.

[Miramonti]

Lets say myself and my partner own a small business which makes us 500k a year, which we pay taxes on.

Now that we don't have to pay taxes on dividends, we decide to incorporate the business, pay us each a 30k salary, and we distribute the remaining $440k to ourselves as a tax free dividend. Not bad huh?

A banker friend told me this is going to be the new game if this tax plan goes through. (I'm still looking for info to verify this scenario tho.)

 

[zippy]

Shhh...you'll ruin it for everyone!

Haha.

 

[PAB]

Are you saying that income tax is not applicable on your dividends?

-PAB

EDIT: Oh.... I get it now. You have $500k pretax profits at the end of the year. You have to pay the corporate tax rate on that, and THEN you can disburse the dividends tax free. Nice.

 

[spanky]

sneaky bankers

 

[BrunoPuntzJones]

Yeah but as soon as you incorporate you're going to pay tax on the $500k you made...

 

[FelixDeCat]

The corporate tax rate is 35% silly.

btw...need a partner?

 

[rufruf44]

The fastest way to get rich in US, own a small business and fleece on the country via the loophole in the tax system.

 

[Miramonti]

Originally posted by: BrunoPuntzJones
Yeah but as soon as you incorporate you're going to pay tax on the $500k you made...

From what little I understand, dividends paid out are expenses to the business and are subtracted from the taxable net income.

 

[Miramonti]

Originally posted by: FelixDeKat
The corporate tax rate is 50% silly.

btw...need a partner?

Yes.

Originally posted by: rufruf44
The fastest way to get rich in US, own a small business and fleece on the country via the loophole in the tax system.

Its not fleecing if its legal.

 

[oniq]

Great now Bush knows and will ruin it all!

 

[Harvey]

Bush's tax "plan" is whack. He wants to go play shoot-'em-up in the desert and cut revenues by helping the top 5 - 10% of the income scale at the same time when we're already in huge deficits. Of course, that's on top of doing everything he can to gut any reforms in business and accounting.

Who says money doesn't buy access to power? :disgust:

 

[blakeatwork]

Originally posted by: PAB
Are you saying that income tax is not applicable on your dividends?

-PAB

EDIT: Oh.... I get it now. You have $500k pretax profits at the end of the year. You have to pay the corporate tax rate on that, and THEN you can disburse the dividends tax free. Nice.

yes and no...

The dividends are "declared" at the Annual Shareholders Meeting, where the minutes are shown to include the amount of dividens to be disbursed... Usually, this won't happen until the Financial Statements are about to be completed, but the minutes are amended to reflect the dividends declared to the Shareholders of the company. In esence, since dividends are apparently now tax free in the US (bastards... ), any money made would be tax free. I see this lasting one year befotre the IRS cans that loophole right quick.

 

[FelixDeCat]

check this out

 

[Miramonti]

Originally posted by: FelixDeKat
check this out

fixed linker

 

[jjessico]

The fastest way to get rich in US, own a small business and fleece on the country via the loophole in the tax system.

The quickest way to make money is to set up a government that taxes the living p!ss out of all the free enterprise under it thus capitalizing on the hard work and dedication of others.

You act like the business owners didn't earn that money. Its obviously the government's money and then the business' right? I mean the government does so many wonderful things with your money, why would you want ANY of it back anyhow?

Jason

 

[HendrixFan]

Right now businesses small and large are in need of tax breaks, not individuals. If we had corporate tax cuts in 2001 the economy would be alot better off now, but corporate tax cuts arent "sexy" to the layperson. As the economy starts to lag, thats when businesses need the money to keep from pushing layoffs which spiral the economy downward.

 

[BrunoPuntzJones]

Originally posted by: jjsole

Originally posted by: BrunoPuntzJones
Yeah but as soon as you incorporate you're going to pay tax on the $500k you made...

From what little I understand, dividends paid out are expenses to the business and are subtracted from the taxable net income.

I thought the whole problem was that dividends are taxed twice. Once when the company makes the money it's taxed. Then when dividends are paid out the individuals that receive it are taxed again. Bush's plan would eliminate that 2nd taxing. If the dividends go to another corporation, they are claimed as a "dividends received deduction" which keeps it from being taxed 3 times. Like going from company A, to company B, then to the individual and getting taxed 3 times.

 

[AbsolutZero]

Originally posted by: HendrixFan
Right now businesses small and large are in need of tax breaks, not individuals. If we had corporate tax cuts in 2001 the economy would be alot better off now, but corporate tax cuts arent "sexy" to the layperson. As the economy starts to lag, thats when businesses need the money to keep from pushing layoffs which spiral the economy downward.

Exactly. Cutting corporate taxes would be political suicide to any polititian who votes for it. The public is stuck on Enron and WorldCom.

 

[rufruf44]

Originally posted by: jjessico

The fastest way to get rich in US, own a small business and fleece on the country via the loophole in the tax system.

The quickest way to make money is to set up a government that taxes the living p!ss out of all the free enterprise under it thus capitalizing on the hard work and dedication of others.

You act like the business owners didn't earn that money. Its obviously the government's money and then the business' right? I mean the government does so many wonderful things with your money, why would you want ANY of it back anyhow?

Jason

Please, business owners earn their money as much as any hard working, regular employee earn theirs. They also have a lot more tools and means in their hand to shelter their $$$ from the government than the common folks.

 

[jjessico]

What exactly is wrong with business keeping money they earn?

 

[Miramonti]

Originally posted by: BrunoPuntzJones

Originally posted by: jjsole

Originally posted by: BrunoPuntzJones Yeah but as soon as you incorporate you're going to pay tax on the $500k you made...

From what little I understand, dividends paid out are expenses to the business and are subtracted from the taxable net income.

I thought the whole problem was that dividends are taxed twice. Once when the company makes the money it's taxed. Then when dividends are paid out the individuals that receive it are taxed again. Bush's plan would eliminate that 2nd taxing. If the dividends go to another corporation, they are claimed as a "dividends received deduction" which keeps it from being taxed 3 times. Like going from company A, to company B, then to the individual and getting taxed 3 times.

That's what felixdecat's article discussed as well, the double taxation relief. If thats the case and all corp's are taxed the same in this regard, then I'm trying to figure out where the this loophole would be.

 

[CPA]

Sorry to ruin the party, but unless I am missing something this scenario does not get both the shareholder and the company out of paying taxes.

Dividends are NOT deductible from Net Income for a business, the are a reduction in retained earnings (a balance sheet) account. That is why it is currently double taxed, a company can not reduce their net income from dividend payouts.

So, if you reduce your wage expense you will end up paying more taxes from the company perspective, which for 2002 and 2003 is 34%. Also, because you paid out a dividend and that is not deductible, the company would be liable for additional, around 38%, taxes for income over 250,000.

My guess, without running the numbers would be that, without other deductions, it is more beneficial for you to pay out wages then dividends, as the effective tax rate for you as an individual would be less than your company's.

 

[Queasy]

Originally posted by: CPA
Sorry to ruin the party, but unless I am missing something this scenario does not get both the shareholder and the company out of paying taxes.

What CPA said. One huge new loophole is an increase in the deduction for buying a work vehicle....especially a vehicle in the large truck/SUV range. That should make the greenies happy.

 

[HeroOfPellinor]

If you have a company making 500K a year, you're doing okay regardless.

 

[bGIveNs33]

Originally posted by: AbsolutZero

Originally posted by: HendrixFan Right now businesses small and large are in need of tax breaks, not individuals. If we had corporate tax cuts in 2001 the economy would be alot better off now, but corporate tax cuts arent "sexy" to the layperson. As the economy starts to lag, thats when businesses need the money to keep from pushing layoffs which spiral the economy downward.

Exactly. Cutting corporate taxes would be political suicide to any polititian who votes for it. The public is stuck on Enron and WorldCom.

I couldn't agree more... Corporate income tax is bullsh!t to begin with. What the average person who is against it doesn't realize is that the business passes on that extra expense to the consumer.