You can also of course emigrate to Portugal under the NHR scheme and between the fifth and seventh year sell whatever you fancy and not be liable for CGT anywhere.
If your business just has losses, I suppose it’s true you can eventually find someone else to sell to who apparently wants to spend a lot of money to buy your money-losing business?
If the government wants a tax to be paid they need to make it simple and unconditional. If there are loopholes or ways to legally avoid it, they will be discovered and people will take advantage of them.
At least some of the advice requires preparation years ahead. What happens if the company does not become as valuable as you expect it to, or at all? Or way more valuable, for that matter?
> pay taxes on the profits
There are techniques to show zero profits, or to get tax breaks on these profits. Some of the most successful companies do this.
> taxes owed on a salary you pay yourself.
You don't need to pay anything to yourself. Some of the richest founders proudly say they receive a $1 salary.
‘Peter Thiel famously bought his Paypal shares (which were valued at a few cents when he founded the company) into his Roth IRA account. When he turned 65, he was able to access the billions that the Paypal equity was worth with 0 tax on it.’
you could make an argument that in order to optimise your taxes, you have to be quite wealthy to begin with (hiring a tax guy, etc.) - otherwise you don't have any time left in the day to run your business.
so in practice, the little guy winds up just paying the 'sticker price' so to speak, while the big guy has pros who can make their big profits even bigger.
An llc is not a tax entity also
Those who exchange moral indulgences, clinging to legal grounds, are naturally and inevitably bound to accept the moral consequences. It's not just your Sunday school teacher making frowny faces at you: It's being afraid of armed robbery at every step because you have squeezed every bit of wiggle room out of every one elses' lives.
In a good and just society there is a large overlap between them, and in others there is less overlap.
But it's impossible to build a legal system where there is a 100% overlap, and it would most likely be a broken society in other ways.
I totally agree with your second paragraph, that the government needs to remove loopholes and other ways for people to weasel out of contributing to society. But there will always be some corruption and a lot of money to be earned by only taking from our shared resources and never contributing back.
First this doesn't work for a Sub S only a 'C' corp.
https://carta.com/learn/startups/tax-planning/qsbs/
Second, this wouldn't work in many cases when someone only wants to acquire the assets of the business and not the actual corporation in order to avoid liability going forward.
https://www.brickbusinesslaw.com/blog/should-i-buy-the-compa...
Note that typically the buyer would decide the issue (sure you with your 'small' business could say 'has to be corp' but that would potentially limit companies that would want to buy)
My point is the OP makes a broad statement "Business owners have the most flexibility of everyone to not pay their taxes. I personally think these things are questionable but its what I have seen others do over the last few years and what has been recommended to me by every top accounting firm in New York." and the benefit (like anything else is specific as far as the exact situation).
Edit: Want to make clear the liability is more than the money liabilities it's also potential lawsuits that hold over to the company acquiring.
So in the real world choosing QSBS stock results in electing into double taxation, so if you are starting a company to that will make net income that company is going to
Also, just to clarify, the article says save $10 million in tax in at least one place, but what you really mean is $10 million in capital gains taxable income, so really it is saving about 2.38 million in Federal tax (20% plus NIIT) plus the state if the state recognizes QSBS.
In my experience, most people benefit from QSBS after building a company for 10-15 years and selling for $3-7 million.
> If there are loopholes or ways to legally avoid it, they will be discovered and people will take advantage of them.
Most loopholes take a certain amount of time and effort to exploit, so they only break even if you are above a certain income level. You don't "write ↑ ↑ ↓ ↓ ← → ← → B A on your 1040, collect $200." That's never how it works. It always takes effort to set up the necessary "excuses," this effort can be expressed as a dollar amount, and your dollar savings typically apply in proportion to your overall income, so a given loophole works AMAZINGLY WELL if you are ultra rich, ok if you are super rich, meh if you are rich, and it has negative expected value if you are not rich.
This is true for many things in life. Look for things expressed as a rate rather than a dollar amount. Then ask "what if the dollar amount that multiplied the rate was really big?"
If you're "a little guy" - as I would consider myself - there are usually zero open doors and zero opportunities in this world, except for starting your own company. And it is possible to optimize your taxes from the start when your business is small. Most governments and states in the world actively encourage this by giving tax relief to small businesses, and then other types of incentives. The price for "hiring a tax guy" depends very much on the scale of your business, in the beginning it's not a lot of money, if you even need him.
For all this talk about "equality", this is the only thing that actually functions in our modern world.
1) be rich (or even better filthy rich)
2) go to PWC/EY/etc, pay them handsomely, let them work their magic
3) they got offices all over the planet and are updated on every single legislation/regulation around the planet
4) they (PWC/EY/..) make sure you use the very best ways, tailor-made to not pay taxes. This could mean thwt you need to move and live to some random village in Switzerland (IKEA dude, the writer of the Alchemist (Paulo Coelho)).
5) never pay taxesOne thing - and this may not be your intent - that often happens is that people will disingenuously use "nobody should do more than they have to" as sleight of hand to point in the direction of "oh it's the law that's bad" with no intent of actually encouraging fixing the tax code.
Another thing is that there's often a big difference between the letter and spirit of a law, since the laws are made by imperfect humans and other humans have FAR more cumulative people-hours available after the law is passed to find holes. There is likely no such thing as a "simple and unconditional" tax law that can't be worked around in ways its authors did not intend. And here this may seem circular - "then the government should patch the hole" - but of course that would be great and yet it is something the government is rarely incentivized to do when people with money give them that money to influence them to not want to.
The article is mostly about avoiding taxes on "having your startup acquired" - not everyone will be able to do that.
But setting up funds and deduce everything you buy ? Creating shill companies ? Becoming a trustee for some random that badly wants to avoid their taxes ? Sounds like that can be automated ?
Sure, it would be insanely immoral, and I hope the person who master tax avoidance get to loose access to everything payed by the tax payers, just doe thrill.
Or maybe we should have voluntary taxation ; but, beyond a certain level, you really loose access. Don't want to pay ? Sure. You put off the fires yourself, you heal and tech your kids yourself, you build and drive on your own roads, fund your own research, don't access supermarkets that are full of FDA-vetted food, etc...
In all seriousness, if budgets were voted by "real" people and not representatives, how many of things would survive ? Can you convince people about the usefulness of tax free 10M$ startup sale, where every cent your earn is taxed as some portion ?
Anyway, let the tax avoidance experts be the richest of their graveyards.
Another way of thinking about this is that the wealthy person is incentivized to invest their wealth directly into higher-risk, economy-boosting activities like starting businesses that (if successful) create jobs that then pay income taxes. Ideally tax revenue is generated from this incentive. The wealthy person could just buy gold bars and create no jobs that generate income tax, but they don't get as good a tax deal on that.
https://www.mintz.com/insights-center/viewpoints/2906/2025-0...
The ultra-rich get tax loopholes and the rest of us have to make up for it with increased taxes and decreased government services.
People are not heroes. They want to be elected, hire the ones they want for their "court" (think Kings and their courts). And politicians want to change only the things that won't stop them from getting reelected.
Secondary consequences are irrelevant to many politicians' mindset.
One who exploits a bug is a hacker. An example of a life-hack is to arrange things to have lower taxation than those who wrote the laws were expecting.
But just as bugs in software are not meant to be exploited even though they can be, there are many loopholes in laws that are not meant to be exploited even though they can be.
Unless the law has a generic catch-all for tax minimisation schemes*, such minimisation may be legal, and yet frowned upon because it wasn't meant to be legal. Or even if it was meant to be legal, but you're rich and the general public thinks you're being unreasonable.
* I think the UK does? Or at least that's what it looked like HMRC was saying last time I was able to file my own taxes there…
There is no capital gains or wealth tax at all in New Zealand, but only for domestic investments. For offshore investments there is a deemed return that you treat as income, so if your wealth is tied up in illiquid stock then it can be dire.
I strongly disagree with this one. It's not that hard to not define loopholes and exceptions. Really, a simplified tax system without such should be the goal, and then the circles so match.
You can tell the ones which aren't by watching them getting removed in a hurry when the government finally notices too many people using them. 10-15 years back, some colleagues had made businesses for themselves just so they could receive their real jobs' income at the lower rate of dividend income rather than the income tax rate. I am told this is no longer possible.
Conversely there is (or was) what I think was a deliberate loophole for UK inheritance tax — if I remember right (not a lawyer) it works like this: physical objects in your home are all bundled together and valued at £1 for inheritance tax purposes, so fancy art, stamp collections, etc. don't get taxed.
The same applies to house ownership too for example. I did pay 0 income tax over 150k profit I made over my previous house when I sold it. When the money was on my account the wealth tax started to kick in, but it is after you make the capital gains not at the moment you make it.
the people with money prefer being able to employ someone to essentially skip paying altogether.
But if they couldn't - because there are no exceptions and loopholes - society would be better off.
If you’re going to argue the majority, then I’ll remind you that the majority had no problem with slavary either not too long ago in Western nations.
If you’re goning to argue democratic values, then I’ll remind you that many brutal dictators also rose to power by the same values.
So put another way , by which definition of morality are we drawing this diagram?
At least in the USA, I don't think there is any need to "incentivize" going into business via the tax code. Most people who can afford to own a business already do, and many people who really can't afford it still try! "I'd love to start a business and try to make a bunch of money, but those darn taxes are stopping me!" - said no US entrepreneur ever. They're not doing it for these small tax incentives, but they are certainly taking advantage of them whenever they can.
So it seems like we are simply incentivizing activity that's already going to happen and allowing people who were already going to do it anyway to have that activity be not subject to taxes.
We just almost never talk about it in neutral terms: why was this policy implemented, what are the pros and cons, etc. Instead, it's just political talking points to get people to the voting booth.
It's true of course that there was an economic theory behind the policy. It's a subsidy; the government thinks it's important for the US to have more small businesses, and hopes that more people will set one up if the financial rewards for doing so are greater. Perhaps you could even find some business owner to explain why they would have stayed in their corporate job if not for the QSBS. But this subsidy could never have gotten majority support if it wasn't obfuscated behind the tax code.
One time, the IRS "lost" the cost basis for my investments during a year of heavy trading. They sent me a bill for $400k. After fighting with them for over two years, I eventually had to pay them ($180 for something else I had overlooked and never got the records for). I went back and forth with them three times, and they kept claiming that I owed them smaller amounts, but still much larger than anything I actually owed.
Most recently, I accidentally over-withheld on my 2024 income. They owe me about $30k and they're in no hurry to pay me. Fortunately, I learned that they must pay interest (7%!) on my over-payment. Hopefully I'll get this settled before next April 15th, but if I don't, I'll be sure to under-withhold on some of my deferred income this year to balance it out.
What I've learned from all of this is that the IRS is less concerned with what is legal than with how much of your money they can grab. If you're wealthy enough to afford a good tax attorney, you can usually fight them and win.
I’m actually in favor of removing all charity exemptions too. They are just used by rich people to spend our money (the taxes they owe) on pet projects depriving everybody of that income.
I'm all for removing loopholes where it's possible. However
- It's not "our money". It's money that, we a society, feel validated in taking from members of our society to pay for things that make our society better. But it is, in no way, "our money". We're taking it from people, at force, because we believe it's worth it.
- The only taxes that are "owed" are the ones defined by the rules (laws); pretty much by definition. If the rule doesn't say they owe it, then they don't owe it.
Also note that US citizens who leave the country and pay foreign income taxes elsewhere still have to pay federal income taxes just like the only other country that does this, Eritrea. The only way out is to renounce citizenship and be doxed in the Federal Register, pay lots of legal costs, and risk arbitrary demands for $10k fines for "not paying back taxes" and also being denied entry should it be determined for it was "economic reasons" any point in the future.
(The donors to the politicians use these loopholes, so why would a politician end it...)
The issue is who is able to avoid paying taxes. The ability to reduce tax burden is largely possessed by people that make significantly more than the median income, so if you rephrase your question as “What is wrong with low- and median-earners subsidizing the wealthy?” then you’ll see people’s problem with it.
If you're only going to pick one thing that a government does, yeah, it's easy to cherrypick something awful. But the alternative is literal anarchy, which is a) much, much worse for the vast majority of people, and b) 100% guaranteed not to last, as the people either organically organize a government from the bottom up, or some violent strongman (gender-neutral) (but let's face it, probably a man in practice) emerges and enforces an authoritarian government from the top down. And in either of those cases, they'll levy taxes very soon, whether it's to make sure that the things that a representative government needs can happen, or just to take as much as they can from everyone else.
The primary anger is at the tax code.
> If the government wants a tax to be paid they need to make it simple and unconditional.
That’s the point. Making people aware of how the tax code is structured and how people take advantage of it is key to building support to change the tax code to what the people want.
The most important one if you really want to avoid paying taxes on the sale of your business is to move to Puerto Rico and establish domicile there before discussions for a sale have commenced.
Yes, it should be, because in addition to complex tax systems introducing loopholes and exceptions, they also become more complex to collect.
If taxes were simple and straightforward, you would sink an entire industry in the US. There's a whole money pit around just getting money from people to their government. That's money you could, instead, be getting as taxes.
Pretty sure it's 59.5, as long as the principal has been in 5 years.
While I agree that taxes provide for a lot of useful, wonderful things, taxes also provide for things I find morally repugnant.
So yes, we should all pay our taxes. But at the same time, I'm fine taking advantage of any legal methods available to me to reduce my tax burden.
The only thing that sucks about that is that tax avoidance generally becomes easier as you get wealthier, which is unfair.
Good democracies are built around making it take only a single good person for a good outcome, whole requiring vast conspiracies to get a bad outcome. American democracy has failed by making it nearly impossible to do anything good, while providing the bad actors near universal access to do as they please.
I don't like Trump, but the very idea that Elon Musk should, by virtue of being the richest guy, have any leverage against him, chills me to my last democratic molecule.
If you want to use a the software analogy it's advocating for using a simple monolith you can maintain with <10 people vs a distributed micro service architecture you're working on with hundreds of devs and has countless non essential features which can break the spirit of the system if used in conjunction.
Drafting a simple tax system is easy. The thing that would be borderline impossible is getting it passed into law because of vested interests
We can't write bug-free software even with unit tests and formal methods, what hope does a legislative body have? Debate before a law passes may be like code-review (and for big bills this debate is essentially "LGTM"), but most-to-all of the testing is in production: https://en.wikipedia.org/wiki/Test_case_(law)
This is not to say that no deliberate tax doges, they certainly do exist, but there's a lot of bugs too.
I just learned about this fact this year or so and it's absolutely bananas how people are just accepting this as a normal thing. In what world does it make sense to pay taxes to a country based on citizenship rather than actual location/residency?
What gets an insane amount of money in the US is the military. Half of silicon valley is financed by the military. All those IT billionaires wouldn‘t exist if not for money from the Pentagon.
Throwing money at stuff doesn't make it better, often it just attracts people who are good at working over administrators for money. I think you're seeing a lot of that, especially in education.
It's so bad now I think pretty much all the federal education resources are just a net loss and we'd be absolutely better off without them.
A few famous examples:
If you own a large chunk of a large company, of course you don't want to sell it, so you hold onto it. This means you're never going to pay any capital gains tax over it. But if you don't sell your stock, how do you get money to buy food and super yachts? You borrow it, with your stock as collateral. And you don't have to pay tax over loans, so you're still tax free. You do have to pay interest of course, but because of the collateral, interest is likely low, and as long as stock goes up, you can always borrow more to pay that interest.
Every part of this makes sense on its own, and yet the end result is that billionaires don't pay tax, and barely have to try to avoid tax; this construction would make sense even if they did have to pay tax over it.
Another: charitable foundations. Every rich person seems to have one. And because the government wants to encourage charity, they're tax free. But they're rarely real charities and they often have poor performance as charities, because that's not their real purpose. They just let you keep your money without having to pay tax over it, and the only cost is that you're somewhat limited in how you can use that money. But billionaires have plenty of money they're not actively using.
And sometimes it's also a nice vehicle for corruption, because foreign officials can also donate money to a charitable foundation.