[quote]Varqanir wrote:
rainjack wrote:
But for farmers and self-employed, it is 15.3% right off the top. So - even if a farmer is in the 15% bracket - he is paying 30% of his profit to the government.
Question for you, RJ.
How difficult would it be for these farmers and self-employed people to just incorporate, reinvest their profits and draw a paltry salary while driving the “company car”, living in “company housing”, eating most of their meals during deductible “business meetings” and declaring most of their other expenditures as “business expenses?”
Surely there is a way to do this without breaking any laws?[/quote]
For farmers that live on the farm - deducting living expenses is not a difficult thing to do. The only problem is that if they hire an employee to help out - that employee is entitled to the same rights and considerations as the owner/employee.
You would wind up paying out more in food, cars and living expenses than you would be saving in taxes - especially if you hire a farm hand with a couple of kids. Single males are cheaper, but they are temporary help at best.
If the farmer lives in town - that same treatment would not withstand an audit.
I recommend incorporation to just about all of my farmer/business owner clients. But the great State of Texas has found a way to capitalize on incorporation, and they tax net income at about 4.5%. This is cheaper than the SE tax, but it will get worse.
And anytime you make a move to avoid, or reduce your tax burden - said move becomes a red flag for an audit. I have clients that, while they will bitch all day long about their tax bill, will do just about anything to avoid an audit.
So it’s really a balancing act to try and combine the lesser of 3-4 evils to come up with a situation that is less punitive than any one of the choices alone.