Moguls Rent South Dakota Addresses to Dodge Taxes Forever

http://www.bloomberg.com/news/2013-12-27/moguls-rent-south-dakota-addresses-to-dodge-taxes-forever.html

by bradleyjoyce • 13 years ago

38 45 13 years ago

IvyMike• 13 years ago

To steal a great phrase, every time I hear a story like this, I know the guillotines are coming closer.

zaqokm• 13 years ago

The rich may be reducing their tax, but look how the government spends their own tax revenue, not much will change when the government spends trillions on their war effort.

bradleyjoyce• 13 years ago

When I read stories like this I often wonder, would I do things any differently if/when I have that much money?

Would you?

lisper• 13 years ago

These guys do:

http://patrioticmillionaires.org

mudil• 13 years ago

No, you wouldn't. The thing is that all that top wealth is managed by a group of accountants and lawyers. Highly professional accountants and lawyers. (My friend is an accountant here in Silicon Valley who manages wealth for billionaires in a large accounting firm. He describes me some ways how they manage wealth.) So these people's role role, their only role, is wealth preservation, meaning tax minimization and avoidance. They know all the laws, rules and regulations, and they have fiduciary duty to manage the wealth efficiently and conservatively. Hence they will go to tax heavens and offshore, if needed.

brady747• 13 years ago

Then I guess the question becomes, you appear in an article in Bloomberg about how you are using this loophole. Now what do you do?

bagels• 13 years ago

So, every time a story like this comes up, it makes me wonder... Does anyone offer services like this for non-millionaires and non-billionaires?

brianbreslin• 13 years ago

This reminds me of an article recently in businessweek about the tax loophole with trusts that Sheldon Adelson uses.

http://www.bloomberg.com/news/2013-12-17/accidental-tax-brea...

dmk233• 13 years ago

What would you expect? If you live in a state like California and are in the highest tax bracket, your total tax rate (federal + state + local + various surtaxes) would be close to 60%. It is ludicrous to expect most people to just fork over such an outrageous percentage of their earnings without complain.

No wonder the high-income individuals are fleeing high-tax states and "tax-the-rich" ideology is failing to fill the states' coffers. Raising taxes hurts poor people more than the rich. http://www.forbes.com/sites/trulia/2013/02/12/jobs-arent-lea...

thenmar• 13 years ago

That's only outrageous to Americans who are used to bowing down before the wealthy and worshipping financial success as some sort of moral ideal.

qwerta• 13 years ago

I would call myself European hippie, but I find it outrageous as well.

guelo• 13 years ago

Get your facts straight before you go Galt. This story has nothing to do with state income taxes.

redwood• 13 years ago

Is it ludicrous to expect most people to do that, when most don't and aren't expected to?

Most don't make much money at all. Many more make none at all. The reason the tax rate is high on the ultra-well-to-do is to help cover the rest.

superuser2• 13 years ago

Say your income is $406,750 (highest federal tax bracket for an individual). Federal income tax is $118,188.75. California income tax is $37,941.45. Effective tax rate is 38%. San Francisco could add 1.5% so now we're at around 40%.

How are you getting to 60%?

dmk233• 13 years ago

Excellent question and here is the answer: http://www.cnbc.com/id/100398096

gamblor9568• 13 years ago

(Tax advisor here.) You don't get a 60% rate in the US. Anyone who claims otherwise doesn't understand the basic principles of U.S. taxation or is lying to try and make a political point.

State taxes are deductible for federal income tax purposes (meaning that they reduce your taxable income as determined for federal purposes). Also, Medicare and Medicaid taxes are part of payroll taxes (or FICA, for the self-employed), so you don't pay them both.

As every tax advisor in the CNBC article pointed out, Michelson knows diddly squat about taxes. He was taking every single tax rate and adding them together, but he should have been averaging them out. For example, the 20% rate on his capital gains and dividends replaces the 39.6% rate; he's double-counting some of the FICA taxes, and worst of all, he thinks his marginal rate (the highest rate he pays) applies to all of his income.

yummyfajitas2• 13 years ago

35% corporate income tax + 20%-39.6% dividend tax.

paul9290• 13 years ago

Indeed tax rates are out of control for those who work hard, smart and strive for a better life.

When your making say 50k the amount of taxes they take from you is no sweat. Though when your hard work pays off and you start making six figures you wonder huh I'm not making six figures and wont see six figures in my pocket until I start making north of 160K a year.

Ridiculous!

jandrewrogers• 13 years ago

It is bad, but not quite that bad. If you just look at taxes on wages for someone making $250k per year, you will pay about 40% in obvious taxes in California. There are sales and other taxes on top of this and some additional regulatory taxes as well.

Since I have operated companies with substantial payrolls in California and therefore been privy to the cost details, I can say that the total outlay to various government authorities when a paycheck is cut can exceed the total value of the paycheck in California but not much beyond that; maybe 52% to government, 48% to the employee.

In summary, you will only approach 60% if you include all possible taxes on the income including the spending of said income, which does not happen often in practice. Even in California, the worst case is closer to 50% if you manage your income reasonably well.

This still adds up to a lot of money if you compare it to a state like Washington with similar software engineering wages and no income tax, since that adds up to tens of thousands of extra income.

tn13• 13 years ago

Sounds like a good strategy. If I had so much money I would hire some of the smartest people in the world to save my taxes whatever way possible as long as the government (read as legal extortion gang) cant put me behind bars for it.

gamblor9568• 13 years ago

Tax shelters are very tricky. Unlike most other crimes, it's possible to be convicted of tax fraud even if the tax shelter was legal (or at least not illegal) at the time the shelter was put into place. This is generally because many tax provisions look to the facts-and-circumstances of a transaction or an item of income rather than to the strict letter of the regulations.

sanxiyn• 13 years ago

The article considers the rule against perpetuities to be an obviously good thing, but I have my doubt. Consider this argument for example:

http://www.overcomingbias.com/2010/03/parable-of-the-multipl...

vinhboy• 13 years ago

It's really stupid of me, but everytime I read about taxes, I am always "re"-amazed at how much money get spent on protecting money.

nostromo• 13 years ago

Selling $2 for $1 is easy.

fedups• 13 years ago

It's surprising how prone we are to forget that people act on incentives.

eigenvalue• 13 years ago

Wow, who would have thought the Rule against perpetuities had actual implications in modern American law! I thought it was more of a trivia question that law professors might ask about in a property law class. Next thing you know, we'll be reading an article discussing the Rule in Shelley's Case!

furtivefelon• 13 years ago

A quote from the article: "Just $1 million invested in a dynasty trust, and earning 12 percent a year, would swell to $1.9 billion in 85 years". So my question is how do I find a investment vehicle that gives me 12% return compounded year after year?

Moguls Rent South Dakota Addresses to Dodge Taxes Forever

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