Lessons from my first exit

interesting to reconcile this with calls to tax the rich. maybe we should be rewarding such effort after all? think about the tens of thousands of jobs created from people working at Google who'd make L3 or less at Google working twice as much...

I'm not sure I follow what you're saying. People who work at Google should pay more/less tax? Or that people who start companies should get more tax breaks (or pay more?)

I'm European so I don't really click with the obsession some places have with avoiding tax, so you may have to explain it like I'm 5 :-)

Speaking as a small business owner/entrepreneur myself, there are lots of tax deductions available to people like me that aren’t to some collecting a salary. And that’s without doing any of the borderline or outright illegal stuff that I see many other business owners do, such as taking fancy vacations, leasing luxury cars, or buying real estate for personal use but writing them off as business expenses. The IRS basically now lacks the resources to go after most such cases, and even if they’re caught, the penalty often just amounts to paying back the avoided taxes. There’s really very little incentive to play by the rules. I’ve had CPAs tell me outright that I’m leaving money on the table by not using some of these so-called tax minimization strategies. Anyway, it’s all kind of beside the point because “tax the rich” as policy covers so much ground that it’s impossible to discuss the pros and cons without specifying what specific proposal we’re talking about. My point is simply that business ownership and entrepreneurial activity are already quite well incentivized/rewarded by the current tax code.

There is already a very big tax break for entrepreneurs: QSBS.

You have to stick it out for 5 years (the rollover provisions are not well aligned with SAFEs), but all your capital gains are tax free up to $10m.

Reforming the rollover provisions or making it not a hard cut off would certainly be helpful though.

we go into debt 2T every year without the extra money I would argue a lot of the nice to haves get cut from people's budgets.

where do you think Netflix and google ads fit in Maslow's hierarchy of needs?

Also, big tech had a huge amount of jobs cuts recently.

What are these miraculous tax deductions you are talking about?

Writing personal expenses as business expenses is tax fraud, not tax optimization. CPA suggesting this should be fired.

1. The Trump era automatic 20% deduction for LLC or corporate income. Totally unjustifiable, it's 20% off your revenue for everyone with a company for no public policy reason that I know of 2. You can mostly avoid paying into SS/Medicare by taking the large majority of your compensation via distributions, not salaried income

Just off the top of my head

You mean QBI? To apply, it needs to be matched with W-2 wages so you won't escape SS/Medicare, and it's not against revenue but profit.

Should be but won't be.

I can also attest that in my local small business community I have been met with puzzlement and suspicion for not engaging in expense fraud and PPP fraud. Deviation is almost completely normalized.

Of course it’s against the law, and so is not obeying the speed limit. And both are being done every day widely and more or less blatantly with little to no chance for consequence. In fact you’re probably more likely to get a speeding ticket than to be audited. Hence the CPAs who would recommend some of these “strategies” as long as there’s even the slightest plausible justification, because in their experience there’s very little risk for pushing the envelope.

my very first exposure to this was paying for parking. i worked at a large private university which had a beautiful but very big campus. ofc for some reason the institution decided that employee's had to pay for their own parking, which i disagreed with on moral grounds and the fact that parking was so far away it was like a 20 minute walk just to get to my work space...so i did an experiment where i basically never paid for parking in my entire 4 years there.

it would have cost me about 2 grand to diligently pay for parking. the actual expense from tickets? about 100 bucks maybe 200. and some of them got automatically thrown out just by challenging them. now towards the end of my time there i did see a guy get towed as he was walking up to his car. i started paying for parking then.

It encourages paying more wages, but it’s still a 20% giveaway to the business owners for paying themselves. I know that my own effective tax rate went down a couple percent when QBI took effect. If the idea behind the requirement to pay reasonable wages is to get more SS/Medicare tax revenue, then QBI more than offsets any gains. Plus the business owner can tweak their own numbers to determine what’s the most advantageous mix of W-2 vs K-1 income. It’s another advantage not available to regular wage earners.

Lol, Europe is the home and crown palace of tax evasion, look to the Netherlands, Ireland, Switzerland, Liechtenstein, Andorra, Gibraltar, Isle of Man, Jersey...

Interesting, I had the exact opposite experience as a student at a public university in California. There were meter maids patrolling the parking lots constantly, and it was common for people to be ticketed within minutes. It must have been a huge revenue driver for the school. The enforcers were so zealous I received multiple tickets despite having a valid annual pass displayed clearly in my window, which I then had to burn time fighting to get dismissed.

I think a big part of the difference in tax acceptance between the USA and Europe might be that European populations per country tend to be a lot more homogenous.

In the USA I think you get a lot of resentment over people paying for populations who they don’t feel they themselves are part of. Whereas in Europe it’s more plausibly a “there but for the grace of god go I” situation, where the person using some form of government assistance may plausibly be your second cousin.

Of course no one talks about this directly because it’s wrong think. I suspect this is also why a lot more right wing people are anti tax and left wing people are tax accepting. On the left you have less of the in group out group sentiment, for whatever reason.

In Europe most average people are happy to pay tax, despite there being a number of tax havens as you point out. I'd say most people have a low opinion of them. Versus the USA particularly, where it seems many people dislike paying tax.

I have no idea what you're talking about. I don't know a single person happy with the tax rate or the general performance/effectiveness of government spending. Practically every single restaurant, bar or other kinds of brick-and-mortar shops is evading VAT and income tax, it's so normal that when I was buying winter tires this morning, they straight up asked me whether I need a receipt or want to skip the VAT over phone. Every single aspiring entrepreneur I talk to asks me how to incorporate in one of the tax havens and otherwise lessen the tax and bureaucratic load. My city is full of immigrants from western EU countries who wanted to pay less tax.

Yeah, in general the big tax advantages from a limited company mostly relate to the ability to be flexible with how you get your compensation, as there are a bunch of ways to minimise tax paid/get government support.

The millionaire farmer near us (in Ireland) got state support for sending all his kids to university because of this kind of flexibility, while my parents (wage earning suckers) didn't.

You're not in Western Europe, which is where more people tend to be happier to pay tax (particularly the Northwest/Protestant areas), because they believe they'll get the benefit from paying the taxes.

OTOH, look at places like Italy where there's more evasion, because people don't feel that they get anything back.

Even when I visit the west and tell people I pay 10% income tax with healthcare and social insurance included, they immediately ask me how hard is it to move.

Especially funny with Germans who still believe they are richer than the eastern part of Europe, but a SWE working for the same US company from here makes 10-20% more due to lower tax. The faces they make when they finish the mental calculations are incredible.

Yeah, that's fair. I can totally see why people without family commitments et al would move.

I'm not massively happy about the amount of tax I pay, but I do like living in a relatively prosperous society without too much suffering, so it's fine I suppose.

The thing is, I don't see a relatively prosperous society without too much suffering when I am visiting the west or north of Europe... At least not more than the east, and definitely not enough to justify the tax hike.

Generally, the east of EU is much safer and while it's poorer and that is its own kind of suffering, there's nothing like the bombings, muggings, general dirtiness everywhere, etc. I feel perfectly safe any time during day and night in Warsaw, Poznan, Prague, Brno, Bratislava, Ljubljana... Definitely not in Paris, Berlin, Brussels and so on.