Tax Peculiarities Mean Facebook Paid No Net Taxes For 2012

Frosty Piss writes "Despite earning more than $1 billion in profits last year, social media juggernaut Facebook paid zilch when it came to federal and state taxes in 2012. In fact, the website will actually be getting a refund totaling $429 million thanks to a tax reduction for executive stock options. In the coming years, Facebook will continue to get monster tax breaks, totaling about $3 billion. 'The employees cash in stock options, and at that point there is tax deduction for the company,' Robert McIntyre, of watchdog group Citizens for Tax Justice, said. 'Because even though it doesn't cost Facebook a nickel, the government treats it as wages and they get a deduction for it.'" (That's not to say that Facebook employees' salaries didn't get taxed.)

Comments

Peculiarities?

[biodata]

This is normal - the rich don't pay tax.

Re:Peculiarities?

[Lord Byron II]

This is normal in that generally, in the US tax code, you can defer paying taxes by paying employees more, by making investments, etc. Only if that dollar you collect becomes profit do you generally pay taxes on it.

It's not a rich vs poor thing either. Poor people get tax benefits in the form of the EIC and the personal deduction. Middle income earners get to deduct health care expenses and certain job expenses (uniforms, union dues, sometimes use of a vehicle).

The point is that everyone gets tax breaks and the reason why is that our tax code is crazy complicated. Facebook will pay their share eventually, but it's just not going to be on their 2012 return.

Re:Peculiarities?

[LordLucless]

Huh? The rich people (i.e. the people cashing out the stock options) did get taxed. Facebook, the corporate entity, didn't get taxed. Or rather, it did, it's deductions just out-weighed it's tax burden, plus it carried forward accumulated deductions from previous years.

Re:Peculiarities?

[Anonymous Coward]

LOL. Seriously, LOL.
Try doing what the rich do to pay zero tax and you end up in jail.

Re:Peculiarities?

[theVarangian]

This is normal - the rich don't pay tax.

But we get to bail them out when they screw up because they are 'too big to fail'.

Re:Peculiarities?

[Mitreya]

This is normal - the rich don't pay tax.

Interestingly enough, not every corporation gets to avoid taxes to such degree. Some corporations do pay taxes, if not at the official "highest" tax rate

So there is more to it. Is it the mega-rich that really pay no taxes? Is it the non-manufacturing companies that can license their profits away to a shell subsidiary?

Re:Peculiarities?

[gl4ss]

The rich people (i.e. the people cashing out the stock options) did get taxed.

on what planet do you live ?

on earth, probably. the newly rich pay taxes, they're not corporations.

Re:Peculiarities?

[polar red]

stock options) did get taxed

at what rate ?

earnings from labor gets taxed a lot more than earnings from 'monetary labor'.

Re:Peculiarities?

[Mitreya]

in the US tax code, you can defer paying taxes by paying employees more, by making investments, etc. Only if that dollar you collect becomes profit do you generally pay taxes on it.

I believe Facebook and other companies eliminate their profits by paying "licensing" fees to a shell subsidiary. This not an investment in any way, just rerouting the profits somewhere else to avoid taxes.

The point is that everyone gets tax breaks and the reason why is that our tax code is crazy complicated

In practice, it turns out that you get better tax breaks when you have a dedicated team of lawyers who can route your profits across international borders. I suspect I'd get higher tax breaks if I had headquarters in Dublin and a couple of subsidiaries in Cayman Islands.

Just like the equality in politics. Everyone can lobby the politicians -- but lobbyists get paid to do it full time and the rest of us have to take time off from our job. The amount of resources behind you make a big difference in practice, even if "everyone can do it"

Re:Peculiarities?

[alen]

What about fsa?

I deduct a lot of money from medical and daycare this way
And insurance premiums are pre tax deductible as well

Re:Peculiarities?

[meustrus]

The point is that everyone gets tax breaks and the reason why is that our tax code is crazy complicated.

This is the definite truth. I can personally vouch for the fact that the federal government just loves giving huge tax credits to incomes between $6000 and about $40,000 a year. Middle class people can generally find enough deductions to drop their tax burden and they also have most of the same "loopholes" available to them that rich people do.

The real problem with the tax code is that it's so complicated that a person has to be able to pay good money to shield their money from taxes, mostly by paying an expert to deal with the labyrinthine tax code. It just doesn't become economical to do so until that person has some serious assets.

Of course, corporate tax code is completely from individual tax code. I personally clicked into this article to see if anyone who knows more than I do had yet addressed the claim that offering stock options doesn't cost Facebook anything. No matter how much all of us - myself included - would like to see corporations pay more taxes, the fact is that most of the ways they avoid paying up (but certainly not all) involve giving the money to their employees or charities instead. And no matter what anyone else on Slashdot seems to think, anyone cashing out stock options for Facebook is (now) a rich person paying taxes on that income.

Re:Peculiarities?

[polar red]

And this is problematic how, exactly?

Or are you one of those who believes we should destroy the ability for people to retire, because "only rich people have capital gains"?

No, if we raise taxes on monetary income, we can lower the taxes on normal labor.
my point : it should be taxed on the same rate it's called fairness

Re:Peculiarities?

[Anne Thwacks]

What is exactly the difference with the middle ages?

In the middle ages, they had not heard of Marie Antoinette, and Madame La Guillotine. Of course, in the USA, no one knows about history anyway, so perhaps there is no difference.

Re:Peculiarities?

[theophilosophilus]

This is normal - the rich don't pay tax.

The normal thing here is someone on Slashdot didnt read the TFA. The debate is about corporate taxation not "the rich". The individuals still pay the tax on wages.
It is fair (intellectually, not necissarily a correct posititon) to argue that income should be taxed twice, once at the corporation an once with the investor / employee. It is also fair (intellectually, not necissarily a correct posititon) to debate deductions. But it is knee jerk illogic to confuse a debate about corporate taxation with the debate whether "the rich" pay their fair share.

Re:Peculiarities?

[Anonymous Coward]

When you exercise your options, you (the individual) get taxed for the difference between what you paid for your newly acquired stock and the market price. For example, if the option price (what you paid) is $50, and the market price at that time is $75, the difference ($25) is taxed as if it is ordinary income, at whatever marginal tax rate applies depending on your overall income. That's at the Federal level. There is typically also state income tax on that $25 as well. That's all if you exercise the options and just sit on the stock.

Now, if you sell the stock immediately (no capital gains or losses), your taxes are just on that $25, considered ordinary income. If you hold the stock and its market price goes up from $75 to, say, $90, you pay an additional capital gains tax on the incremental $15 ($90-$75). If you hold the shares less than a year, it's considered short term capital gains, and you pay the same rate as if it were ordinary income. If you hold the shares more than a year, that $15 is considered long term capital gains, and you pay a lower rate (15% I believe). This lower rate on long term capital gains is to encourage thoughtful investment in companies with long term potential, and to discourage viewing the stock market as a gambling parlor.

The tax code in the US is *designed* to distort the market by influencing people's behavior. "Loopholes" is a pejorative term commonly applied to incentives consciously put in the tax code specifically to encourage or discourage certain behaviors. If people have issues with those incentives, then they should contact their representatives in government and request that those loopholes be removed. However, over the years, tax incentives have been layered on one after another until the code is overly complex and it is practically impossible to understand all the unintended consequences of even simple changes. Which is why I am a proponent of a flat tax on fungible income at the individual level. (And if you think that's not "progressive" enough, just remember that people who make twice as much, or 5 times or 1000 times, would pay that many more times as much in tax dollars, typically for no more and usually less government services. I view that as plenty "progressive".)

Re:Peculiarities?

[TFAFalcon]

There is also the problem that some stock options get taxed as capital gains only when the stock is actually sold. So the employee can just get a long term loan with the stocks as a collateral instead.

Re:Peculiarities?

[Runaway1956]

This is normal - the tax code is broken.

The tax system should have deductions available to small and/or struggling businesses. But, the system is broken, and obviously so, when the most successful businesses routinely pay zero taxes.

The system is so very broken, that I'm willing to see all deductions killed off, and every person, every business in the United States charged a flat rate on income. No more special rates for stocks, bonds, etc. Income is income, no matter the source. Tax it all, with no deduction, no deferrals, nothing.

The ONLY concession I'm willing to make, is to tax net profit, rather than gross profit. But, I want a damned strict accounting of those gross and net profits. Very damned strict. To hell with those licensing schemes mentioned in other posts. And, no, we will not allow any foreign taxes paid to be deducted from taxes due in the US. If you have an office in Ireland, or wherever, you pay your taxes there - and you ALSO pay your taxes here. The offices in Ireland suddenly seem to be cost-ineffective? That's your problem - get rid of the office. That's up to you, though. We have no objections if you continue to piss your money away on some office that never served any purpose other than to cheat us out of taxes.

Re:Peculiarities?

[SJHillman]

I spent $3000 on medical in 2011 and $2000 on medical in 2012. I was able to claim it both times by itemizing deductions.

Re:Peculiarities?

[SJHillman]

I should also note that in 2011, that accounted for less than 10% of my income and in 2012, that was about 6% of my income.

Re:Peculiarities?

[SJHillman]

If those rich people didn't pay any taxes like you claim, your tax burden would be *considerably* higher. I'm not saying they pay a relatively high amount of taxes, but you would probably still wish you made as much in a year as they pay in taxes.

Re:Peculiarities?

[NicBenjamin]

It is not deferred! That money is spent and gone forever. Middle income earners can deduct medical, but only if it is a huge portion of their income, I think it was like 30%. For FB this is not a tax break, it's a deduction.

It's technically 10%.

For most people it actually has to be significantly more then 10% because the IRS gives you a deduction of $5,950 for free, therefore unless your medical plus your other deductible expenses are $6,000 greater then your income you shouldn't bother deducting.

As a tax Pro I have only deducted for a couple who had $50k medical expenses and people who owned houses.

Re:Peculiarities?

[NicBenjamin]

Goddangit, ignore "greater then your income."

I swear it made sense in one of my drafts, but I meant to delete it.

Re:Peculiarities?

[SJHillman]

Forbes did an article last April about what some companies pay in taxes. Here's a few of the more recognizable companies.

Exxon Mobil - 42% ($27.3 billion paid on $41 billion in net income)
Chevron - 43.3% ($17.4 billion paid on $26.9 billion in net income)
JP Morgan Chase - 29.1% ($8.2 billion paid on $19 billion in net income)
WalMart - 32.6% ($5.9 billion paid on $15.7 billion in net income)
Microsoft - 15.9% ($5.3 billion on $23.5 billion)
Wells Fargo - 31.5% ($4.9 billion on $15.9 billion)
IBM - 24.5% ($4.2 bil on $15.9 bil)
Apple - 24.6% ($4 bil on $33 bil)
Intel - 27.2% ($3.3 bil on $12.9 bil)
Oracle - 23.6% ($2.93 bil on $9.7 bil)
Walt Disney - 33.8% ($2.3 bil on $5 bil)
McDonald's - 31.3% ($2.1 bil on $5.5 bil)

Source: http://www.forbes.com/sites/christopherhelman/2012/04/16/which-megacorps-pay-megataxes/

Re:Peculiarities?

[NicBenjamin]

The reason they get this tax break is that only profits are taxed.

A few years back companies were literally printing money with their stock options. They could give any employee seven figures in stock without affecting their bottom line. So they did. In 2006 this was changed because it was unfair to all the other shareholders, who lost value in the company for each new share that was printed.

But if options are a business expense you can reduce your taxable profit by giving out lots of options.

Re:Peculiarities?

[Let's All Be Chinese]

Apparently companies don't pay taxes (ref) in the sense that anything they do pay someone else gets to pay -- the employees, the customers, the shareholders, you name it.

Even without that caveat I'd be strongly in favour of a simple tax code, one that simply isn't complicated enough to have much in the way of loopholes. Perhaps a flat-fee on income, or a VAT if that really is a cheaper* tax overall to levy, tied to the yearly budget in a straight-forward way so that politician stupidity gives fairly direct feedback in your wallet, and then hopefully influences your voting.

Assuming that indeed, companies would shove off any taxes paid anyway, well, let them not pay taxes, let the people who receive income from the company do. The upside of that is that since more tax is coming from employees, it's now harder to hide taxables on other sides of borders.

The problem with that sort of thing, though, is that simplicity is a two-edged sword: The politicians no longer can hide their shenanigans either. Look at the debt rate. Eventually that's going to have to be paid back from taxes. And suddenly you're keenly aware of that fact.

* Where "cheaper" means less inefficiencies due to collecting and side effects.

Re:Peculiarities?

[O('_')O_Bush]

No, it really should not. I thought this too, for a while, before I realized the impact of what I was saying.

Imagine a loan given to a farmer by Mr. Moneybags (or any investor or Angel) to purchase land for farming. Mr. Moneybags determined that 7% interest APR was fair, given the risk of the farm failing, inflation, taxes, and a small slice of profit. Farmer uses this interest to maximize the farm he can afford, so that he maximizes his own profit. Because it is a long term loan 30 years, small changes in interest mean big changes in cost.

Gov't steps in because the DNP decides it should be taxed like income. Now Mr. Moneybags is paying four times more in taxes on the return from his loan. Because that breaks his risk calculations, he is losing money on it, and has to adjust his loan price to 11% APR to compensate. Farmer can no longer afford the large farm because 30 years of compound interest at 11% makes his monthly payments higher than what he can afford or, so his farm size shrinks dramatically (i don't have a calculator off hand, but intuition says by half).

That effect ripples in all sectors of the economy, and the whole economy slows. Gov't ends up with less revenue and people end.up poorer than if t ad been left alone.

Re:Peculiarities?

[Dcnjoe60]

This is normal in that generally, in the US tax code, you can defer paying taxes by paying employees more, by making investments, etc. Only if that dollar you collect becomes profit do you generally pay taxes on it.

It's not a rich vs poor thing either. Poor people get tax benefits in the form of the EIC and the personal deduction. Middle income earners get to deduct health care expenses and certain job expenses (uniforms, union dues, sometimes use of a vehicle).

The point is that everyone gets tax breaks and the reason why is that our tax code is crazy complicated. Facebook will pay their share eventually, but it's just not going to be on their 2012 return.

If Facebook eventually pays "their share" then their accountants and lawyers shoudl be fired. Most corporations in the US do not pay income tax because the system is created that way. That is why when the Obama Administration talked about raising the corporate tax rate, nobody cared. OTOH, when he talked about closing loopholes, everybody had a panic attack and the stock market dropped.

Bringing the poor and middle class into the mix is a red-herring. The poor don't have any substantial income to tax in the first place and what little is taxed via sales tax and social security is a larger percentage of their total income than what other groups pay. As for middle class tax deductions, well, yes, they can deduct some of those expenses, but businesses can deducted, not just some of them, but all of them, which is why the wealthy so often form their own corporations to deduct everything and draw a small salary, but have the corporation pay for everything. That way, the corporation doesn't pay tax, the wealthy person doesn't pay tax and everybody is happy (Actually, they do pay taxes but at substantially lower percentages than the minions who work for them).

It very much is a rich versus poor thing. Only the rich are blind to this.

Re:Peculiarities?

[Dcnjoe60]

What about fsa?

I deduct a lot of money from medical and daycare this way
And insurance premiums are pre tax deductible as well

That's great if your employer has an FSA account. For most people, insurance premiums are not pre-tax. First, only insurance premiums from an employer sponsored plan "may" be pre-taxed and then, only if your employer has a cafeteria plan. It's not automatic and most businesses in the US do not provide it (although a large minority of them do).

Re:Peculiarities?

[Dcnjoe60]

To deduct medical expenses, they have to be in excess of 7.5% of your AGI. In 2012, that would mean you would need an AGI below $26,667 to be able to deduct any of your medical expense. Even with an AGI of $26,667, it is very unusaul for your itemized deductions to exceed the standard deduction, not impossible, but unusual, so if you did deduct $2,000 in medical expenses on your itemized deductions, you might want to check your tax return before the IRS does.

Re:Peculiarities?

[Dcnjoe60]

You can deduct medical expenses in excess of 7.5% of your adjusted gross income, which, yes, is a hell of a lot of medical expenses.

Re:Peculiarities?

[Rockoon]

but I don't understand how employees cashing in stock options is an incentive so strong that it deserves a tax refund for a company.

Why is it that you dont understand this? You do know what a refund is, right? Its when you already paid more in taxes than you ultimately end up owing at the final tally.

In other words, Facebook has actually handed the government nearly half a billion dollars in direct tax payments to the government this year, and thats not counting payroll taxes and so forth.

Re:Peculiarities?

[asylumx]

Except that Mr. Moneybags is not likely loaning that money out of his own pocket, but instead he's loaning it out from a company he works for.

Re:Peculiarities?

[polar red]

simple solution : the fed should lend out money directly to the people, instead of through the hands of the very rich. this mister moneybags doesn't lend his own money you know.

Re:Peculiarities?

[Anonymous Coward]

Money is typically borrowed from banks, not Mr Moneybags. Banks don't loan what's on hand, they create 90% of it out of thin air. It only starts to exist when it is repaid. See fractional reserve system.

Re:Peculiarities?

[Rockoon]

..and this is why corporations should get to act as a "person" with regards to many laws. Thats over $100 billion in paid taxes right there for just those 12 corporations, equivalent to about ~$900 per household.

Of course they get to donate to political campaigns.. so do unions, for pretty much the same reason. Remember that this country was started specifically because of taxation without representation.

Re:Peculiarities?

[Anonymous Coward]

Or audited -- often -- complete with having to drag an accountant, and likely a lawyer, into it. Which costs $$$.

Yeah, my "peculiarity" is that I pay my measly few thousand in taxes each and every year without trying to weasel out of it. Faceplant's "peculiarity" is that they don't pay their millions in taxes.

That's the fucking peculiarity, right there, all right.

Re:Peculiarities?

[Runaway1956]

We already see a net loss of business in America. I'm not to worried - we don't really need thousands of foreign corporations picking our bones. Let them all depart, and allow local and small businesses to pick up where the corporations have left off.

If the odd corporation actually wants to invest in America, they'll accept the tax structure.

Re:Peculiarities?

[Virtucon]

Huh?

The ONLY concession I'm willing to make, is to tax net profit, rather than gross profit. But, I want a damned strict accounting of those gross and net profits. Very damned strict.

Net profit is taxed, not gross. If a company makes an investment allowed under the tax code, that takes away from the gross profit margin. Accounting is strict and it has to be because companies that have huge receipts and little or no profit are scrutinized. Fundamentally, the use of off shore cash migrations and segmenting the business into various profit and loss centers is at the heart of the problem. I can have very, very profitable operations in one country and losing interests elsewhere however I can combine all of that to say "I didn't make any money." That's the multi-national play and tax havens like Ireland and the Cayman islands are shelters for these kinds of shenanigans. But then again, our new Treasury Secretary already knows how to play that game. He operated over 100 Investment funds in the Caymans.

One option to fix this is that States are using is to impose more and more franchise taxes, the privilege of operating in a state for example, to find revenue. Most of the time it is based on gross receipts and while I don't agree with that in principle, it may be one of those things that can be used to help balance out this multi-nationals when it comes to selling or operating in a country and not paying any taxes to that country.

Re:Peculiarities?

[ShanghaiBill]

Try doing what the rich do to pay zero tax and you end up in jail.

Not true. If you work for a paycheck, and receive a W-2, you are screwed. But if you run your own business, or work as a contractor, most taxes are avoidable even for a "little guy."

I pay very little tax. My income is above the median, but I don't think many people would consider me rich. I own three domestic corporations (a Delaware C-corp, a California S-corp, and a Nevada S-corp), and an overseas Cayman Islands corporation. These cost just a few hundred bucks each to set up. Any middle class person could afford to do the same. I can report income through whichever jurisdiction and type of corp offers the best deductions for that particular type of income. I can move income between corps by selling "services" or paying license fees. I avoid paying personal taxes by living off non-taxable loans, rather than taxable income, from the corporations.

All of this is perfectly legal. I was audited by the IRS once, and had to pay a fine of $420 for a bookkeeping error, but otherwise they said everything was fine.

Of course these loopholes were set up for the rich, but there is nothing to stop the rest of us from using them too. If you think about it, we have a good system: people that don't mind paying taxes pay them, and those of us that prefer not to, don't.

Re:Peculiarities?

[ArsonSmith]

And by rich you mean everyone with a 401k that has Facebook stock in it, a mutual fund, or directly purchased some?

Re:Peculiarities?

[drinkypoo]

The system is so very broken, that I'm willing to see all deductions killed off, and every person, every business in the United States charged a flat rate on income. No more special rates for stocks, bonds, etc. Income is income, no matter the source. Tax it all, with no deduction, no deferrals, nothing.

The ONLY concession I'm willing to make, is to tax net profit, rather than gross profit. But, I want a damned strict accounting of those gross and net profits.

In short, you want to replace the armies of tax collectors and auditors with armies of accountants. This might product a slight net benefit to society by permitting the so-called free market to provide competition, instead of concentrating all of these jobs within the federal government and protecting them with an anticompetitive monopoly. It will not solve the basic root problem, however, of an overcomplex tax system. It doesn't even shift the burden; either way The People pay for whatever system we adopt. And in fact you will create an enormous drain on society, because now everyone is going to need to hire an accountant, or become one.

A graduated tax scheme is the simplest way to enact a fair tax system, because we can estimate what percentage of a person's income is spent on necessities based on their income (their gross income, it costs too much money to chase down the net and only provides opportunities for fraud) and then simply exempt that percentage from taxes. Some will end up paying a little more or less tax than they should, but that's part of the price they pay for living someplace highly desirable. There is only so much supply to meet the demand for land, and it's the people who live in the highly desirable places that are going to have to spend a higher than usual percentage of their income on necessities.

A flat tax system cannot be fair without extensive auditing, and I for one do not see the need for the government to know about all purchases ever made by anyone anywhere. Indeed, I can see several reasons why they should never be permitted to have this information.

Re:Peculiarities?

[drinkypoo]

It very much is a rich versus poor thing. Only the rich are blind to this.

No, only the morally bankrupt rich are blind to this. This is nearly a given, but not entirely so. One must willfully believe in bullshit to be blind to this fact, which is done in order to justify one's lifestyle so that one does not have to change in order to go on living.

Re:Peculiarities?

[SJHillman]

Student loan interest + medical comes pretty close to the standard deduction. As another poster mentioned, mortgages will also put you up near, if not over, the standard deduction.

Re:Peculiarities?

[Runaway1956]

WTF? Auditing? Some special auditing made necessary by a flat tax rate?

It's really simple. Let's say the tax rate is set at 25%. My employer still provides the same earnings statement at the end of the year. My income is x, so I multiply x by 25%, and there's my tax due. Auditors? For what, exactly?

Small businesses should actually realize some small benefit. It's the same book keeping all year long. Keep track of expenses, gross revenues, etc. When you get down to the bottom line, "Net Profit" - you just multiply by 25% and send the government whatever is owed - or file a claim for excess taxes paid.

Big business? We'll simplify their book keeping a lot. Yeah, we'll send some auditors, no problem. They're going to need help.

"Sir, this item, "Money transferred to Subsidiary Xenon for expenses incurred". I'm willing to hear that explained, but it's almost certainly not allowed. You can't transfer money to an offshore corporation to avoid paying taxes."

Once that lesson, among others, is hammered into their skulls, all of their book keeping will become simpler.

But, there will be almost no changes in individual and Mom & Pop business records keeping.

Re:Peculiarities?

[drinkypoo]

WTF? Auditing? Some special auditing made necessary by a flat tax rate?

You said this:

The system is so very broken, that I'm willing to see all deductions killed off, and every person, every business in the United States charged a flat rate on income. No more special rates for stocks, bonds, etc. Income is income, no matter the source. Tax it all, with no deduction, no deferrals, nothing.

The ONLY concession I'm willing to make, is to tax net profit, rather than gross profit.

You said you wanted to tax net profit, not gross profit. Well, individuals have net profit, too. It's earnings less expenditures. We could specify necessary expenditures, which seems reasonable. In order to track the difference we're going to need a full list of all a person's expenditures. Then we'll need to classify all of them.

The alternative is that you again want to provide tax loopholes to corporations which are not available to citizens, which is grossly unfair. If you're going to tax corporations on the basis of profit, you must tax citizens on the same basis. Otherwise, a legal fiction is being granted rights that even citizens do not possess, they are being placed above humans again, and you do not have a fair tax code.

Now, do you want a fair tax code or not? Because I can't tell if you're proposing that corporations be granted special status or not when I take your contradictory comments together.

Re:Peculiarities?

[zidium]

This is so true!

I have my own C-Corp with just myself and a handful of other programmers and web designers who only work for me when there's work (maybe a few hours a month) on a 1099 basis.

While it's primarily a web dev business, I created a website that generates profits by selling books, so I get to deduct **before taxes** all computer and book purchases, something I nominally spend thousands and thousands of dollars on, any way, each year.

By deducting my most major personal expenses, I suddenly make more on a net basis charging $45/hour corp-2-corp than I do at $60/hour W2, and the companies that hire me save a crapload, too.

Re:Peculiarities?

[Anonymous Coward]

Selling "services" between fictional corporations to justify not paying a fair share to society. You are a true patriot my friend.

Re:Peculiarities?

[Anonymous Coward]

No fucking way. Mortgage interest on a 100k home and a 30k school loan are not even coming close.

Re:Peculiarities?

[Runaway1956]

I think you're obfuscating, really. Or, maybe not - there is Citizens United to consider.

Private income and business income is already vastly different, when it comes to taxes. I'm not really proposing much of a change for the average private individual. My income is presently taxed at almost 30%. Let's leave it at that. My paycheck will show 30% withholding for taxes. No deductions. With the remaining income, I can purchase a home, transportation, food, heating, air conditioning, some toys, maybe invest some money in something. Basically, no change.

We are targeting corporations that pay zero taxes here. We eliminate all their special little deductions, loopholes, and hiding holes.

We may very well need an accountant to help them understand what constitutes a "business expense" as opposed to crazy, outlandish deductions.

Paying your personnel is a valid business expense. That gets deducted before paying taxes. Unless, of course, you prefer to eliminate income taxes, and adopt Europe's VAT. In that case, we wouldn't need auditing. Purchasing raw materials is a valid business expense. That gets deducted before paying taxes.

I don't mean to destroy everything ever learned in accounting - I only mean to stop "creative accounting" from burying real net profits under a mountain of bullshit.

Re:Peculiarities?

[drinkypoo]

I'm not really proposing much of a change for the average private individual. My income is presently taxed at almost 30%. Let's leave it at that.

Oh, I get it now, because a change won't affect you, you don't care about what it will do to the poor, those who are making too much to be tax exempt but still far less than you make. But in fact, you are talking about a massive change in the basis of taxation (from graduated to flat) for all individuals, so you are now outright lying.

Re:Peculiarities?

[Runaway1956]

Outright lying? FFS man - get off your high horse.

We most definitely need a massive change. What we have is wrong, unfair, and benefits only a select few. Don't like my ideas? Offer alternatives. Improve on my idea. Do something constructive.

Attacking me, and calling me names, just shows that you're an ass with no better ideas of his own.

FACT: what we have is totally fucked. How you gonna fix it?

Incidentally - I'm opposed to most of welfare thrown to the poor. I'm not opposed to feeding someone who is unable to earn his own dinner, but our welfare programs are just as broken as our tax code. How else does one explain generations of people sharing the same home, all of them receiving some kind of a government handout? Any rational welfare system would reward any able-bodied persons to get out and earn a living.

I think a flat rate tax would fix a lot of our ills, unless we abandoned our tax system altogether, in favor of a VAT. I'm open to that idea, and I thought I made that clear above.

Now, stop being an ass - I know you're capable of intelligent discussions.

Re:Peculiarities?

[biodata]

By 'the rich' I meant people with enough spare money to hide their income from taxation by buying bits of corporations. The poor do not get to afford this.

Re:Peculiarities?

[biodata]

Yes those people. The poor cannot afford to hide their income from taxation by buying bits of corporations, they are more likely to spend it on housing, food and energy.

Re:Peculiarities?

[Seumas]

This is normal - the rich don't pay tax.

Neither do government agencies.

Re:Peculiarities?

[SQLGuru]

Not 100% true. I've been in my current loan for about 10 years and my interest isn't enough to push me over standard deduction.

Re:Peculiarities?

[nedlohs]

If someone exercises a stock option the company has to give them a share for $X. Since the company could have sold that share for $Y that has cost the company $Y-X (if X>Y then the option isn't getting exercised). That reduces the amount of tax the company pays since it is an expense, if they have already paid an estimated tax which didn't get the stock price at exercise time exactly right (GAAP counts the expense at option issue time and without a time machine isn't going to get it perfect) then they are now owed those taxes back.

And yes if your employer pays you $100 he gets to count that $100 as an expense is then deducted when calculating taxes. If he paid estimated taxes in advance and didn't expect to be paying you that he's getting a refund.

Re:Peculiarities?

[nedlohs]

Depends on the details. Either at their marginal income tax rate or as capital gains if they are qualified options and are then held for a year.

Re:Peculiarities?

[poached]

Also, if options are not treated as an expense and is taxed, you are effectively taxing it twice when the employee cashes it. I think why the rule is in place.

Re:Peculiarities?

[hsthompson69]

I propose simplifying the system by asserting that anyone can optionally decide to pay at the same rate that someone else is able to. If some company is able to pay 0%, then *everyone* can choose to pay 0%.

The whole "profit/deduction/tax break" boondoggle is a function of government deciding to socially engineer behavior with destructive tax policy, rather than simply collecting the bare minimum taxes necessary across the broadest base possible. Deciding what can/cannot be deducted from "profit" or "income" is a pit full of perils.

Re:Peculiarities?

[GameboyRMH]

Nice work not supporting the society you live in, the world needs more people who are part of the problem!

Re:Peculiarities?

[Captain Segfault]

You don't need to itemize to deduct student loan interest -- and conversely, the amount of student loan interest you deduct doesn't affect whether you'd itemize or not.

Re:Peculiarities?

[Greyfox]

IIRC those can be discharged the second time you declare bankruptcy.

Re:Peculiarities?

[dwpro]

Some specifics to consider:

1. Why would you go from 15% (capital gains rate) to 60% (quadruple) taxes? A little over double seems closer to what general labor taxation.
2. it's wrong to assume 100% taxation of Mr. Moneybags income, rather assume taxation on the "small slice" of profit, since the other calculations of risk should be borne out in the ledger reckoning. Thus, even quadrupling the taxes should only affect the profit portion of the interest, and should be nowhere near 60% higher.
3. The financial world has regularly and repeatedly threatened us with slowing economies for attempting to do anything like reform. So far, it's been nothing but bluster as the very tiny amount of regulation and requirements on capital that have been instated have instead led to more profits for the banks. I predict a similar outcome with tax reform.

Re:Peculiarities?

[aaarrrgggh]

Yes and no; if you do it even slightly wrong, the IRS will really nail you. But, if each of the of the independent businesses can function without goofy paper transactions then you are pretty well set. The minimum cost of operating a corporation though is about $1,000 per year average, so you have to be offsetting at least that much in taxes to make it worthwhile. Also, "professional services corporations" can't actually dodge that much tax.

I pay a shit load of taxes. I personally only go for a few marginal items (such as a separate corporation for my wife's business), which is mainly done to help fund a 401k for herself. It might only reflect 10% of my total tax liability, but it makes sense.

The "taxation is immoral theft" crowd is a little crazy in my book, but if the government is going to cost me $2,000+ to do my taxes, I will make sure that I recover that money from reduced taxes.

Re:Peculiarities?

[Anonymous Coward]

If your loans are private, see if your lender (or the collection agency, if it's already gone to collections) can produce the original signed contract for the loan. If the loan has changed hands several times (typical these days) getting the contract is very hard if not outright impossible for them to do because those usually get destroyed every few years. If they have no contract you can beat them in court because nothing else proves that you owe the debt. I know this works on credit card debt b/c I used it to kick my creditors to the curb last year.

Re:Peculiarities?

[aaarrrgggh]

Gross receipts taxes are great for hitting some industries-- advertising and entertainment are two that pop into my mind-- but they are a real pain for businesses with low margins. For low margin businesses, the tax is disproportionate to profit, but for industries that are famous for cooking the books to declare a loss it seems to make sense.

Re:Peculiarities?

[drinkypoo]

Outright lying? FFS man - get off your high horse.

FFS man - don't lie. Or are you truly dumb enough to think that changing the basis of taxation is insignificant? Everyone else disagrees with you.

Attacking me, and calling me names, just shows that you're an ass with no better ideas of his own.

Making assumptions only makes an ass out of you, and umption. We start to fix it by simplifying the tax code such that corporations wind up paying taxes. See, they buy the laws, so they should pay for their execution. This should help provide some correction, if only we can enact it. Then we follow that up by pushing the corporate money out of politics, for the win. I also believe on a more local level that we should redistrict (and adjust county lines where necessary) along geological, topological, and ecological boundaries. This is already sometimes the case, but more often than not, it is not.

I'm not opposed to feeding someone who is unable to earn his own dinner, but our welfare programs are just as broken as our tax code. How else does one explain generations of people sharing the same home, all of them receiving some kind of a government handout? Any rational welfare system would reward any able-bodied persons to get out and earn a living.

There are many things wrong with our welfare systems. Many well-educated people have discussed the concept of the "poverty industry". I often get moderated down when I discuss it, which is always frustrating because I never know what kind of jackass has taken exception to what I'm saying. Is it a wealthy person who refuses to believe that any of the poor's problems are anyone's fault but their own? Is it a welfare worker who is offended that I believe that what they are doing is part of a system designed to keep people down? Most hilariously paranoid, is it some shadowy force tasked with maintenance of the status quo? Most likely, is it a troll who wants me to ask these questions? Anyway, digression aside, welfare programs cut you off if you have any money in the bank, so they seek to force you to maintain your social status, keeping you on the program eternally. If you vote against the party that provides the program, you'll be even worse off, or so the concept goes. Meanwhile people who are in that situation to begin with are at a much higher risk of being placed in an even worse situation. They're likely to do hazardous jobs which might leave them permanently harmed, and they live in neighborhoods which are flatly more dangerous, and where any sign of wealth they do amass is likely to be taken from them by someone even worse off in any case.

Now, what does that have to do with a system of taxation? Whatever welfare programs we maintain will have to be paid for either way, and whatever ones we don't... won't. Why not instead of welfare reform, where you're given five years and then cut off, we get welfare system reform, where the idea isn't just to keep you on the dole but to change your situation? And then we can have all kinds of arguments over who and what and why and where the money is going, and how to better fix that, I guess.

I think a flat rate tax would fix a lot of our ills, unless we abandoned our tax system altogether, in favor of a VAT. I'm open to that idea, and I thought I made that clear above.

VAT might be better than what we have now, but it also winds up unfairly penalizing people. It's a different group of people for the most part, but it's still unfairly penalizing when what we want to do is treat everyone equally.

Ideally to my mind, what we would do is do away with corporations. It is often asserted that we need them, but that is frankly not only unproven, but it is hilarious at best. As technology improves, in fact, the need decreases. I would argue that what is needed is for all businesses to be worker-owned cooperatives. I don't much care h

Re:Peculiarities?

[viperidaenz]

yet if he had no business, he'd be the one going bankrupt anyway. Whats your point there?
If the business gets sued, the lawyer fees are tax deductible on all of its income, are they still deductible if he were to be personally sued?

Re:Peculiarities?

[sgt_doom]

Much thanks, Mitreya, for explaing the reality, which this phony and disnhonest poster attempts to obscure. I guess /. is simply just another jobs offshorer running planted propaganda pieces?

Re:Peculiarities?

[viperidaenz]

Sounds like you need a pay rise or a new job.

Re:Peculiarities?

[sgt_doom]

" Facebook will pay their share eventually, but it's just not going to be on their 2012 return." Now that is such a bald-faced and consummate lie --- you must be a troll or chatbot?

Re:Peculiarities?

[Dahamma]

This is the definite truth. I can personally vouch for the fact that the federal government just loves giving huge tax credits to incomes between $6000 and about $40,000 a year. Middle class people can generally find enough deductions to drop their tax burden and they also have most of the same "loopholes" available to them that rich people do.

$6000-$40,000 a year is NOT "middle class people", especially for a family. That would be more in the range of "severe poverty" to "barely enough to make it through". It's absurd to say anyone in that range - or even in what one might actually call "middle class" - has the luxury of using the same loopholes as the rich, since most of the loopholes involve making income through clever investments rather than basic salaries. When you barely make enough to pay the bills and have a few hundred dollars in your bank account, good luck with all of those investment managers/advisors, tax free bonds, dividend stocks, and offshore accounts.

Re:Peculiarities?

[SourceFrog]

The rich don't really pay zero tax, if this were true, then it would not be the case that almost 40% of net tax receipts are paid by the rich.

The story is a lot more complicated than this, and it is in many ways distorted badly and unfairly in favor of the rich (and the increasingly squeezed middle class bears the brunt), but simply saying that 'the rich pay zero tax' just makes it sound like you're spewing nonsense, rather get informed on the true nature of the disparities.

Re:Peculiarities?

[SourceFrog]

By 'supporting the society you live in' you mean funneling trillions toward bombing kids in faraway countries?

Re:Peculiarities?

[SourceFrog]

Indeed, a "company" can't pay taxes any more than a "company" can play the violin or enjoy a cheeseburger. By "company" we mean an association of individuals (stakeholders), and only those individuals can or can not "pay" taxes in the end. When we say a "company pays taxes" we are just speaking metaphorically, we are saying that stakeholders paid taxes of the corporate tax form of taxation. This obfuscation obscures the debate, and makes the whole system more opaque - it is harder to tell who is contributing how much. Even if a "company" pays no taxes on paper, when an executive draws a salary from the company in order to do something like enjoy a cheeseburger, that salary is usually taxed. My understanding is there are loopholes for the very rich though, but these would not be accessible to most small business owners.

Re:Peculiarities?

[Anonymous Coward]

UK tax system has similar issues. I've recently moved from self employed to payroll; self employed as a subcontractor and making use of normal business expenses deductions, I paid approximately 4% total tax all in. That's so embarrassingly low, but I actually eased off on some deductions to inflate the figure to that level; I could have easily paid literally nothing, despite having higher than median income. Employed with approximately the same income I'm paying around 30%, and my employer is paying a further 7% in employer payroll tax contributions.

I went on the payroll to more easily get a mortgage (how you are a worse risk if you've got a 12 month contract as self employed contractor than a 30-day notice period employment, I have no idea); hopefully next year's contract renegotiation I'll be back to subcontracting, saving myself and my employer a tidy packet. The fact that house prices in the UK are something like 10x the annual median wage makes getting on the property ladder a real hassle even for those of us lucky enough to be relatively well paid, but that's a rant for another day :-)

Re:Peculiarities?

[khallow]

Just look at the title of the article in question: "Which Companies Pay The Most In Taxes?"

It turns out that the poster boy of US companies, Exxon, is paying 27.3/486*100, or a mighty 5.6% of revenues, in tax.

So what? Revenue != income.

it's a cherry-picked selection of the US companies that had to pay a relatively large amount of tax in one given year.

And they state straight up in the title that they're cherry picking and what criteria they use.

Re:Peculiarities?

[owski]

“Let’s stop spending money we don’t have to kill people we don’t know for reasons we don’t understand.” -- Teller

Re:Peculiarities?

[tompaulco]

Of course these loopholes were set up for the rich,
Loophole is not the correct term. It's not like you are exploiting some accidental flaw in the system. It was put there on purpose, to encourage business and spur employment.

Re:Peculiarities?

[adisakp]

Forbes did an article last April about what some companies pay in taxes. Here's a few of the more recognizable companies.

Apple - 24.6% ($4 bil on $33 bil)

Pretty sure your math is wrong here... 24.6% of $33 billion is $8.1 billion. Apple, if they paid $4B on $, only paid about 12% in taxes.

Re:Peculiarities?

[Vitriol Angst]

So for people who can be clever and manipulate their tax nexus -- doing absolutely zilch for the common man. They get to "win."

Someone else works hard, isn't clever with tax manipulation, ends up being ridiculed as a "burden on society" by Libertarians when he gets to retirement and only Social Security is available because Merrill Lynch screwed him on returns.

So from a purely citizen--oriented, non-tax manipulating perspective of a person who is more and more convinced we need to become a Socialist Democracy; go fuck yourself.

If you need a working diagram on how to accomplish this particular manipulation of your non-taxed member, I'll be happy to provide one.

Re:Peculiarities?

[SJHillman]

A number of other posters have pointed that out. However, it's Forbes who did the math wrong... I copied the figures from the listed source and didn't pay attention to the obvious discrepancy. Or else Apple is paying people off to hide something. Your pick.

Re:Peculiarities?

[vux984]

It was put there on purpose, to encourage business and spur employment.

And it is working brilliantly too! He has 4 businesses -- so clearly the "encourage business" part is working. And he works for all of them, thus he has 4 jobs!! That just has to look good on employment figures!

Re:Peculiarities?

[ahabswhale]

Wow, it takes you three corps to not pay taxes? I do it with one.

Re:Peculiarities?

[twebb72]

Huzzah! A job creator! We should cut his taxes!

Re:Peculiarities?

[tehcyder]

This is normal in that generally, in the US tax code, you can defer paying taxes by paying employees more

No, if you pay employees more, you don't defer tax, you reduce your taxable profit for the year and therefore pay less tax, same as if you pay more for stationery or whatever.

Re:Peculiarities?

[tehcyder]

I don't think many people would consider me rich. I own three domestic corporations (a Delaware C-corp, a California S-corp, and a Nevada S-corp), and an overseas Cayman Islands corporation.

In other words, you're rich.

You don't need to have a billion dollars in the bank to be rich.

I can report income through whichever jurisdiction and type of corp offers the best deductions for that particular type of income. I can move income between corps by selling "services" or paying license fees. I avoid paying personal taxes by living off non-taxable loans, rather than taxable income, from the corporations.

In other words, you're able to exploit tax loopholes designed for the rich.

However non-rich you might like to think you are, you have options that a normal working person simply doesn't have. You can't pay your wages from McDonalds into an offshore account and live off a non taxable loan on it.

Re:Peculiarities?

[tehcyder]

People must not be coerced by threat of gov't violence to give up their own property.

It's only your own property because society lets you keep it. If the majority of the people decided to vote for a communist government, most of your property would be nationalised (certainly any productive assets). It doesn't matter whether you think that's immoral or not, it's the case.

Re:Peculiarities?

[tehcyder]

It's good to see you approve of elaborate tax avoidance schemes, as they really represent positive economic activity. Oh, wait, no they don't.

Re:Peculiarities?

[tehcyder]

I believe Facebook and other companies eliminate their profits by paying "licensing" fees to a shell subsidiary. This not an investment in any way, just rerouting the profits somewhere else to avoid taxes.

Precisely. It's why there's been a big backlash against (especially US-owned) companies not paying tax in the UK.

In essence, say you have a trading business in Country A where tax is 40% on profits over $1 million, and a shell company in Country B where tax is 0% or close.

If Company A makes a trading profit of $1billion, Company B makes a charge for management costs, licensing, royalites or whatever of $999.5m and so has profits in Country A of $0.5m on which it pays little or no tax, and $999.5m in Country B on which it also pays little or no tax. You have saved $400 million in tax.

It is tax evasion, pure and simple.

Re:Peculiarities?

[tehcyder]

Apparently companies don't pay taxes [theregister.co.uk] (ref [archive.org]) in the sense that anything they do pay someone else gets to pay -- the employees, the customers, the shareholders, you name it.

That register article is just another piece of capitalist-libertarian cheerleading which pretends that there is no such thing as a corporation, and uses the circular argument that because corporations aren't people the tax they apparently pay is really just money paid by actual people, because by their definition taxes can only be paid by actual people.

Re:Peculiarities?

[tehcyder]

Also, if options are not treated as an expense and is taxed, you are effectively taxing it twice when the employee cashes it. I think why the rule is in place.

A company can deduct the cost of paying employees, but the employee still pays tax on his earnings. The point is that you are taxing the corporation as a profit-generating economic entity separate from the employees and investors who are the actual people making it run.

Re:Peculiarities?

[tehcyder]

Incidentally - I'm opposed to most of welfare thrown to the poor.

I'm shocked, shocked I tell you, to hear that a proponent of a flat tax system doesn't believe in welfare (except a tiny amount to the truly, truly deserving poor, of course, which you have to throw in as a sop to reality).

Re:Peculiarities?

[tehcyder]

I would argue that what is needed is for all businesses to be worker-owned cooperatives

Absolutely. Something along the lines of the Mondragon co-ops, where the "CEO" is limited to earning 3 times what a cleaner does (or something like that).

If you have a start up company that becomes incredibly successful and rich, the excess profits are then re-distributed back into society because it is only by being part of that society that you were able to become successful and rich in the first place.

If you're Donald fucking Trump on a desert island, you can't create much wealth.

Re:Peculiarities?

[Ol Olsoc]

Bullshit. Do you have a mortgage? Your itemized deduction now most likely exceeds the standard deduction.

Bullshit yourself. The interest is deductable. So it becomes less and less of a deduction over time, and after a few years and deduction disappears.

All of the myths we hear about this sort of thing are just Real Estate agent propaganda. Another one is where a person "in the know" tells you that you shouldn't pay off that mortgage when you are within a few years of paying it off likewise because of the deduction. For the same reason. The first few years of a mortgage, you are paying off almost all interest. The amount of principle payment is low. Over time, you start paying off more principle, and less interest, till finally, the last few years, the situation is reversed.

After 5 years, the interest I paid on my mortgage made no difference at all. I suppose a person could pay off a loan as slowly as possible, or keep refinancing and resetting a mortgage in order to pay more interest, but that would be insane.

Re:Peculiarities?

[Common Joe]

Of course these loopholes were set up for the rich, but there is nothing to stop the rest of us from using them too. If you think about it, we have a good system: people that don't mind paying taxes pay them, and those of us that prefer not to, don't.

I'm just interested in doing my job. I hate dealing with money. I do it when I have to (paying bills, filing quarterly and annual taxes). Money is a distraction to doing what I love to do. Now you're suggesting that I learn yet something else and take time out of my day so that I can pay a tax expert hundreds of dollars and avoid paying taxes to support my country? What happens when more people start doing this? The bar is reset: taxes become more complex and middle incomers pay again until we figure out the loop holes that the rich use. Rinse, lather, repeat. Don't tell Uncle Sam that I'm willing to bet money on this: I think part of the reason why the tax codes are so complex and why you're paying hundreds of dollars and using your time to see tax people is because a lot of people are doing what you are doing.

I'm not willing to jump into the debate to say whether or not what you're doing is wrong, but I do feel victimized by it. My wife had her own business for years in the States... a business of one person. Somehow, setting up four corporations for the amount of income she got just seems really wrong.

Re:Peculiarities?

[Common Joe]

Check out this comment. It's further up this thread. I think there is partial truth in "the rich pay zero tax".

Re:Peculiarities?

[Common Joe]

You know what's sad is that I can see my wife and I getting caught up in this mess. She has her own business (a business of just one person -- her) and we recently moved to Germany. Hell, she's not even a U.S. citizen -- never has been. (I am, though, and we usually file our taxes jointly.) When Uncle Sam comes calling to investigate why she is "still in business" but no longer paying U.S. taxes, I can see the government trying to screw us over. We're just the little peons and we're easier pickings than the big boys like Facebook. I can promise you that for all the years she was in business and living in the States, we paid a decent chunk of change on taxes for her business.

Current status of what Uncle Sam will want from us? I dunno. We asked them before we moved and they don't know either. I thought it would be pretty cut and dry, but a couple who moves to Germany where one owns her own little business is too complicated for the IRS.

Re:Peculiarities?

[Kelbear]

If you have a C-Corp you've got 2 levels of taxation. The Corporation pays taxes, and then whatever the corp pays you, you pay taxes on the personal level too. Perhaps you have an S-Corp which is a pass-through for tax purposes.

Personal expenses aren't deductible. If you have dual-purpose expenses like a personal car used for business trips, you pro-rate the related expenses accordingly.

Re:Peculiarities?

[SandwhichMaster]

Middle income earners get to deduct health care expenses

Not really. Not unless you have some crazy high medical expenses.

According to the IRS (irs.gov): "You may deduct only the amount by which your total medical care expenses for the year exceed 7.5% of your adjusted gross income"

There's too many examples to list that refute your claim that everybody will pay their share eventually. There are many companies that are given a low to 0% taxation rates to lure them into a particular state/city. Just ask Walmart. How is the poor guy going to get that same break?

Re:Peculiarities?

[Khashishi]

By the libertarian argument, since the shareholders own the company, the shareholders are indirectly paying the employees to do their work. So, it makes sense for the shareholders to lose value when the employees are compensated. Whether the value is lost through money or stake in the company shouldn't really matter that much, if the compensation is done fairly. Except that one way is taxed and the other way is not.

Re:Peculiarities?

[Khashishi]

The rich aren't blind to this.

Re:Peculiarities?

[Khashishi]

But if the government raises taxes on unearned income, then they can lower taxes on earned income. That lower tax rate also ripples in all sectors of economy. You can't just ignore one side of it.

Lower taxes means middle class people will be paying more for farmer's products, and farmer will be able to pay a more exorbitant interest rate to the capitalist. But, it will be easier for the farmer to save up money and stop borrowing from the capitalist.

Re:Peculiarities?

[pnutjam]

So when your talking about taxes a man's labor is sancrosect, but when you are the owner of capitol labor plays second fiddle?

Re:Peculiarities?

[pnutjam]

I'm pretty sure I we would not classify him as "not rich" if we viewed his accounts. Rich people like to pretend they are slumming it.

Re:Peculiarities?

[mattack2]

How is what you're responding to libertarian? Wouldn't libertarians be for lowering taxes overall, for everybody?

Even Ron Paul says he takes all of the tax deductions he's legally entitled to, even if he disagrees with them. If this person is following the letter of the law, then either they're doing it right, or the laws need to be changed.

Re:Peculiarities?

[ahabswhale]

That's not what I'm talking about. I'm talking about his notion of the government "forcefully" taking money from you vs. society where's it's voluntary. As if the government isn't an act of society.

Re:Peculiarities?

[XcepticZP]

No, you're talking about calling someone retarded because they have a different viewpoint to you. There is no other way you can swing it, really.

Re:Peculiarities?

[ahabswhale]

No, sometimes different viewpoints are retarded, like the ones dripping with ideology. Ideology requires no thought. That's where the retardation comes in.

So much for not being able to swing any other way. Anything else you want to try?

Re:Peculiarities?

[XcepticZP]

As individuals we get taxed on our individual "revenue". Not our net "income" (except for a few minor deductions). The big difference being that a human being can't claim the majority of their living expenses as "expenses in the pursuit of profit", whereas a corporation can.

Re:Peculiarities?

[cthulhu11]

To deduct medical expenses, they have to be in excess of 7.5% of your AGI. In 2012, that would mean you would need an AGI below $26,667 to be able to deduct any of your medical expense. Even with an AGI of $26,667, it is very unusaul for your itemized deductions to exceed the standard deduction, not impossible, but unusual, so if you did deduct $2,000 in medical expenses on your itemized deductions, you might want to check your tax return before the IRS does.

Clarification: there is a threshold above which medical expenses are deductible, and only that part of the total above the threshold is deductible; the above could be interpreted as saying that once one reached the threshold, all are deductible. For 2011 the threshold was 7.5% -- a while before that it was 8%. For 2012 / 2013 the threshold has jumped to 10%. For 2012 I had close to $19k of direct medical expenses plus 1100+ miles and the difference between the 7.5% I had been expecting and the 10% reality was significant -- and it's possible that 2014 and beyond will be higher, or lower -- they aren't set yet. Many people don't know about the medical stuff or what all is legit, including miles spent driving to/from, parking, etc. There's still a sales tax deduction, one can deduct either actual totals or some standard sort of estimate given the tedium of bookkeeping for something that can measure just cents per transaction. Buying cars, major appliances, etc. can make the former more appealing. Charitable donations can be deduced, some other taxes/fees (eg. my Sewage Facility Capacity charge), home improvements, unreimbursed business expenses over a certain threshold (like utilities when one works from home) etc. In many cases it is true that someone paying a mortgage in addition to all the other valid itemizations readily beats the standard deduction.

Re:Peculiarities?

[Compaqt]

>If you have a start up company that becomes incredibly successful and rich, the excess profits are then re-distributed back into society

Why, then, would anyone ever risk anything to start up a new business? What you're proposing is stasis. No new stuff. No HP, no Google, no Dell, Thawte, Ubuntu, Yahoo, M$, Apple, Slashdot. No iPhones, none of today's web. Black wireline telephones leased from the phone company. Single car, if that, in 900 sq ft house. I'm down with that.

Are you?

Re:Peculiarities?

[Compaqt]

You do realize that if a company doesn't get to deduct its expenses, you're taxing revenues, not profits, right?

Re:Peculiarities?

[hsthompson69]

That's my point - by defining "expenses" in such a way that we attempt to socially engineer behavior (we like charities and people on the payroll, so that's an "expense", but we don't like junk food or alcohol, so that's not), we setup cases like these where certain individuals/corporations can make a boatload of money, but have no tax liability.

If we were to talk about "profits" when it came to individuals, maybe if *everything* they ever bought during a year was considered an "expense", and we only taxed them on the money they had "left over", it might be equitable - but imagine the hue and cry if people spent millions on hookers or gambling and left with no tax liability at the end of the year.

Now of course even the alternative, say, a flat "transaction" tax, ends up vulnerable to many of the same issues (do-gooders will decide that they need certain transactions exempted, and the whole furball starts again), but I haven't yet been convinced that our current system is the best choice of all evils.

Re:Peculiarities?

[theophilosophilus]

"Buying bits of corporations" does not avoid tax on income. Income is taxed when it is recieved. Investing after tax income allows dividends to be taxed at capital gains rates. This rate is set to encourage investment in the economy and to recognize the corporation already paid taxes on money distributed to investors.

Placing income producing assets in a corporation will, however, cause income to be taxed at the corporate rate and avoid tax.

You should be "buying bits of corporations" every chance you get. Not because it avoids taxation but because your money is rotting with the high inflation created to artificially lower interest rates.

Re:Peculiarities?

[jwhitener]

The healthcare premium deduction is just for the self-employed right?

Re:Peculiarities?

[khallow]

As individuals we get taxed on our individual "revenue".

No. That's only partly true. Capital gains are a notable counterexample. There's also income from trade activities (like buying and selling knickknacks on Ebay).

The big difference being that a human being can't claim the majority of their living expenses as "expenses in the pursuit of profit", whereas a corporation can.

What's odd about that? It's true after all. Since a for profit corporation is inherently constructed around pursuit of profit, then it's living expenses are naturally "expenses in the pursuit of profit".

How much of your wealth and income are used in pursuit of profit? Even if we can delineate such transactions, do you really want to go there? Think not only of the vast amount of paperwork and minutia to prove your claims for appropriate deductible costs, but also who you are giving that information to. How do you document to the IRS that you consume more expensive foods or medications without simultaneously revealing what health issues you have to the federal government?

At least, income with voluntary deductions has the virtue of being a lot more opaque to the federal government.

The thing that is annoying here is that it's really, painfully obvious that taxing revenue would cripple businesses in any competitive, whole sale business. For example, if we took 35% of revenue instead of 35% of income, then that would kill off most trade-based businesses such as grocery stores, retail stores, gas stations, etc.

In your example, Exxon would be losing 25% of its revenue each year (about $80 billion a year). Then who's pumping and delivering the oil? The businesses with more than a 25% markup (or perhaps the businesses that evade taxes). It doesn't make sense to go that route.

Re:Peculiarities?

[meustrus]

I did not mean to say that $6,000-$40,000 is middle class. I was describing a separate situation. Unfortunately I wrote it in a way that didn't make that distinction clear. Also, I said "most", not all. The rest of my post dealt with the situations you described: shielding assets from taxation in ways that take time and money.

Now, it may be different where you live, but in Iowa it's possible for a family of four to live fairly comfortably and even contribute to the consumer economy on $25,000 a year. In fact, I know it's different in denser parts of the country. I guess that (and the impact global warming has had on almost eliminating winter around here) would be a good reason to move to Des Moines?

Fixing these tax loopholes for companies...

[crafty.munchkin]

... would mean that there are less things which need cutting from the federal budget.

Re:Fixing these tax loopholes for companies...

[Anonymous Coward]

Removing the loopholes would probably also make the IRS et al more efficient., and hence cheaper. It would also make your country appear more respectable towards its citizens and towards outsiders (e.g. Europeans).

Such a move might also have the effect of changing the current climate towards businesses. If that were to happen, you might get jobs with decent pay. You might also start to realize that there are other laws aside from the loopholes that benefit corporations far too much. How's that high-speed fiber infrastructure working out for you by the way?

Lazy journalism

[arendjr]

"Facebook didn't immediately respond to an emailed request for comment, according to The Huffington Post."

While I agree with the article's premise, this just seems incredibly lazy to me. Heck, e-mail isn't even meant for immediate responses!

Re:Lazy journalism

[drinkypoo]

No, lazy is not soliciting comment, or not updating the article if facebook responds to the request.

Re:Lazy journalism

[poofmeisterp]

No, lazy is not soliciting comment, or not updating the article if facebook responds to the request.

So you're saying it's okay to slam a company (regardless of size) because they didn't respond to an RFC within a day or two?

That's unfair to do and to back up.

I say that because if i were a company (again, any size) I would be contacting a legal person (or team) to have them come up with a response that isn't going to screw me over publicly. That generally takes more than a day or two; time increases the smaller you get (meaning less money you have). For a large company like Facebook, I would imagine they can come up with a response within four days or so.

That is, if they aren't giving O'Bama campaign or other contributions. Then, well, their lack of response is self-destructive. I digress.

Demanding that anyone immediately respond and then publishing an article saying they didn't is just slander, IMH and non-legal O.

Re:Lazy journalism

[drinkypoo]

No, lazy is not soliciting comment, or not updating the article if facebook responds to the request.

So you're saying it's okay to slam a company (regardless of size) because they didn't respond to an RFC within a day or two? That's unfair to do and to back up.

So you're saying that someone with some news about malfeasance should wait until the perpetrator prepares a statement before they report it? That's not unfair, that's pure bullshit.

Demanding that anyone immediately respond and then publishing an article saying they didn't is just slander, IMH and non-legal O.

There's nothing humble about your opinion or your insistence on sharing it, especially since you consider yourself the arbiter of what news The People have a right to receive.

Re:Lazy journalism

[poofmeisterp]

No, lazy is not soliciting comment, or not updating the article if facebook responds to the request.

So you're saying it's okay to slam a company (regardless of size) because they didn't respond to an RFC within a day or two? That's unfair to do and to back up.

So you're saying that someone with some news about malfeasance should wait until the perpetrator prepares a statement before they report it? That's not unfair, that's pure bullshit.

That is not what I'm saying. I'm saying that the use of "so-and-so didn't reply to our questions" is a superfluous and negativity-arousing phrase when there is no reasonable time given for a truthful and correct reply. Shorten that down and it basically says "stop using that damn statement because it just draws weighted attention to something rather than actual 'news'".

Demanding that anyone immediately respond and then publishing an article saying they didn't is just slander, IMH and non-legal O.

There's nothing humble about your opinion or your insistence on sharing it, especially since you consider yourself the arbiter of what news The People have a right to receive.

This is a comment on subject matter, not a power struggle. Where did you get the impression that I desire to be the "arbiter" of "rights"? Talk about mislabeling. Are you having a bad day or something?

How much does this cost?

[Anonymous Coward]

Whenever such stories pop up I wonder how much it would cost your average worker to get the same effect.

How big is the overhead for setting up a few shell companies to outsource your job to yourself and move your contracor fee (formally known as salary) to Ireland and back into a non-profit with the sole profit of providing for you?

Of course when you do it as an indivual, it's tax fraud, but where's the point where it turns into SOP? Can you get together with a thousand people, set up a bogus company, Random Stuff Inc., everybody still does their old job but you all pay zero taxes? Ten thousand?

Re:How much does this cost?

[TFAFalcon]

It becomes tax fraud when you can't afford the tax lawyer to defend you.

Wrong question

[ebonum]

The article should be: "Clueless lawmakers who have never done and honest day's work and are clueless as to how businesses actually operate wrote laws so bad and full of holes that Facebook posts billions in profits and payed zero taxes."

Please. Quit blaming the companies. They do exactly what they are supposed to do. It is 100% the fault of the lawmakers.

When you see wind farm tax breaks, do you get upset about wind power generation companies taking advantage of tax laws? All companies try to take advantage of all tax breaks. That is the way the world works. It is a fundamental truth. The tax code is somewhere in the neighborhood of 70,000+ pages. Larger companies have larger budgets for tax planning and have a greater ability to take advantage of tax breaks.

Simplify the tax code. Life for everyone will become easier. You'll put 100,000 tax consultants out of work. Perhaps they will go off and build something instead of making lots of money helping companies minimize taxes.

Re:Wrong question

[nine-times]

The big problem with your argument is that the lawmakers aren't clueless. This isn't an accident. These laws are crafted specifically to allow rich people to avoid paying taxes. The problem isn't clueless lawmakers who are getting hoodwinked, but more greedy lawmakers taking kick-backs. But even that isn't the real problem. The *real* problem is a set of beliefs, including that rich people are better than everyone else, that giving more and more money to rich people will help the economy grow, and that money is the only effective motivator of human behavior.

Re:Wrong question

[1u3hr]

The article should be: "Clueless lawmakers who have never done and honest day's work and are clueless as to how businesses actually operate wrote laws so bad and full of holes that Facebook posts billions in profits and payed zero taxes." Please. Quit blaming the companies

Plenty of blame to go around.

The companies drafted the laws and paid lobbyists to bribe the lawmakers to enact them.

FYI, past tense of "pay" is "paid".

Re:Wrong question

[ruir]

Who do say they are clueless? They create this loopholes for the family, friends, and people who contribute to their parties.

Re:Wrong question

[houghi]

Please do not say this aloud. People might think you are a socialist and socialism is bad for the economy. Just look at socialist countries like Greece, Cuba, Spain and Sweden.

Uh, wait. Uhm. Socialism is bad! M'kay?

Re:Wrong question

[argStyopa]

Undershoot, then overshoot. So close, and yet so far.

The OP was right, but undershot the problem in saying "companies are doing what they're supposed to" and blames "clueless lawmakers"; correct, but not going far enough.

The 2P is also right, in pointing out it's not simple naivete, but in fact GREEDY lawmakers who are taking kickbacks (in either power or money) for writing the laws in ways that enrich their contributors. Then he grossly overshoots the mark by going on to impute some sort of political bias, with an anti-Republican rant against a strawman set of GOP political beliefs.

If the problem was (as implied) solely with the Republicans and their (alleged) set of beliefs, why is the system as bad as it is? Since 1945, the Democrats controlled the Senate 70% of the sessions and the House a whopping 79% of the sessions.

My point isn't to paint the Republicans as "good guys" - the Republican politicians are greedy, self-interested scum.

It's simply evident that in this case, there IS no bias in Washington: our Federal politicians are ALL greedy self-interested scum and it's in no way attributable to a single party.

Re:Wrong question

[Bing Tsher E]

I know what we should do! Let's get a lot of big boats, fill them with unskilled Mexicans, and sail them over to Sweden. They are doing so well that they should be willing to "spread the wealth" by absorbing, say, 10-15% of their current population in unskilled immigrants. We can call it a stress test of their socialism.

Re:Wrong question

[PartyBoy!911]

We don't need your mexicans, we have lots of immigrants of our own. Turks, Marrocans, africans, chinese, you name it.

But why are you so upset by the mexicans. As far as we in the old world see it, the US is just a buch of immigrants who kicked some primitives out of their country and claimed it as the home of the brave...

You my dear "Bing Tsher E" are the immigrant who needs to get put on a boat and let the indians roam free again.

Re:Wrong question

[10101001 10101001]

Um, no. He never mentioned the GOP or Republicans. It's just that the GOP/Republicans espouse trickle-down economics, which you correctly correlated to what was being discussed. Hence, you presumed he was talking about the GOP because he was refuting GOP talking points. That Democrats also behave under trickle-down economics means that the GP's post is spot on without having to name names because it's behavior being discussed, not political posturing.

Besides, as much as Democrats aren't "good guys", at least they seem more willing to waste money on health care than bombs. Then, again, I wish Democrats were more like the tax-and-spend Democrats of old, since that'd seem to be the biggest problem we have today; tying spending to taxes would inherently limit government influence and cutting taxes alone obviously is no means of cutting spending in any reasonable span of time, so the whole rhetoric along those lines is mostly crazy.

Re:Wrong question

[rundgong]

When you see wind farm tax breaks, do you get upset about wind power generation companies taking advantage of tax laws?

No, because that is the intention of the law.

When companies make deductions for expenses in foreign countries, the intention is not that they create fake expenses in tax heavens that exactly match the profits they make elsewhere.
The intention is this: If they actually produce value in other countries, the profits from that value should be taxed there.

Example:
1: An American company deducts a million dollars for having a subsidiary with 10 programmers in Germany = OK
2: Same company deducts 100 million dollars for having a subsidiary in the Cayman Islands that does nothing but send invoices for 100 million dollars = NOT OK

Re:Wrong question

[ArsonSmith]

Every current country or territory on earth kicked the previous group out and established their own law. In fact your old world has done it several times and it's all well documented. The US was at least nice enough to give them some prime real-estate to do with as they please.

Re:Wrong question

[smi.james.th]

My understanding was that these tax breaks were intended to help encourage entrepreneurship, and thus make more opportunities for job creation etc. That's just the way I've always understood it anyway...

Re:Wrong question

[amiga3D]

No. We need the Mexicans. They come here to work taking mostly jobs no one else wants to do. They work extremely hard for not much money and most are good people. The problem is undocumented illegal aliens. I welcome those that want to come here to work under the law. Immigration in accordance with the law is a good thing.

Re:Wrong question

[hackingbear]

The *real* problem is a set of beliefs, including that rich people are better than everyone else, that giving more and more money to rich people will help the economy grow, and that money is the only effective motivator of human behavior.

Unfortunately, that's not untrue. Wealth gap is like potential energy in physics. Without it, you can't have kinetic energy to get works done. People who think that the society can progress by forcefully, evenly distributing wealth have not lived in Soviet/China before economic reform -- it was proven a failure. Think of the thousands of start-ups in Silicon Valley, majority of them are funded by venture capitalists -- very rich people; most of these companies still fail at the end. If the VCs think they can't rip sufficient rewards back in the remaining successful ones, why would they bet their money? If you find you can't make more than the same amount of money working as employee, why would you risk everything you have to found a company? It would be better to keep the money in the bank earning negative interest still since it has little risk. As the market mature, it is harder and harder to easily find profitable niches but people will not have works without companies, so more and more incentives -- in tax deduction or even subsidies like in green tech -- have to be handed out.

It always comes down to the right ratio. Perhaps the golden ratio is the right one -- something like 38% people controlling 62% of wealth.

Re:Wrong question

[HyperQuantum]

For rich people, money is their god. They worship it.

Re:Wrong question

[NicBenjamin]

Geez, for a guy calling others ignorant and clueless you're pretty ignorant and clueless.

What's going on is simple: we tax companies on profits. Profit is revenue minus costs. Since 2006 stock options have been counted as a cost. Not counting them as a cost allowed companies to print money via stock options, and still look incredibly profitable. This sucked for shareholders because each option printed diluted their shares voting power, which made those shares less valuable.

Expensing options solved that problem, but it created others. One is that a company that companies with operating profits can wipe out those profits by paying their employees with lots of stock options. That's exactly what Facebook is doing. To an extent it's a huge problem because it pisses people off, but OTOH printing as many shares as Facebook does is actually dumb business which costs the shareholders of Facebook money.

The far bigger problem is that small start-ups have bigger problems in the early years because paying people with options makes them look unprofitable, which means they have trouble getting investors and banks to sign on.

Re:Wrong question

[Bing Tsher E]

What makes you think I am upset with Mexicans? Mostly they contribute to our economy. And if they emigrate legally they are welcome.

Re:Wrong question

[AK Marc]

Geez, for a guy calling others ignorant and clueless you're pretty ignorant and clueless.

Not counting them as a cost allowed companies to print money via stock options, and still look incredibly profitable. This sucked for shareholders because each option printed diluted their shares voting power, which made those shares less valuable.

They don't print new shares for every option. You sound more clueless and ignorant than the person you are correcting.

Re:Wrong question

[NicBenjamin]

A company has to print shares for every option of a company stock it issues as soon as that option is exercised, by definition. Why?

Because Ford is not allowed to control shares of Ford. That would give Ford management the ability to file paperwork issuing a few billion new shares, and then since the CEO controls Ford he would be un-fireable. Thus when companies engage in share buy-back programs the shares are eliminated from things that are calculated on a per share basis. As far as the market is concerned, the number of shares of Ford is equal to the number of shares of Ford that Ford does not own.

Which is a roundabout way of saying it is impossible to exercise an option on Ford, issued by Ford, without geting a share that is totally new as far as anyone who matters (ie: Dow Jones) is concerned. Ford can reduce the damage with complicated buy-back schemes -- you exercise on Aug. 28, they buy a share on Aug. 29, and issue it to you on Aug. 30 -- but Ford is still issuing a new share on the 30th. It's just replacing one they abolished on the 28th, so the numbers work out pretty.

I honestly have no idea whether Facebook is getting this fancy, they certainly have the cash to do so and a pretty strong incentive not to dilute Zuckerberg's shares (he owns roughly 54%, so he'll be fireable if Facebook's total shares increase by 8%); but that actually makes my main point stronger:
Facebook're paying their employees with valuable things that cost them money. These things happen to be options. This is a business expense which gets counted against profit. It is supposed to reduce their taxes because taxes are on profit. This is not something Congress allowed because Congress is stupid, or engaged in some wild conspiracy to enrich Facebook. It's something Congress expected to happen when they forced everyone to expense options in 2006.

Re:Wrong question

[NicBenjamin]

Actually, the Swedes have done that already. The only difference is they picked refugees from war-torn countries like Somalia and Iraq, not Mexico.

Altho the way Mexico has been going...

It seems to be working out pretty well for them.

Re:Wrong question

[AK Marc]

The company may hold shares that haven't been issued. They do not dilute the value when "issued" as they already exist on paper, but do dilute voting. So, in effect, the company has already printed them and holds them, but may not vote with them. Second, the company usually ends up buying them on the open market. Most do not hold FTC issued, but not sold, shares. What is "illegal" is to literally print shares for options.

It looks like someone has read enough to get mad about something he doesn't understand, but not enough to actually understand it. Let me guess, you get all excited (or annoyed) when a stock you hold splits 2:1.

Re:Wrong question

[NicBenjamin]

And shares that are held by the company itself don't count for purposes of "earnings per share," or other business statistics. These stats are based on "shares outstanding," which explicitly excludes held shares. Thus the business press invented statistics like "diluted earnings per share," to reflect the likely value of a share of a company after all options were exercised.

Any company issuing options is by definition increasing the number of shares outstanding, which reduces the value of everyone else's shares. There's a semantic argument to be made this is not literally "printing shares," but I really don't care about that particular bit of semantics. Call it printing shares, printing money, or just spending money it still supports my thesis:

Facebook is spending money when it issues stock options to it's employees. Like all other expenses these costs reduce it's profit which ultimately reduces it's tax burden. This year there were so many options that Facebook's profit was entirely wiped out.

Re:Wrong question

[nine-times]

It's one thing to say, "Some level of income inequality is inevitable, and in fact, some level is economically advantageous." There are very few people arguing in favor of equal distribution of wealth. But it's a very different thing to argue in favor of continually redistributing wealth upwards, i.e. "Whenever you want the economy to grow, we need to throw more and more money at the richest people in the country. No matter how great the disparity in wealth distribution grows, keep taking money from the middle class and giving it to rich people."

There's no pleasing an angry mob

[bhmit1]

When corporations keep record profits internally and pay their people minimum wage, we scream that it's not fair and they need to pay their employees more. When they pay no taxes because they paid their employees with large stock options, they aren't paying their fair share, even though the marginal rate for employees is typically higher than the tax rate of a corporation. And contrary to the implications of the article, stock options do cost the company something, they cost the company the future ability to use those shares of the company to raise investor funds.

This all said, I do agree there's an inherent unfairness to small businesses who can't easily utilize international laws to move profits to a location where corporate income isn't taxed. But unless you're trying to move more business out of the US, I don't agree that the right answer is to force companies to pay taxes on foreign income. Rather, we should be doing more to eliminate red tape and other barriers to entry faced by people that want to start a company and hire people.

Re:There's no pleasing an angry mob

[tehcyder]

At least here in the uk, most small businesses don't end up paying corporation tax anyway: after salaries, very few are actually profitable.

You do realise that's absolute nonsense? Businesses, whether large or small, have to make profits or else they run out of cash. The only difference is internet start ups, which appear to be able to attract funding almost indefinitely despite no realistic prospects of ever making a profit *cough* facebook *cough*.

Re:They'd just pass the cost along, right?

[JustOK]

We pay with our freedom and privacy.

Good! Starve that bureaucratic beast!

[mike555]

Good! Starve that bureaucratic beast! The more companies do this, the better.

normal

[anonieuweling]

This is normal, only in places where capitalism has gone wrong.
Yes, also where I live.
The lobbying powers of whatever entity have to killed entirely.
The government needs to serve the people and nobody else.
And companies are not people.

Fuck Facebook!

[DaMattster]

Yes, I said it, "Fuck Facebook!" Here is my off-topic rant: It is a giant waste of time contributing to the dumbing down of America and the loss of meaningful communication skills. And now, Facebook contributes nothing back by not paying any taxes!? I wish people would leave that site en masse and send it crashing down. Okay, rant over.

Re:So much for "corporate tax base", eh?

[geoffrobinson]

Who do you think pays corporate taxes when they do pay?

Corporations just past the costs along, or they have lower profits for their shareholders (think 401k's and pension funds among the biggest investors), or workers will make less. Or maybe they won't expand the business.

In europe they are going to do somethin about it

[PartyBoy!911]

This just hit the news here in Europe:

Britain, France and Germany back multinational tax clampdown
http://uk.reuters.com/article/2013/02/16/uk-g20-russia-tax-idUKBRE91F00V20130216

(Reuters) - The British, French and German governments launched a joint initiative on Saturday to crack down on tax avoidance by multinational companies that will be presented to a G20 finance leaders meeting in July.

I hope it's not all talk....

Comment removed

[account_deleted]

Comment removed based on user account deletion

The government actually gets MORE in tax revenue

[tlambert]

The government actually gets MORE in tax revenue.

Consider that if there are $1B in RSUs converted from being RSUs into normal income for employees, that's $1B of employee income that gets taxed at the ordinary income tax rate, rather than $1B of corporate profits being taxed at the (much lower) corporate tax rate.

So instead of 15% of $1B, the taxes collected go up to 28% of $1B.

The reason this ends up paid by the employee instead of the company is because of the FAS rules that the government has established that incentivize RSUs in place of non-qualifying stock options.

One up side for the employee is that they realize a lower basis price for their stock (the pice at time of grant of the RSU, rather than time of exercise of an option), and it gets held as a long term capital gain instead of a short term, so it's "only" 28% instead of 35%. The employee could do this themselves with stock options by exercising early in the new year, and then the next year, selling all or part as long term gains between the previous years date of exercise and April 15th in order to pay the previous year's tax burden.

A second upside for the employee is that, even though they are being taxed at a higher effective rate on a smaller effective gain, it pulls out the risk of something like the .bomb. In other words, it reduces their downside risk should the stock lose value.

I had a number of friends at Netscape who were left holding the bag when between the exercise and hold of stock options for tax purposes, or just because they thought the stock would increase in value, and the stock crashed, leaving them with an AMT at exercise of millions, with no money to pay the AMT because they had relatively worthless stock and no cash. One friend was looking at a $27M debt to the state of California and the Federal government, and no way to pay it. The were going to send him to prison for tax evasion, so he took some of his savings, went to a gun shop, bought a gun, and put a bullet through his head.

Needless to say, I am against the government realizing the value of an asset until the asset holder sells (i.e. AMT is a great evil and needs to go away; until I have sold a stock obtained through option or RSU, I have not gotten income, and the government shouldn't either, since I don't have money to pay the taxes on the thing until it's been sold).

Also needless to say, in the context of this article, I do not pity the government for its significant, almost double, gain in tax revenue from income tax revenue that it gets by collecting it from individuals rather than the corporation.

How about this as an option...

[Pollux]

To hell with those licensing schemes mentioned in other posts. And, no, we will not allow any foreign taxes paid to be deducted from taxes due in the US. If you have an office in Ireland, or wherever, you pay your taxes there - and you ALSO pay your taxes here.

I don't think it would be fair to tax foreign operations, if those foreign operations generate foreign income.

Therein lies the problem. Currently, a company that generates, say, 90% of its income in America is sending, say, 90% of its profits overseas.

Here's what would be fair and equitable: For any company with an international presence, if 90% of your income is generated in America, then 90% of your net profits are taxed, regardless of where you house those profits throughout the world.

Of course, then we'll probably see companies shift their financial operations overseas, allowing them to claim that income is no longer made "in America", which wouldn't at all be a difficult shift in today's internet-based global economy. In which case we change the law once more to say that you either still pay a percent of profits or instead pay a flat tax on international income, whichever is larger. Businesses would scream holy hell, but it doesn't matter, because they're the ones that brought this on themselves. If you profit from America, you are obligated to pay America taxes so that America can continue to afford to be America.

Re:How about this as an option...

[kestasjk]

And then US businesses are at a disadvantage to EU businesses which only sell their products in the US.

Re:How about this as an option...

[tehcyder]

Define where a company makes its profits. Easy enough when that is a durable good, but there are a lot of companies who just license intellectual property, or do services - where exactly do they "make their profit"?

Say you're a law firm that deals in Intellectual Property cases, and you have two offices, one in the US with a thousand partners and employees, one in the Cayman Islands with 1 part time janitor. You take the global profits for the entity and split the tax burden 1000/1001 in the US and 1/1001 in the Cayman Islands.

Except that as things are now, the office in the Cayman Islands would make a royalty charge to the US firm for approximately 99% of its profits.

Re:How about this as an option...

[ottothecow]

This problem is lessened by the fact that they've still got to pay a thousand highly compensated lawyers in america. These guys can play fancy tax games too, but at some point, they need real money in the states to pay for things and they will pay taxes on that income in one of the upper tax brackets. IIRC, they pay full tax on the stock option grants as well (stock appreciation gets the capital gains rate but, the difference between the issue price and the current market price is taxed as income which is not that different from the corporate tax rate for a high income person).

Maybe a law firm isn't a great example though. First, all law firms are partnerships and not corporations (so no going public and cashing in options). Second, they tend to pay out most of their revenue as salary and wages--no manufacturing expenses or anything like that...just rent on their buildings, some IT infrastructure, and pay for the employees (and the rest of the expenses are probably billed to the client). I doubt they retain a ton of profits since they don't need to funnel money into new production or R&D facilities and thus they probably don't pay much tax anyways.

It doesn't really matter much to me how the taxes are getting paid, as long as they get paid. It is like a Real Estate Investment Trust--REITs don't have to pay income taxes as long as they pay more than 90% of their taxable income to their investors. Those investors however, have to pay full taxes on the dividends and appreciation of the REIT instead of the much lower capital gains rate.

wow, that's misleading

[sribe]

First, when the employees cash in their stock options, they become liable for tax on the profits. The article doesn't mention that, which would only be slightly misleading, but that little comment at the end ("That's not to say that Facebook employees' salaries didn't get taxed.") implies that only their salaries got taxed, which is not true.

Second, the employee stock options did cost the company money--although there is no direct expense, that dilution of stockholder equity reduces the stock price. Not only today, but it was most certainly a factor when the IPO was priced.

Third, if they're getting a refund of $429 million, I'm pretty sure that's money that they overpaid and are getting back, whereas the summary is worded in a way to try make you think they never paid anything at all in 2012, and now the feds are handing them a check for $429 million.

Fourth, if you read the article instead of just the summary, it gets even worse. Facebook had a billion $ profit in 2012, after years of large losses which have been carried forward. This year they applied a billion of the accumulated prior losses in order to pay tax on $0. They have $3 billion in those prior losses still, so the article states that's $3 billion in taxes they won't pay, which is a bald-faced lie--that's $3 billion on which they will pay no tax, not $3 billion in taxes they won't pay.

Re:wow, that's misleading

[the eric conspiracy]

> Second, the employee stock options did cost the company money--although there is no direct expense, that dilution of stockholder equity reduces the stock price. Not only today, but it was most certainly a factor when the IPO was priced.

Dilution of the stock price doesn't cost the company money unless they plan to issue more stock to raise capital or decide they need to repurchase stock to counter the effects of dilution.

The practice of compensation of employees with stock options is rightly criticized as a disincentive to purchasing stock because of the dilution.

It doesn't hurt that Facebook was on Obama's

[Freddybear]

I suppose it doesn't hurt that Facebook engineers were on Obama's reelection "dream team", along with Google and Twitter.

http://www.theatlantic.com/technology/archive/2012/11/when-the-nerds-go-marching-in/265325/

So what?

[verbatim]

The real problem is corporate executives with the clout to pay themselves next to nothing in cash and everything in stock and capital assets, taxed only when they choose to liquidate at their leisure. The fact that many corporations work around taxation and can, in this case, get a refund for having put their revenue back into the economy during the year, is not such an immortal sin as to consternate the general public.

I'm more concerned with big government stripping people of their right to free choice than I am with companies doing what their shareholders would demand of them.

Re:So what?

[the eric conspiracy]

Stock options are taxed when they are exercised, not when the underlying stock is liquidated.

http://www.fas.org/sgp/crs/misc/RL31458.pdf

Not exactly

[rsilvergun]

EIC isn't a tax benefit. It's a welfare program for people that make so little they would be homeless otherwise. Most EIC recipients are getting more than they're paying in. It's a counterweight for massive unemployment and wage suppression brought on by huge increases in productivity and lost manufacturing jobs.

Health care deductions are similar. The insane cost of health care necessitated massive subsidies in the form of tax subsidies. Companies benefit more from those subsidies then middle income earners ever will. But again, it's a form of indirect socialism meant to prevent large social upheavals.

Now take a billionaire. He's actually the poorest man on earth. That's because he claims virtually no income. Instead, he uses his connections with banks and the US Treasury (staffed almost exclusively by former employees of Goldman Sachs, google it) to get loans at below market rates (4, 3, even 2 %). He then lives off these loans until the day he dies and wills his estate out. This is how the 1% avoid taxes by and large. Everything else is nickle and dimes.

The money is moved overseas (cayman islands) not so much to avoid taxes (they've already done that), but to make sure American don't realize why the "Greatest Nation on Earth" is suddenly broke (hint: it's not welfare, food stamps 1/1000th of our deficit, let alone our budget. Again, google it). The money can't be left sitting in American Banks because it becomes too obvious where it went. Conservative estimates put the figure at 10 Trillion, could be as high as 30 Trillion. We could pay off our national debt with that, let alone our meager deficit.

The tax code is fine

[rsilvergun]

There's nothing wrong with a progressive tax code with incentives. It does a lot of good. Nobody likes taxes because nobody likes to pay for anything, so it's always in fashion to say it's just broken. All we need to do is go back to a 90% top tax bracket (don't forget, you ONLY pay that 90 % on the amount OVER a certain threshold. So a billionaire pays the same as you do), and start raising the capital gains.

I keep hearing the job creators will stop making jobs if we do this. Well, they didn't do it in the 40s and 50s when we did. They're not going to stop making money just because you tax them. Making money is all they do. They're in investor class. The ruling class. What the hell else are they going to do?

Re:The tax code is fine

[Runaway1956]

What else are they going to do?

I guess a percentage of them (small percentage) will just sit on their laurels, and start spending money. Some heirs to large fortunes do that.

But, I agree with you. These people have spent their entire lives learning to play the money game. If the rules are changed, they will simply adjust the way they play the game. They aren't going anywhere.

I bet Facebook gets a tax break because

[FudRucker]

facebook handed the keys to the facebook kingdom to government snoops and the police so they can see what everyone on facebook is doing (without a warrant). dont let the lamestream media rhetoric and govt propaganda fill your head with drivel & propaganda

Re:I bet Facebook gets a tax break because

[the eric conspiracy]

While that may or may not be true, it seems to me to be utterly idiotic to expect any sort of privacy for anything that is tied to or posted on Facebook.

Can anyone explain this?

[__aaltlg1547]

Can anyone explain this from FB's Income Statement (you can read it on Yahoo! finance):

Income before tax = $494 M

Income taxes = $441M

Income after tax = $53M

Don't worry, the government still gets its cut

[heydan]

First of all, it's not true to say that it costs Facebook nothing to give shares to employees redeeming stock options. Those same shares could have been sold on the open market for a lot of money and Facebook is giving that up. Also, every time an employee exercises an option and Facebook gets a tax deduction, the employee pays the government in the form of capital gains tax. Finally, it's silly to say that capital gains should be taxed the same as ordinary income because capital gains have a huge hidden tax which is capital losses -- you have to put money at risk to have a capital gain and often people end up with a capital loss instead, especially with a new business. It takes a long time to deduct a big capital loss (only $3,000 per year) unless you also have big capital gains to offset. Earned income doesn't have this risk. You get paid as you go and even if the company goes bankrupt you still get to keep the salary you were already paid. A lower capital gains tax incents people to invest, especially in new business which are more likely than not to fail.

Simple works just fine when done right, thank you.

[Let's All Be Chinese]

A "simple measure" that happens to wreak havoc on an already convoluted tax system does not a simple tax system make. Really now, your argument sucks so much that it ought to spontaneously implode.

Let's put it into a... building analogy. I say I'd like a "simple" building, without all sorts of baroque or gothic or whatnot ornaments. And you point to the obvious and simple fact that not having doors would count as simple and that you tried it and got your furniture stolen. No sympathy from me and no, your argument is not a valid counter. Reasons why left as an exercise.

As far as I'm concerned the idea already exposed someone's complete failure to grok what it was about. And that is a good thing, for then we can do something about it.

Steve Jobs

[Chewbacon]

The taxes are pushed off to the employees and it is there problem. What bothers me about income tax is when people Ike Steve Jobs got paid $1/year on the books and lived off their stock (I'll honestly admit I don't know how that works). So I'm for shifting away from just taxing income to taxing more in sales tax because the rich tend to have fine tastes.

Re:Steve Jobs

[the eric conspiracy]

Well the problem with having just sales taxes is that the larger your income the lower the percentage of your income you generally spend on consumption. And for those in low income groups almost all of your consumption is non-discretionary.

On the other hand there are some studies that show a consumption tax does favor investment over consumption - something that is a positive.

As far as stock goes, it really doesn't matter. When you get a stock option it's still taxable income.

The nice thing about owning stock is that the long term appreciation and dividends that you may garner is taxed at preferential rates - again to encourage investment, and in recognition that dividends are taxed twice, once as corporate earnings and again as income.

Hope that people who own a lot of Apple stock have been cashing in on it. I've read too many stories about people concentrating their investments in Apple. Diversification is very important.

Re:Steve Jobs

[Chewbacon]

Ok, then perhaps if you're living off the dividends you should pay more? It's a tax dodge, albeit a legal one.

Re:Steve Jobs

[the computer guy nex]

The taxes are pushed off to the employees and it is there problem. What bothers me about income tax is when people Ike Steve Jobs got paid $1/year on the books and lived off their stock (I'll honestly admit I don't know how that works). So I'm for shifting away from just taxing income to taxing more in sales tax because the rich tend to have fine tastes.

As a shareholder, I would rather the execs get paid through stock options rather than cash. If the execs don't have skin in the game it worries me.

Re:Business Entitlement Mentality

[sethstorm]

Congratulations in buying into the entitlement mentality for business.

Re:BWAHAHAHAHA

[GameboyRMH]

You're right, it's too bad there's nothing between a horribly broken tax system that lets companies entirely dodge taxes on corporate profits, and communism (which is also the only alternative to capitalism).

Opportunity costs

[Solandri]

'The employees cash in stock options, and at that point there is tax deduction for the company,' Robert McIntyre, of watchdog group Citizens for Tax Justice, said. 'Because even though it doesn't cost Facebook a nickel, the government treats it as wages and they get a deduction for it.'"

Sigh. Yes it does cost Facebook money. If they hadn't given those stock options to their employees, they could've (A) sold the shares during their IPO and made a ton more money, or (B) not issued those shares at all meaning there were fewer overall shares, meaning each share would've been valued higher, meaning they would've made a ton more money during the IPO. Just because you don't know how to properly account for opportunity costs doesn't mean it didn't cost them a nickel.

The deduction seems to be designed to encourage companies to give shares (i.e. partial ownership) to their employees, in preference to selling on the market where "only rich people" can partake in the market and passive income dividends.

Tax peculiarities??? WTF!!!!!

[sgt_doom]

Riiiggggghhhtt, next the poster will be quoting John D. Rockefeller and Lloyd Blankfein claiming that "God gave them their money" --- geez Louise, already, please don't be so dishonest, so disingenuous to ignore that the entire tax code was designed specifically for this, endless passages and sections have been pointed out, most recently by Ellen Schultz in her recent book, Retirement Heist, going back to that dood, Gino (of Gino's Pizza) and Louis B. Mayer's incredibly fraudulent and obtuse tax code section ONLY specifically benefitting his wealth --- the reason Zuckerberg has been making those international banker forums (known as the Bilderbergers) with David Rockefeller and the other int'l master banksters, is precisely for that reason of massively accumulating wealth and paying no taxes (and using Facebook to spy and manipulate, 'natch).

Recommended reading:

Lance deHaven-Smith's Conspiracy Theory in America

Unfairness doesn't even scratch the surface

[sgt_doom]

"...there's an inherent unfairness to small businesses ..."

speaking of unfairness to small businesses:

http://www.rgm.com/articles/financialwire.html

In other words, hedge funds first do naked shorting of small, public companies (small businesses), and just several years ago, congress passed legislation giving special small business loan preference to "small businesses" previously invested in by hedge funds and/or private equity funds. (Can you say obvious financial fraud and monopolization pattern?)

When will it end?

[Dishwasha]

When are people going to finally stand up for themselves and stop ridiculously wealthy CEOs from building their wealth off the backs of everyone else? I'm tired of hearing our politicians simply shift money around rather than going after the very people and companies not paying their fair share.

Not in Australia

[definate]

I don't know the US legal system nor it's taxation, however I do know the Australian system.

For comparison, if you were doing that in Australia, particularly if you described it the way you have, you would easily fall under the Income Tax Assessment Act of 1936 Part IVA--Schemes to reduce income tax. At which point they would use section 177F to remove the affects of any benefit you're creating for yourself, tax you on the new amount, and depending on the severity of the situation, there could be fines and even jail time.

The difficulty in Australia is that to figure out this can take quite a lot of time and money, however the ATO has special divisions that target the ones they will get the most gain from. One of my lecturers at university was one of the people who worked at the ATO on high net worth individuals to try and figure out if they were dodging tax. He had a lot of insight on methods used to find people who were living off of loans from corporations which they themselves controlled or owned, such that they were re-classifying their income as expenses. It's actually really interesting how they go about it.

While I know the US is very different in this regards, I'd be somewhat surprised if something like this didn't exist in the US.

Would you prefer private roads?

[bigtrike]

Without any income, there could be no government and no shared resources. While I certainly see benefits to reducing government in some areas, it sounds like you're advocating no government. I'm genuinely curious, would you prefer the times when there was no tax, no public resources, and each individual was responsible for negotiating rates for each bridge and road they traveled? Would you prefer to drink only well water, which could not be evaluated for safety because no testing body existed to validate the marketing claims of the water testing products you traded your precious metals for? How would this be different from the lawless days of the wild west or a failed state such as Somalia?

Re:Would you prefer private roads?

[CAIMLAS]

What does paying federal taxes have to do with roads, public resources, etc.?

You realize that the majority of roadways in the US that people depend on daily are not federally run or funded, right? You realize that there are a handful of states which actually have no state income tax and still manage to do things like pave their roads and build bridges? It's not such a crazy every-man-for-himself without the Federal Government meddling.

You draw a fatalist picture of life without federal oversight, but when the companies making the 'water testing' products are being contracted out to by the so-called oversight groups (eg. the EPA, in this case) to verify their own products (it happens), it's kind of a moot point.

Re:Would you prefer private roads?

[tehcyder]

How would this be different from the lawless days of the wild west or a failed state such as Somalia?

Libertarians generally handwave place slike Somalia away as not really representing a True Free Market. However, the idea of the wild west and gun law will probably get their juices flowing. Scratch a libertarian and you find a fasicst underneath.

Re:Would you prefer private roads?

[SiChemist]

Nearly All States Received More Funding Than They Contributed in Highway Taxes Since 2005

Corporations are people...

[Patent Lover]

Except... they don't pay taxes, can't get arrested for egregious crimes, and can legally bribe government officials.

Re:Deductions, etc

[bhiestand]

Can't buy insurance for all this pre-existing stuff, but hey, that doesn't matter, because I can't afford insurance anyway.

Yes, you can buy insurance for pre-existing conditions now. Check out PCIP. The federally-run program *just* stopped enrolling new members, but many states have their own and may be continuing to accept. PCIP is the Pre-Existing Condition Insurance Plan, which was created by the Affordable Care Act as a temporary measure to insure the previously uninsurable. In 2014, you will be able to buy coverage regardless of your conditions.

PCIP has great rates, but they vary by region. I've sent a few people to it and they have been taken care of quite well. It might still be too expensive for you, but you should definitely check it out.

rich getting richer

[NewYork]

http://www.businessinsider.com/profits-versus-wages

Re:Deductions, etc

[bhiestand]

You're absolutely right that the current system fucks the working poor in favor of the non-working poor and pretty much everyone else. I wish I could offer much help, but really, there are few good options right now.

ACA did do a couple other things that may help... although not as much as they should. In 2014, Medicaid eligibility is supposed to expand to include singles and those with incomes up to 133% of the federal poverty level. That's around $15k right now. But it's modified adjusted gross income, so you might be eligible (depending on any income you can exclude, your state's rules, etc). Also, there is a subsidy for those in the 133%-400% of FPL range. If you're around 150%, you should only have to pay about 3% of your income for insurance. I know that's beyond your current means, but I hope it won't be in the future.