That’s if you’re not spending all your money. People making 250K don’t generally live as people making 100K. They get the better house, they send their kids to private school. That’s why the New York delegation always throws a fit when Democrats talk about taxing incomes at that level. They’d prefer $1 million to be the threshold.
OP, are YOU a megamillionaire? Why not?
There is probably no more than 100,000 tech bubble rich in the whole US. For every startup that makes it big there are 100 or more that labour away for years and never get noticed. Ans generally only the first 50 or so employees get meaningful amounts of stock options. Joining facebook or google now will make you well off, but not net worth $ 2 million up rich.
That’s a mathematically unsupportable statement. People at these income levels are paying about a third of their income in taxes. Which means that to save half their total income, their expenses would need to be 1/6 of their total. Since when is a tax rate that’s double your expenses considered “negligible”?
According to your own math, saving half of a $250k income comes to a million in 8 years. Without taxes, that would be only 5 years. Also not negligible.
I’m not saying that taxes should be cut, but your argument is nonsense.
Only if they’re stupid or lazy. If you own your own business there are many legal ways to reduce your total tax percentage to far less than a third.
THat’s a problem with the tax system though, they set rates, but if you actually pay those rates you’re a sucker. But it’s clear to me that politicians would really like a significant number of people to pay the stated rates, given how much they attack people who get out of it legally.
What’s the cutoff on inherited/transferred assets to be considered “self made”?
I can well believe that most millionaires didn’t just get handed a cool million bucks in their parents’ will, but I would be quite surprised to learn that most of them had no financial help from their family whatsoever in the course of their earning careers.
Somebody who inherits or is given assets worth, say, $200,000 and parlays that into millionaire-level wealth definitely deserves credit for their wealth-building acumen and industry, but I don’t know that I’d call them “self made”. To me, the term “self made” implies that you always possessed literally zero wealth/assets except what you earned from your own labor and consequent savings and investments.
We could argue about what kind of wiggle room we’d allow in that “literally zero” figure (e.g., could you inherit/receive as much as $1000 from family or friends and still be considered “self made”? How about $10,000? $20,000? Does the value of your college/postgraduate education count if your parents paid for it? Etc.). But it seems plausible to me that even with a fair bit of free-money wiggle room, most of the millionaires in that 65% group wouldn’t count as truly “self made” by this definition.
Well, counting small family loans of $10000 or less and college education isn’t really fair. Something like 80 million Americans have a college degree, so the few that become millionaires can be fairly described as self-made.
And what if you’re a professional, like an engineer or doctor? Not everyone has the option of running a business. And anyway, contractors pay even more taxes.
No, not everyone has some magic means of avoiding taxes. I’ve averaged over 35% taxes for the past decade and short of doing things against my interest (like buying a giant house for a larger mortgage deduction, or having children), no way to reduce my tax liability.
Okay, so our somewhat arbitrary value of epsilon for “self-made” status is “$10,000 and a college education”. What percentage of millionaires never received any assets/wealth above $10,000 and a college education as unearned inheritance/gift/transfer from their family or friends?
Anyone can incorporate and run their income through a company, many doctors do that. Off shoring profits is legal in many cases and still possible even with the restrictions on US citizens opening foreign bank accounts. It would probably cost you about $10,000 US in set up fees but I guarantee there are advisors out there that could reduce your taxable income if you earn over $250K.
The basic principle is to only pay yourself a low salary, say $50K a year, then the rest of your income is owned by the company. Then you get creative.
So, illegal and immoral.
No this is neither illegal nor immoral. Reducing tax liability is merely smart business practise. Note, I say reduce, not eliminate. I pay all the taxes I am legally obliged to pay. By “get creative” I mean merely using the company money in smart ways that are tax deductible on additional legal businesses or investments.
You mean like illegally declaring your personal car as a company vehicle, or too-large a portion of your residence as a home office?
But never mind that–you can still only write off as many expenses as you have. If you are saving most of your income, there’s nothing to write off.
I do neither of those things and I don’t believe its acceptable to continually insinuate I am suggesting illegal activity. I am not. Not many people who have incomes above $250K just shove their savings in a savings account. You invest in additional things, usually which have legit expenses and deductions applied, some of those things have risk, but if you’re smart you’ll come out far ahead.
I’m not insinuating anything about you–I’m saying that for me to do the same would be illegal. And the same is true for the majority of my well-paid colleagues.
I invest my money well, but the fact is that the majority of my income is ordinary income and I have no expenses which could in any way be considered a business expense.
There are lots of people in this situation, particularly in that income range. They are not stupid or lazy, just unable to take advantage of certain tax loopholes and unwilling to break the law.
BTW, “get creative” is a pretty common euphemism for various forms of tax evasion.
You’re not talking to the right financial advisors then. There are numerous legal ways of reducing tax liability even for salaried employees. You may decide not to do so because it’s against your principles, but let me assure you its possible.
There’s a difference between tax avoidance and tax evasion. Both require creativity. DSG’s point, however, is that self-employed individuals have fewer options for the former compared with corporations.
So make yourself a corporation then. I did state clearly there are significant set up fees, you got to spend money to make money. I think you’ll find that almost 100 percent of individuals with net worth of more than $2 million have various legal entities that hold assets in their names. And they pay considerably less than 30 percent tax.
Not in my profession. I’ll do it with my house, since capital gains taxes and share transfer taxes for corporations (in my country) are way lower.