I’m sure your lobbyist was able to get you your very own tax breaks. Here are ten others you can use this year when filing your return.
Private Jet as Security Write-Off? 10 Most Insane Tax Loopholes
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Due to the proliferation of loopholes, deductions, credits, and the growing use of offshore tax evasion, many rich Americans and corporations are able to dodge the bulk of, if not all, their taxes. Between 2008 and 2011, 26 major American corporations paid nothing in federal corporate income tax, despite making $205 billion in pretax profits. In 2011 (the last year in which data is available), corporations paid just a 12.1 percent effective tax rate, the lowest in four decades. Many wealthy individuals, meanwhile, are able to drive their tax rates down below the rate paid by middle-class families. Some drive it all the way down to zero.
There are certainly large, systemic reasons for these disparities. But part of the problem is that the rich and the biggest companies have access to a slew of tax breaks from which the average household or small business derives very little benefit. Here are 10 of the most ridiculous.
- CEO “private security.” A “ common corporate tax trick,” according to the New York Times, is corporate boards paying for private jets and other perks for their CEOs under the guise of security. As Steven Davidoff reported, typically CEOs would have to pay taxes on these benefits, but if the benefit is classified as necessary for security purposes, “the chief executive will pay a reduced tax bill or sometimes no tax at all.”
- Florida cow scam. In Florida, wealthy developers, lawmakers and even some corporations game the tax code by placing cows on their land for a limited amount of time each year, thereby qualifying for agricultural tax breaks. Sen. Ben Nelson (D-FL) has benefited from this absurd loophole for years, as has Disney World. But Florida isn’t the only offender. From rock stars in New Jersey to movie stars in Colorado, tax breaks meant for farmers get gamed by the most privileged, using everything from sheep to beehives.
- Facebook stock options. The social media giant Facebook made more than $1 billion in profits last year, but paid no corporate tax thanks to a huge write-off after its initial public offering. In fact, the company received a refund of $451 million. As Citizens for Tax Justice, explained, “Facebook’s income tax refunds stem from the company’s use of a single tax break, the tax deductibility of executive stock options.” This loophole will also allow Facebook to avoid more than $2 billion in taxes in future years. LinkedIn used the same gimmick to pay no federal taxes for the last three years.
- Bluegrass boondoggle. This tax break, created by Senate Minority Leader Mitch McConnell (R-Kentucky) in 2008, gives wealthy horse owners a break worth $126 million over 10 years by allowing faster depreciation (quicker tax write-offs) of race horses. McConnell has defended the break by claiming it helps Kentucky’s “ farm economy.”
- Sheryl Crow loophole. Low tax rates on investment income are one of the main reasons the wealthy are able to pay lower taxes than those in the middle-class (and are also a prime driver of income inequality). Lawmakers from America’s heartland felt it was necessary to let super-wealthy musicians get in on the action, and so “passed a law allowing songwriters to avoid income taxes and sell their publishing catalogs at capital gains rates.” As San Francisco Weekly’s Chris Parker noted, “Three years later, Sheryl Crow sold her publishing rights to one of Australia’s largest banks for nearly $10 million. Her estimated savings courtesy of this congressional giveaway: $2 million.”
- NASCAR tax break. Thanks to a provision in the 2008 bank bailout, owners of NASCAR tracks are able to write off the costs of their facilities over seven years, rather than “ over the 39 years that the government estimates it will take for the tracks to depreciate.” This particular loophole costs the government $40 million per year, but Congress reauthorizes it overand over again.
- John Edwards/Newt Gingrich loophole. Both the former presidential candidate and the former Speaker of the House have taken advantage of a provision allowing them to dodge payroll taxes. By forming “S corporations,” Edwards and Gingrich are able to classify the money they receive from various ventures as “business profits,” rather than payments for services rendered, which exempts that money from the payroll tax. This loophole is regularly abused by lawyers, doctors and accountants, who can count the work they do every day as part of operating a “small business” that consists only of themselves. As tax expert Seth Hanlon noted, “ Regular wage-earners can’t do this, and neither can the owners of other kinds of small businesses.”
- Tax breaks for vacation homes and yachts. The mortgage interest deduction, which is supposed to boost homeownership, can be used on second homes, or even yachts, so long as they are large enough to accommodate a bathroom, along with a cooking and sleeping space. Limiting the deduction to primary residences would raise $1 billion per year in revenue.
- “Double Irish” and “Dutch Sandwich.” Many companies, from Google to Amazon to Starbucks, use offshore tax havens to drive down their corporate tax rates, sometimes down into the single digits. Some of the inventive strategies they’ve used include routing profits through Ireland, the Netherlands, Bermuda, or Luxembourg, using tax tricks with cheeky names like the “Double Irish” and the “Dutch sandwich.” European countries have recently attempted to crack down on some of the more flagrant abuses.
- Large SUV’s. We’ve already discussed the yacht tax break, but going out and purchasing a large SUV will get a member of the 1 percent another write-off. As Bloomberg News noted, the tax code’s restrictions on write-offs for luxury vehicles don’t apply to those “rated at 6,000 pounds unloaded gross vehicle weight or more.” This means that “purchasing a large SUV often provides faster writeoffs than similar but smaller vehicles.”
Closing these loopholes would certainly not fix the tax code’s much larger problems or put a huge dent in the federal deficit. But they would at least get rid of some of the more egregious giveaways that plague the American tax system, while raising some money that can go to providing the critical services upon which many Americans depend.
taxSlave says:
Anyone who can keep a penny out of the maw of the beast is OK by me.
Starve the beast.
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2nd March 2013 at 7:35 pm
Zarathustra says:
taxSlave, all hail the 1%!
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2nd March 2013 at 8:00 pm
Chronic Agitator says:
BFD If you are in business and make almost any profit you can use some of these and other deductions…. you DO NOT need to be in the 1 percent.
Some people just do not have the drive or smarts to go out and employ others but they sure complain when business people win after taking big chances. If there are no incentives to business then many people will continue to suffer unemployment.
Hot debate. What do you think?
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2nd March 2013 at 8:26 pm
Chronic Agitator says:
It irritates me when the lazy amongst us complain about someone buying a mansion, a yacht, an airplane, fancy autos or second or multiple homes. Consider the number of jobs these purchases produce. Would we be better or worse off without people (wealthy or not) spending their dough?
Hot debate. What do you think?
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2nd March 2013 at 8:34 pm
Administrator says:
It irritates me when Corporations buy tax breaks through bribing elected officials. It irritates me when rich motherfuckers use their connections with other rich motherfuckers to rig the fucking system in their favor. We’d be better off if rich connected motherfuckers didn’t control our financial and political system. We’d be better off if people and governments didn’t spend money they didn’t have or the money of unborn generations.
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2nd March 2013 at 8:43 pm
howard in nyc says:
the officers of the FSA, the colonels and generals, are way clever.
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2nd March 2013 at 9:03 pm
AWD says:
If you’re going to have a corporation, you’re entitled to tax breaks. Everyone should have a corporation and run your money through it.
Then, you get tax loopholes big enough to drive your company car through
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2nd March 2013 at 9:03 pm
Chronic Agitator says:
Admin, I fully agree with your last comment. I am not connected in anyway to any one of the “motherfuckers” you mentioned above. I operate a few very small businesses and have spent the last 35 to 40 years of 24/7 working on them. Some are successful and some are not. If I invest my life and my money employing people and producing beneficial products then I believe I should be able to enjoy my gains -if any. I do not enjoy the losses but that comes with the territory. If I can take advantage of available tax deductions, I shall do so. To remove deductions would be a disincentive to business people.
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2nd March 2013 at 9:26 pm
Llpoh says:
Maybe I should get some security perks going.
Nah. Fact is, I want the money, not the perks. But the fuckers are taxing me into oblivion, and regulating me out of profitability .
Any business perks I take – which are none save I fly business class – reduces my profit, and thus my money. Perks are best left to megacorps, as small business wants profit.
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2nd March 2013 at 9:29 pm
Chronic Agitator says:
AWD is right on. Everyone should have their own business/corporation. The incentives are too great not to start your own –even part time. But I know you won’t do so, you’ll just keep complaining about those who do.
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2nd March 2013 at 9:32 pm
Chronic Agitator says:
Lloph,
You say: ” Perks are best left to megacorps, as small business wants profit.”
I disagree with this, Sir, — there are multiple ways to profit and not taking advantage ALL deductions is merely feeding the beast and the FSA.
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2nd March 2013 at 9:38 pm
Llpoh says:
CA – so I should buy a jet I do not need to starve the beast. And get body guards.
Please get serious.
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2nd March 2013 at 9:42 pm
Chronic Agitator says:
Lloph,
Where did this “jet and body guards” thing come from—you mentioned “security”.
I am serious and I think you are funning with me. There are multiple deductions other than “security”
If the only benefit you get is an upgrade to first class then I believe you are giving your hard earned money away and those who are getting it did not earn it.
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2nd March 2013 at 10:03 pm
SSS says:
Chronic Agitator and Llpoh: businessmen at odds. Carry on, gentlemen.
As for me, here’s my tax tip for the Average Joe: “If you’re not cheating, you’re not trying.” And I’m deadly fucking serious about that.
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2nd March 2013 at 10:58 pm
Eddie says:
Any one who works a job that results in an automatic payroll deduction might as well wear a t-shirt that says “Fuck Me IRS”. That’s a choice you make and I’m sorry, but it is a lousy choice.
Virtually everyone who has any rural land gets an ag exemption. In Texas, a wildlife exemption is an even better break. Not sure this exists elsewhere.
S Corps are a mixed bag for doctors. You get things and you give up things. I have chosen to remain a sole proprietor. I’d form an S Corp in a minute if i thought it’d be an advantage, though. S Corps suck compared to C corps, because they do not allow income to be carried forward. S corps do not allow you to write off a car any differently than a sole prop, btw.
You only get to write off one second home (or yacht). Anybody who owns a boat knows the write off won’t even pay your slip rent, so boats are literally a hole in the water to throw money into, no matter how much money you make.
The SUV break is another stupid one, because whatever savings you get goes into the gas tank. Not really much of a break, imho..
None of these breaks you mentioned are anywhere as good as the ones you get for owning rental real estate, btw. Deductible interest, maintenance, depreciation…and the 10-31 exchange…and when you consider they flow cash, and that you can use reasonable leverage via a loan that is lower than inflation…the advantages of owning real estate far surpass any you mentioned.
Rich people can also put a grid-tie solar set-up on their roof for maybe 50K and be at net zero for electricity for their electric bill on the McMansion..and get a thirty percent tax credit. BAM! Better than anything you mentioned, btw, as far as a tax break.
Tax breaks for the rich have always existed and always will. Figure out how to use a few of them instead of whining.
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2nd March 2013 at 8:46 am
prtrb'd says:
Eddie,
You said you were going to write up an alternative energy post. Maybe I missed it while I was out cutting wood, maybe you dint get to it yet. Looking forward to seeing what you have to say….
p
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2nd March 2013 at 9:56 am
Administrator says:
prtrb’d
Here is a link to Eddie’s article:
http://www.theburningplatform.com/?p=49416
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2nd March 2013 at 10:14 am
Eddie says:
Yesterday I went to a private art sale hosted by a friend who is a nationally respected print maker. I was reminded of another way rich people beat taxes.
They buy valuable works by known artists and have their business pay for them. Then they hang them in their offices and depreciate them as a furnishing. When fully depreciated, the “worn out” art just becomes a valuable personal asset that probably actually appreciates in value for the rest of their lives.
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2nd March 2013 at 1:52 pm
KaD says:
Chronic Agitator : “Consider the number of jobs those people produce”
For the Chinese?
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2nd March 2013 at 3:27 pm
llpoh says:
Eddie – that asset will attract capital gains tax on the full amount upon disposal. They may be able to defray taxes, but they are not beating them in the end. Not unless they want to be tax evaders, and that is a crime.
“Let’s look at how the IRS has historically looked at depreciation. In 1968 the IRS ruled that a “…valuable and treasured art piece does not have a determinable useful life….Accordingly, depreciation of works of art is generally not allowable”. At that time, depreciation tax laws required a taxpayer to establish any business asset’s cost basis, salvage value and actual useful life. Since it’s extremely difficult to know how long a piece of artwork’s useful life will be, it made sense that you couldn’t depreciate artwork over “X” number of years if there’s no way to identify what “X” is. But in 1981, depreciation tax laws underwent significant change, and then again in 1986 with the Modified Accelerated Cost Recovery System (“MACRS”). MACRS is still in existence today. Now most assets are grouped into classes that have a pre-determined number of years over which each asset are depreciated. The class grouping, not its salvage value and actual useful life, is now the basis for determining over how many years an asset will be depreciated. But, in order to qualify for MACRS depreciation, the taxpayer needs to establish 4 things with respect to the property. The asset must:
Be eligible property, i.e. tangible property not subject to amortization, or not for which an election was made to depreciate under a method based on number of years;
Have been placed in service after 1986;
Be used in a trade or business; AND
Be subject to exhaustion, OR obsolescence OR wear and tear.
It’s easy for artwork purchased by the business to pass the first two tests. The 3rd test can be assumed if the artwork is displayed in the workplace for employees and/or customers to see. The 4th test is the tough one, but the artwork only has to pass only one of the 3 “OR” criteria. It’s not likely that artwork will be exhausted, i.e. consumed in the ordinary course of business. It’s also difficult for artwork to become obsolete even if its style becomes outdated. So the taxpayer can assert that artwork is subject to wear and tear. It’s hard to think that artwork hanging on a wall or sitting in a display case is enduring wear and tear. However, any professional art restorer would affirm that all artwork, no matter how well protected, will deteriorate over time.
Taxpayers should be prepared to prove all 4 criteria if the IRS examines your tax return. Obviously, the more expensive the artwork you are trying to depreciate, the more likely an IRS agent will try to disallow the expense. ”
Very risky strategy to depreciate art.
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2nd March 2013 at 5:02 pm
The must-see numbers from Facebook’s taxes | The Point Loma Democratic Club says:
[...] Some Tax Tips for the Average Joe (theburningplatform.com) [...]
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2nd March 2013 at 7:45 pm