MasterPo says: This blog is about topics and issues that are of importance to me. I am not one of the countless blogging lemmings that are tripping over each other scurrying down the hill and off the cliff of blogging oblivion trying to write the greatest blog on the latest topic de'jour. Your comments are welcome.

March 13, 2010

Tax Deductions of "The Rich" and (In)Famous

One of the many common statements about "the rich" (defined anyway you want) is they get preference in taxation. Specifically, the claim is "the rich" get sooooooo many tax deductions that they end up paying little or no income tax. Far more deductions than a non-rich (defined however you want) has.


Let's examine that claim from a purely objective view:
- "The rich" can deduct charitable contributions, just like you and me.
- "The rich" can deduct medical expenses, just like you and me.
- "The rich" can deduct mortgage interest, just like you and me.
- "The rich" can deduct capital losses, just like you and me.
- "The rich" can deduct certain work related expenses, just like you and me.
- "The rich" can take the per child tax deduction, just like you and me.
- "The rich" can take their 401k deduction, just like you and me.
- "The rich" can take a deduction for buying Energy Star devices, just like you and me.
- "The rich" can take certain tax credits for events in life such as adopting a child, just like you and me.

This just to name a few of the more common deductions, allowances, and credits that everyone has under the law.

So where is the great tax preference for "the rich"?

I don't see it.

Obviously if you contribute more to charity than someone else you will have a bigger deduction. If you have greater capital losses than someone else you will have a bigger deduction. And if you have adopted a child you will get a tax credit that someone without an adopted child doesn't get.
Big deal! That's the events in each individual persons' life. It doesn't take a rocket scientist to know that your life and my life and the next person's life all are different and as such will have different expenses and events that may (or may not) lead to more/less allowable deductions. That shouldn't be a surprise to anyone. In other words, someone with more deductable activity gets to take more deductions.

So how is that giving preference, much less an unfairness, in taxation to "the rich"?

Work hard, take the same risks, and perhaps you too will have greater tax deductions.

Until then, get over it!


Anonymous said...

Hey get a little more informed before you make stupid posts like this. You forget to mention deductions on owning a home or business in another country. You also forget to mention that local governments will give money to big businesses (aka Wal-Mart) just for being in their city. Also, corporations do not pay taxes, and when they give these bonuses to CEOs at the end of the year there is a tax loophole. Please be more informed.

MasterPo said...

Comments like yours are among MasterPo's pet peeves.

Deduction of an out-of-country house or business? Sure. And you too could deduct it if you had one. You don't? So you don't get the deduction. It's that simple!

For many years MasterPo didn't own a home so MasterPo couldn't get the home mortgage deduction. Was that "fair"?

And how many people without children don't get the child deduction? Is that "fair" too?

Corporations do pay taxes. Businesses - corporate, partnership or sole prop - can deduct many more things than individuals can (definately an embalance there) but they do pay taxes. Perhaps not as much as someone like you think they should be paying but they do. The only exception MasterPo can think of is the S-corp who's taxable income is paid by the individual corporate owners on their personal tax forms instead of at the business level.

As for pay or bonuses - all business are allowed to deduct pay to employees, including bonuses. Nothing special there either.

Anonymous said...

I went to lunch with my brother who owns a business. He drove a truck which his business owns. The gas for his truck does not come out of his checking account. He picked up the tab because it's an expense he can deduct. He doesn't own a car so he doesn't have to pay insurance on it. The business covers all of that. His business rents from a corporation that HE owns. Last year he didn't give a bonus because his RENT went up (from himself).........................

MasterPo said...

Anon - That's not uncommon. It's one of the benefits of using a corporate structure. But there are downsides too like extra regulatory filings every year, an official audit every year, etc.

And just because he personally doesn't pay or his business can "deduct it" doesn't mean the money appears magically or that no one pays for it in the end.

Whether as a sole prop business or a corp he owns he is still responsible for finding the $$$ to pay for it. That's a heavy burden.