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Honored Advisor

Re: Estate Taxes..Uff Da

That`s exactly right Nebrfarmr, the super rich aren`t at all worried about estate taxes.  Isn`t it funny of all those years of say 1920`s-1980 of periods of high tax we still have those dynasty families? I mean you had some very high rates, also periods of 70% income tax, still the "rich got richer".  And Bill Gates and Warren Buffet are flapping their gums about the need for more taxes???...they`re up to something I just ain`t smart enough to have it figgered out yet.  You don`t get a net worth of $60 Billion by giving Uncle Sam his due, even the local 10¢ millionaires that buy high priced land and paint. I know they`re not paying income tax but still with they have to make the payments with after tax dollars, a tip of the hat to them, they know something I don`t.

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Senior Advisor

Re: Estate Taxes..Uff Da

No they don't Bad A. You have t fugured out that they have to retire that debt with after tax income. However they don't ever figure those taxes because they will buy more and newer machinery to keep their tax avoidence policy going.

 

I'll bet you have come to the conclusion that buying equipment you don't need to save taxes is a losing proposition. If you want to earn cash to invest or buy something, you need to pay some taxes.

 

Bill Gates and Warren Buffet are well aware of how the current tax structure us damaging out federal budget. They know they have a much better deal that the folks that work for them. That the tax code is out of balance and their are too many tax avoidance options.

 

Most of what Gates and Buffet are earning is capital gains. That is if they sell something. Zero tax on capital gains unless a sale is made. How is that for billions of dollars in a preverbial IRA with none of it taxed ever. And then you object if government extracts some of that wealth in estate taxes.

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Veteran Advisor

Re: Estate Taxes..Uff Da

Don't know about Gates, but Buffet has enough money to make it worth it, and the lawyers to do it, so that he is set up to essentially live tax free.  He has a trust set up, with him & his wife as 'employees' who are given company cars, clothing allowances, etc etc.  When they eat out, they can even claim to 'talk shop' and deduct it as a 'business lunch', all their insurance policies are paid for tax free as a business expense. 

The way I understand it, the tax code allows a business to deduct a certain percentage of their revenue for various things.  When you are a millionaire, or multi-millionaire, that little percentage can add up to your entire living expenses, especially if you live fairly modestly, as Buffet does.

As to the very, very rich, I wondered out loud why they would be for higher income tax rates.  A neighbor answered that one.  He said, that in his lifetime, what he tends to see, is that once people amass a certain amount of wealth, they don't care if the income tax goes up, as they already have theirs.  By taxing INCOME greatly, they actually insure their place at the top of the totem pole, as the government takes the income away from those who are not yet rich, but trying to get there.  Hence their idea for higher income tax rates.  He went on to say, if you REALLY want to hear the rich squeal, propose a NET WORTH tax, where anything with their name on it gets taxed, including trusts.  I tend to agree with him.

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Advisor

Re: Estate Taxes..Uff Da

BA you have to be wrong about individuals buying farmland and not paying income tax. None of my principal payemnts have ever been deductible. If you are making payments you'd better be paying income tax. What does happen with the 10 cent millionaires (you mention) is that as they get one piece paid for that frees up capital for additional purchases. I've found the amazing thing about a 20 year mortgage is that after 20 years, it's paid off.

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Senior Advisor

Re: Estate Taxes..Uff Da

He doesn't live tax free. The last time I heard his taxes reported it was over $7 million. However, as he said his tax rates are lower than his secretary who pays ordinary income plus SS and fica taxes.

 

I think you are dealing a bit of disinformation. He does pay taxes but he does have the conscience to know that the tax code is strongly favorable to those at the top of the income ladder. Why would they be for higher taxes? Because they think that people like him should pay a higher percentage of their income in taxes.There are alot of people that recognise the unfairness of the code and they may even recommend changes that are not in their own best interest.

 

It's pretty hard to fathom that if you only think about me me me!

 

 

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Honored Advisor

Re: Estate Taxes..Uff Da

Hi Ida, I maybe wasn`t clear enough in what I meant.  See, what I`m saying is you land payments ARE after tax money and IF (hey this is everybody these days) their yard is full of new paint as well, alot probably rapidly depreciated but still having payments to be made with after tax dollars.  To illustrate this, try saving $100,000 to pay cash for a "new" tractor, to start with you`d have to cough up $15,000 extra just to pay your Social Security tax, then depending what federal bracket your in $3-5,000?,  then Terry Branstad would want ...I don`t know, maybe another $10,000?   The way the tax system is, it encourages you to buy paint with borrowed money and penalizes the "cash buyer".  A guy wanting to be responsible ten yrs ago to buy land and "save" enough for a sensible down payment would look foolish, because land prices shot up 50 times faster than you could save and to rub salt in your wound you`d have had to pay tax on those saved dollars. The only positive thing to say about a "20 yr mortgage" is that you bought the land 20 years ago ($1,500 an acre)Smiley Wink 

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Advisor

Re: Such a confusing thread...

sorry for being late in this conversation, but, you already probably know this stuff isn't limited to your area.  Jokes about our neighbors to a state SE of here was most their family trees ran straight up.  Just kidding, of course.  Seriously, that's nothing to kid about, however.

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Advisor

Re: Just don't die

Thanks for that historical perspective.  A program on PBS today highlights that issue.  Bill Moyer's new program mentions this increasing disparity between the haves and have nots.  They suggest the top .1 of 1 percent of the most wealthy have the greatest influence on tax policy, which benefits them and allows them to keep even more wealth, increasing the divide at a faster rate than ever.

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Honored Advisor

This thread needs an accountant

Sorry kraft but I am going to try to correct you again.

You are talking about INCOME tax(the seven figure),

Buffet's statement was a very missleading thing from the start.--------------His secretary pays tax on EARNED income.  Mr Buffet does not have any of that,  his is investment income.  He has to mix the two to make his statement correct.  AND he has to include her FICA tax to make it work.  

FICA tax is the only one that might be skewed to favor the rich because there is an upper limit to the tax(he does not have to pay more than @ the 60k rate on personal income)   Since fica is a tax to be withdrawn by the depositer at some point you could say he is penalized because he cannot deposit excesses  to increase his SS returns at retirement exponentially.  

 

the Income tax code does not favor the rich.  Mr Buffet pays equivilantly more taxes than his secretary does and does not get the deductions she does.   Otherwise I want to see the secretary's canceled check , compare to his $7m+, and then we will compare the % rate and I bet she still wins.  

What you are trying to do Kraft is look at his wealth,  or potential wealth(unrealized capital gains, and unrealized stock gains), and then add it to his actural investment income and yell it is not fair.  If we are going to do that then we need to add in the secretaries future potential worth as a secretary to Mr Buffet and the marketable value of her experience should she seek employment elsewhere with that level of knowledge and experience.  Once we find that figure and take it times the number of years she will have til retirement, multiply the two, add in some for potential consultation income and we would arrive at her real potential income.  Now if we tax that figure we have achieved a potential epuality.

 

It can be argued that the under $40k earners in the US have most of the tax breaks.  After deductions on average they only pay income tax on about 25% of their income or less because of the deductions.  

 

Where the super rich have advantage is they don't need the income,  They can take as little or as much income as they need in any given year.  They have investments in things like stock that appreciate in value but are not income till they are sold.  And own them through trusts or corporations.  They know better than to actually take the income.

 

Farmers have 2 wonderful advantages, one that most use, and one that a few use.

1----is, up to 10m of income expenses and income can be delayed or prepayed into a different year.  Most use this. knowing that eventually a bad year evens things out.  So you keep any tax burdon fairly even.

2----Gradual growth, if a farm is in a state of growth, say 10% asset base growth per year, this years income can be, in effect, used up by next years expenses.  If the gradual growth stops then taxes become a big issue.  But in effect growth can delay income tax burdon for many, many years.  It is tricky and one can get in trouble growing too fast.

 

Lack of growth can create a tax burdon that is hard to handle now because replacement costs for equipment demand growth.

 

Dad's neighbor used to say "if you ain't moving forward your in reverse, cause nobody can sit still."--------he was right, and taxation favors growth.

 

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Re: Estate Taxes..Uff Da

Revenue can never be deducted for tax purposes.  It's revenue, not an expense and reportable on the appropriate tax form.

 

The rest I say here is my understanding of the IRS rules, but I'm not the final expert on everything. 

 

As for living expenses, insurance policies, wages, etc., the corporation can only deduct expenses that are directly related to business endeavors.  If a corporation owns a house and uses it for corporate meetings, it's a deductible expense on appropriate schedules, ie, depreciation, Schedule C or similar form.  Same thing with utilities, insurance, property taxes, employment taxes, etc.

 

Farmers can do that as well, if structured properly as a corporation.  Even a home can be deducted if the corporation stipulates the resident/employee/stockholder must live on the premises of the corporate property, to manage the business, ie., livestock barns, feeding, etc..  Vehicles that qualifies for decutible expenses can be used for farm purposes.  Taxes, insurance, utilities, etc., are deductible as well.  Salaries are deductible, so are legitimate expenses for legitimate business meetings, including meals, but are subject to IRS rules and exceptions.  Personal meal expenses are not deductible.

 

Just make sure its done according to IRS guidelines, or you will regret it when the auditors come knocking on the door.

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