Jump to content
Objectivism Online Forum

Tax Loopholes, Opt-Outs.

Rate this topic


Zach Beale

Recommended Posts

Hello,

To start off, I've been doing a lot of thinking about what is taken from my paycheck, and I find it to be atrocious that I am taxed to pay for such things as social security, and a bloated government that doesn't, in any way, represent the ideal I wish it to be.

I heard recently of a way to opt-out of social security, and did a little research, only to find that such a thing does not exist. We are forced under threat of imprisonment to pay for a system that (for my age group) will most likely not be around when we need it. I see myself as being fully capable of setting up a 401k or an IRA (or a Roth IRA), to provide for myself in my future and no one else, as it should be. I did a little more research, and found another loophole, though I don't know if it's entirely plausible. I'd like some input.

From what I can tell, I can set myself up as a corporation, with myself as the single employee. The corporation will work, and pay me. I, myself, will not hold a job on paper. The corporation will act as a consultant, working for my current company, essentially myself, in my same cubicle, same computer, etc, different only on paper. Corporations (from what I gather) do not pay social security, and it is my estimation that, with as little as I make, I can split my pay between myself and the corporation (two different entities on paper, though actually myself), and bring myself into a lower tax bracket, or out of the lowest one entirely.

Does anyone have any suggestions from either a legal or moral standpoint? I would value some input.

Link to comment
Share on other sites

From what I can tell, I can set myself up as a corporation, with myself as the single employee. The corporation will work, and pay me. I, myself, will not hold a job on paper. The corporation will act as a consultant, working for my current company, essentially myself, in my same cubicle, same computer, etc, different only on paper. Corporations (from what I gather) do not pay social security, and it is my estimation that, with as little as I make, I can split my pay between myself and the corporation (two different entities on paper, though actually myself), and bring myself into a lower tax bracket, or out of the lowest one entirely.

Does anyone have any suggestions from either a legal or moral standpoint? I would value some input.

I work for a CPA firm and I can tell you that tax evasion schemes like this are not viewed kindly by the IRS. Also, given that the law and the judges are on their side, you don't have a snowball's chance in hell. You may get away with it for a period of time, but eventually they'll figure out that you're not paying and then they will come after you. Specifically, I can tell you that with your plan they will argue that there is no true business purpose to these corporations and they actually serve as a device to evade paying taxes. They will then hit you with interest and penalties and they can put you in jail if you don't pay. Pay your taxes, it isn't worth it.

Link to comment
Share on other sites

Does anyone have any suggestions from either a legal or moral standpoint? I would value some input.

Morally, whatever you can legally do to minimise your burden is fair game, so long as you aren't avocating for furtherance or expansion of the system thereby.

Legally, go speak to a business lawyer. There are different types of corporation that you can set up, and may be allowed to set up, depending on how they are to be organised and what you're going to do with them. Also, the tax laws themselves may override any interposition of corporate vehicles intended to effect a change in which tax provisions apply. As well as opening yourself up for possible prosecution, you may find that you'd be just wasting your time and money because the tax authorities might tax you as an individual anyway while you still have to pass through the regulatory hoops required under corporations law.

Speak to your lawyer about it, but don't get your hopes up. Unless you're earning bucketloads my guess is that you're just as well off not making too much of an effort besides ordinary tax planning practices. Ask your lawyer to tell you when other things may be viable - and be sure to choose your lawyer wisely.

JJM

Link to comment
Share on other sites

These are all good points, and perhaps a lawyer would be the best person to talk to about it.

I do, however, abhor having to pay these pointless taxes, and would much rather keep the 'money' I work hard for. You understand.

Any other suggestions? Other than don't do it?

Link to comment
Share on other sites

Buy a house, have kids, max out a qualified retirement plan, take advantage of an HSA (if your employer offers it), make charitable contributions??? :P

I mean, there are only so many things you can do, legally, to pay fewer taxes. Just ask Willie Nelson.

Link to comment
Share on other sites

Buy a house, have kids, max out a qualified retirement plan, take advantage of an HSA (if your employer offers it), make charitable contributions???

Geez, and a good portion of that goes against my value system. Kinds goes to show what our society embraces....

Link to comment
Share on other sites

Make a legitimate (by Gov't standards) business then. For example, my wife and I recently formed an LLC for the purpose of real estate investing, and purchased our first (to one day be of many) properties for rental purposes. We then spent months and many thousands renovating it. That alone made our tax bill for 2008 pretty small. Course, now its rented and making a profit, so 2009 may not end up being so kind to us, tax wise...but I'd rather make a profit and pay taxes on as little as possible than continuously make a loss. :P

Link to comment
Share on other sites

Geez, and a good portion of that goes against my value system. Kinds goes to show what our society embraces....

Well, it's the game the government makes people play to try and get by. Sick, I agree. This is part of the overall economic problem as well.

For example, instead of padding their regular, liquid savings accounts for a "rainy day" and renting (not tax advantageous), people sock their money into an ARM and a 401k plan. When their house payments become too large to handle, they tap into their 401k for a loan and must pay themselves back with interest via payroll deduction. Then when they lose their job, the balance of the 401k loan comes due, which of course they don't have since they are now unemployed and have a mortgage they cannot afford, so the whole loan amount becomes a taxable distribution, thus causing a tax burden on the unemployed person who is being foreclosed on. Lovely, ain't it?

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
  • Recently Browsing   0 members

    • No registered users viewing this page.
×
×
  • Create New...