If I then open tax deferred accounts and open a trust have I not received more tax free annual income? If I fly to Europe and have one business related meeting, do I now have an income tax free vacation? Am I wrong?
2007-03-21 09:03:56 · 9 answers · asked by Chi Guy 5 in Politics & Government ➔ Politics
So my leased Mercedes is not tax deductable? The utilities that go for the study in my home is not tax deductable? Well...
2007-03-21 09:26:08 · update #1
corag (below) If I spend the 30k on things that I like/want and write it off you don't see the benefit? Come on corag...
If I earn interest on tax defered income, you don't see the benefit? Corag...
2007-03-21 09:28:53 · update #2
Sorry the tax code does not work that way. The only way you can take advantage of the tax code in that manner is to incorporate. Meaning the $150,000 is made by your business and you are an employee of your own business. Moreover, you cannot spend $30,000 on what ever you want as you put it. The $30,000 would have to be spent on legitimate business expense. If you spend your company's funds on non-business related expenses and you get audited you will go to jail or pay large punitive fines. And keep in mind when you incorporate you are far more likely to be audited by the IRS than if you are a private citizen filing your normal 1040 taxes.
The vacation that you stated would not be a legitimate business expense. If you took a seven day vacation and had one business meeting during the vacation the expenses incurred on the day you had your business meeting are deductible as well as part of the transportation; however, the other six days' expenses could not be deducted from your taxes.
The other thing to keep in mind is that when you form your own company you pay corporate tax on the money you make. And, although it may be minimal, you will also have to pay yourself a salary. So, in addition to paying corporate tax you, as an individual, will have to pay income taxes on your personal salary, and both your corporation and you will have to pay the Social Security payroll tax, which is 6.2% each. Essentially, you have double taxation for part of your income, since your corporation pays taxes on the revenue it generates, and you pay taxes on the salary your corporation pays you.
To answer your tax deferral question. Income contributed to a tax deferred retirement fund does not eliminate the tax is just defers it until you start to withdraw the funds. At that point, you pay the regular tax rate on funds you withdraw. As far the interest earned, that is tax deferred as well. Money is money, most of your gains will be capital and interest based, and when you withdraw those funds you pay taxes on those funds. So, if you had a deferred tax fund that you contributed $10,000 to, and it earned $15,000 in interest over a period of 30 years. And say in year 31, you withdraw $15,000, you will pay taxes on the entire $15,000 you withdrew. Meaning at least $5,000 of the money you paid taxes on would be considered interest. The only exception is a Roth IRA. With Roth IRAs you contribute post tax dollars, so you have already paid the taxes on the money contributed to it. Therefore, when you withdraw money from a Roth IRA when you retire, you do not have to pay taxes on it. So, the interest earned in Roth IRAs are tax free; however, you can only contribute to a Roth IRA if you make less than a certain amount of money. And if you made $150,000 in a calendar year, you would not be eligible to contribute to a Roth IRA.
2007-03-21 10:17:20 · answer #1 · answered by TheMayor 3 · 1⤊ 0⤋
I don't know about the vacation. You can't go to one meeting and then hang out in the south of France for a month. The IRS would expect you to take a flight home soon after your meeting ended. Audits are negotiations. If you were audited you would have to show something reasonable to the IRS. What is reasonable? An extra day, two....I don't believe there is a rule.
As for your 30k. You have to pay the tax now or later. The question is when do you want that liability? If that money grows you would have to pay tax on the difference between what you put in and what you or your family realize from the trust.
If someone knows a way around either of these rules let me know. I would love to go to Italy and write off 30k in income this year!
2007-03-21 09:17:14 · answer #2 · answered by John W 2 · 0⤊ 0⤋
No, because you had to spend the 30K to write it off.
You may have given it to charity (effectively a 100% tithe) or you may have lost it as business losses, or you may have spent it on specific things that are dedurctible, as opposed to being able to spend it on whatever you want.
But you had to get rid of that 30K (not keep it or save it) for it to count as a write-off.
As far as a tax-deferred account or a trust -- that doesn't elminate the tax. The tax was deferred, meaning pushed off to be paid later.
2007-03-21 09:08:01 · answer #3 · answered by coragryph 7 · 0⤊ 0⤋
You need to take at least a couple years of accounting and economics in college my leftist friend...I can tell by your questions I would have to start from econ and acctg 101 to answer them.
2007-03-21 09:08:49 · answer #4 · answered by Steelhead 5 · 0⤊ 0⤋
If only the IRS tax code were as simple as you try and make it seem.
2007-03-21 09:08:44 · answer #5 · answered by johngrobmyer 5 · 0⤊ 0⤋
No. Not even close. It may drop you into a different tax rate.
2007-03-21 09:14:20 · answer #6 · answered by Matt 5 · 0⤊ 0⤋
Wishful thinking on your part homie.
2007-03-21 09:08:08 · answer #7 · answered by Duh 3 · 0⤊ 0⤋
Yes do the math. If you didn't have the shelter your going to pay, RIGHT!!!!
2007-03-21 09:12:32 · answer #8 · answered by Anonymous · 0⤊ 0⤋
maybe
2007-03-21 09:45:37 · answer #9 · answered by georgewallace78 6 · 0⤊ 0⤋