if they think the executives are evading taxes taking too low a salary.
The IRS expects you, in an S corp to pay yourself a "reasonable" salary. There is NO actual guidelines, and many accountants are now advising clients (in the absence of a real guideline) to pay themselves 60% of the draw as salary (get hammered on SS taxes, etc - and not that I'll ever see anything back) and the other 40% as dividend. There were folks who on a 150k income paid themselves 10k and then took the rest as dividends, free of SS tax (15%). Guess "wrong" as a small businessman and get hammered for back "salary" with interest and penalty on the tax. You accountant is navigating for you in the dark and fog. There was a bill in the last Congress to require SS taxes on 100% of draw. It died but only after a huge upset for small businesses and accountants. Meanwhile, hedge fund guys pay 15% on that, but they are rich so they are more important. I'm still an S corp but the benefits are way less than, say, ten years ago. As my CPA recently informed me "State and Federal Governments need the money, so they are taking a harder line on everything". Nothing like uncertainty in paying taxes.
Gonna be barbecuin' us some o' them frat boys' fat old mommies when the real crash comes. Bet they taste good slow-smoked with a mustard-based sauce. See, there are SOME people you want to make sure DON'T lose everything.
The real difference is that Steve Jobs doesn't pay himself a profit distribution from Apple. So, he really does only take in $1 in salary, and nothing else.
His primary compensation comes from appreciation of the shares of Apple that he owns, which he *does* pay taxes on when he sells.
Why are they still approving idiotic troll submissions like this from theodp? Either the guy is completely fucking retarded, or just barely smart enough to intentionally troll slashdot with giberrish.
But you just have to pay yourself a 'reasonable' salary. For instance, if you bill like $120K roughly...then pay yourself a salary of $40-$50K....pay employer taxes on that...and the rest can fall through.
Only declaring $24K salary on almost $400K is just asking for the IRS to kick you in the balls.
Of course, with the Feds spending the country into oblivion, they may start looking even at people paying reasonable (according to the vague rules that have worked for decades) and try to fsck with them. Sad...this was about the last and only way to keep a proper amount of one's earnings from Uncle Sam.
Light travels faster than sound. This is why some people appear bright until you hear them speak.........
Google & Apple are C-Corps, which don't allow this tax loophole at all, so Steve Jobs can't save any money by pulling this trick. The comparison is not accurate.
He used his S-Corp to reclassify wages as investment income to avoid FICA taxes, paying himself $24,000 per year (i.e. factory worker wages) instead of a reasonable wage for a CPA. You can't do that in a C-Corp, because you'll have to pay the corporate taxes that S-Corps get to avoid.
He would have been fine if he'd paid himself even somewhat reasonable wages, but Google & Apple can't pull this particular trick at all. C-Corps use completely different tax loopholes.
So, they're operating with no good guidelines in a system that makes it hard for S corporations with highly variable income to avoid burdening themselves with fixed salary costs -- and they like it that way, since they opposed the proper fix, which is to recognize that this is all ordinary income, and should be treated as such -- just as the profits of an unincorporated business would be.
Do you know what accountants use as contraceptives?
Their Personalities!
(:
You're missing one technicality. The rich executives work for C-corps that pay 35% corporate tax before the executives are paid. Also many of the stock grants that are given by C-corps are taxed with AMT, which is even higher that normal income tax rates. It is general practice that profitable S-corps cut their executives paychecks somewhere in the $50-100K range because it's seen as reasonable. If this guy's S-corp was profitable and he paid himself $24K/year, there is no way he could prove it was reasonable and he is an idiot for doing that. I think that lower taxes- especially on businesses- would be great, but following the spirit of the law is a good idea too.
Get rid of the payroll tax and implement a one percent surtax on all income. Earned via wages, interest, dividends, exercised stock options, carried interest and so on. We'd be able to reduce the rates on working people while making the rich pay their fair share.
It'll never happen though.
It has nothing to do with who has more wealth or better lawyers. An S-Corp is an easy way for a person making less than $106,800 to pay less in social security taxes. I have done it myself. In a C-Corp (Which what Apple is) you are double taxed on ALL of your distributions, even if they are higher than $106,800. In an S-Corp, you need to be sure that you are paying yourself enough to stay under the IRS radar.
C'mon, people, I know taxes are boring, but read the article.
Unlike Jobs or Schmidt, Watson was the sole shareholder and owner of the business in question. As a sole proprietor of his S corp, he was fully responsible for any profit or loss, as well as determining salary.
If this were organized as a sole proprietorship, there'd be no distinction whatsoever between his net profit and his income. Probably a bigger question here is why such organization is allowed.
At any rate, when Jobs gets $1 salary and then a profit bonus, it's because the board of directors approved that salary, and approved the bonus. No profit, no bonus. Since Watson's S corp has as its revenue stream steady income from the accounting firm and absolutely reliable expense forecasting, there was almost no chance of him posting a loss short of his arrangement with the firm being terminated, which is a far cry from Jobs being tasked with making sure Apple comes out with profitable products.
When used by an independent board of directors, representing shareholders, the low salary/profit bonus structure is a way of motivating executives.
When you are your own board, it's a tax dodge, and that's how the IRS saw it.
I mean, really, how stupid can you get? If the problem is 10+% unemployment, you can tax profit, sales, capital, energy usage etc. but the one and only thing you never want to tax in this situation is payroll, esp. as wages are already subject to individual income tax.
While not addressing your other points, in the case of the dentist business owning more than it can generate, can't (or won't) the note holders go after the dentist himself? They will attempt to show that the corporation was nothing more than a front for one man to do business, and as such, personal assets of the proprietor(s) should be on the able.
Whether that's a good thing is debatable, but isn't that what creditors would want to do?
And how successful would they be (anybody know)?
I'm not a lawyer, but I play one on the Internet. Blog
While Jobs may only receive $1 (just like your friend receives $24000), the tax office may tax him for more, just like your friend.
So he may be in exactly the same position as your friend. Have you checked this? The executive club may not be any more privileged.
You seem to quite informed on the issues.
Check this out: http://www.apttax.com/
Automated Payment Tax of .3% on every bank/financial transaction. No other taxes.
I saw it originally on Slashdot, and it's an interesting concept.
I'm not a lawyer, but I play one on the Internet. Blog
Probably because of posts like this one!
But seriously, the problem with this post isn't that it highlights the craziness of the tax system. It's that it incorrectly tries to tie a tax dodger's attempt to hide income from the IRS to CEO attempts at major companies (Steve Jobs @ Apple, Vikram Pandit @ Citi) to boost company moral by taking $1 salaries and, instead, basing their pay on performance through stock options.
There may be valid arguments that this CPA should be allowed to do what he attempted to do. There are no valid arguments that this guy is getting nailed while rich executives are not. Even worse, painting this guy as the 'little guy' is disingenuous at best, and dishonest at worst, since he made almost half a million in the year in question.
Cry me a river for the $500k income taking a $20k hit for FICA. (Of which, only $106k of his income counted towards the Social Security percentage.)
> IRS Nails CPA For Copying Steve Jobs, Google Execs
So where can I get my chinese Sergey clone ?
What a depressingly stupid machine.
This summary is ridiculous. Can we get a little more fact and a little less whining please?
Yes the rich are different, they went and did something to earn their money instead of sitting and pouting about how the little man can't get ahead! In America, 80% of millionaires are first-generation rich. They are people from every walk of life who behaved rich instead of acting rich.
Its not taxes keeping the little man down, its attitude. Get up, leave the cave, find something and kill it! There is limitless opportunity, even in a bad economy.
Before any of you accuse me of being Bill Gates in disguise, I'm actually just a recent college graduate who's almost 50k in debt. I'm not gonna be here forever though, and I don't blame other people for my lack of wealth! I just can't stand the politics of envy.
Now you know why everything in amerika is failing.