(10-01-2020, 02:51 PM)mikesez Wrote:

(10-01-2020, 09:35 AM)The Real Marty Wrote: So, if I understand you correctly, suppose a person has a million bucks, which has already been taxed, and he starts a corporation and seeds it with that million bucks.  You say, "then you have it sell you shares..."   If you started a corporation with a million bucks, then you would already own all the shares.  So the corporation would have to create more shares if it wants to sell you more shares.  So let's suppose it does that.  It sells you half a million in new shares.   That means you just put half a million more into the corporation.  That was your money you just used to buy those shares, so it has also already been taxed.   So then you say it buys the shares back for a higher price than what you bought them for.  So you pay capital gains tax on the shares you sold the corporation.  

What have you accomplished, other than to create a taxable event out of nothing?  You churned your own money in order to create a capital gain that you have to pay tax on.  What income tax are you avoiding?  There's no income anywhere in your scenario, other than this artificially created capital gain.

It's a simplified story.  The reality is that there are many more shell corporations and business income is churning around and around among them.  You funnel any money you make as "consulting fees" through one of these corporations, and the corporation buys one of your shares with that money.
If the "consulting fees" went right into your pocket as ordinary wages, that'd be a top marginal rate of ~35%.
If you had your client pay a "closely held" or S-corp, that's a top marginal rate of ~25%.
If you have your client pay a privately traded shell corporation that you have owned shares of for at least a year, and then have that shell corporation sell you a share at a price equal to the income plus your original cost basis, the top marginal rate is ~20%.

You have an astounding number or errors in this post, and as a truly lazy person, I hesitate to take up the effort of correcting them all, but here are just a few of them.     

First, you are in error about the S-corporation.   An S-corporation does not pay taxes, it is a pass-through.  All income of the S-Corporation is taxed to the owner of the S-corporation in his or her personal income tax return, whether it is distributed or not.  An S-corporation simply avoids the double taxation of a C-corporation.  

So it has to be a C-corporation for this to work.  So what happens in the case you set up?  The C-corporation takes in the consulting fees, and uses that money to buy back the stock of the owner.  Does this actually reduce the tax liability?  First, the corporation has to pay income tax on the consulting fee.  Then the owner has to pay capital gains tax on the stock buyback.  You've double taxed yourself.  25% marginal tax rate on the C-corporation, plus 20% capital gains tax on the stock buyback = 45% tax.  Ouch!  

And I'm going to stop there, because really I expect that even if I correct all the errors in that post, you will only try it again, and it's too much work for me to keep this up.  Just stop.  It is not possible for a rich person to avoid paying taxes.  As proof, I cite the fact that the top 1%, in spite of all their resources, and all the experts they can hire, still pay 40% of the personal income taxes in this country.  

Rich people cannot get out of paying taxes.  That is a myth.  (Unless, of course, like Trump, they shrink their net worth by losing money, thereby incurring deductible losses.)

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