A corporation has the same legal rights as a person, but a person has to pay more for these rights. It's unfair imho.
Personal expenses are not.
People end up paying all taxes anyway, just sometimes one or two steps removed from the legal entity/TIN who files the returns.
2. Those expenses are in the furtherance of generating profits rather than for personal consumption are we really going to give people write offs for their Apple watches and $6 latte’s?
- I can deduct the rent for my work space. In fact, theoretically in Japanese law I can even rent an entire building and offer myself the ability to rent living space for about $150 per month, with the company eating the rest as a loss. Probably you can do something similar in other countries (although I couldn't actually do it... because in order to rent a place I need a company and in order to form a company I need an address... so... well, it didn't quite work out).
- Internet, some of my utilities, etc, etc are expenses. Some furniture as well. Some of it has to be depreciated, though, so I don't get the benefit immediately.
- I can set my salary to anything I want. If it is beneficial for the company to make a profit and for me to make peanuts, then it's fine. If the opposite is beneficial, then it's fine.
- A fair number of expenses can be deducted by having a life insurance plan for employees, etc, etc.
On the downside:
- I have to submit all my accounts using dual entry accounting. The government gets stroppy if I make a mistake because they expect me to be a corporation.
- I have to submit year end accounting. Seriously, I have no time for this and employ a wonderful tax accountant to do this for me. My tax accountant saves me money, but getting a good one is like getting a good car mechanic -- it's hit or miss and can be very expensive if you choose the wrong person.
- I have to do the payroll, calculate withholding tax, pay fees and employment taxes. I have to do this every month and if I'm late I get a really big fine. Luckily my wife does this (seriously, I would never do this without my wife doing all the heavy lifting)
- I have stupid amounts of bank fees because I have to transfer money between 3 different banks just to pay myself. We actually use a sneaker net in one phase: I literally withdraw our payroll from the ATM and deposit in another ATM just to save $20 in transfer fees. Of course, I have to document all of this so the government knows I'm not fiddling anything.
In the end, it's an absolute PITA. I don't really recommend it. I think I save a little money this way over when I was being paid salary. It's really hard to tell, though. However, if you factor in all the work that I need to do, I think I'm being paid about $2 an hour for that effort. Or I should say my wife is. If I didn't have her, it would not be worth it at all.
Couldn’t you get the building first, register as a corporation, then subsidize all following months through the corporation?
What I could do is rent a building with the corporation now and move the corporation. The problem is that you have to reincorporate the company at the new address (which would cost me about $3K). Japan is the land of bureaucracy after all! (Edit: I will likely do this if we decide to move since I'll have to pay that money anyway).
The tax break is really to accommodate companies that build a new factory and then build housing for the factory (or a house next to the factory for the owner). It's not really intended to be used the way I want to use it (to literally live in the work space).
Let's say you run a small software company, which is a high margin business. You have $1,050,000 in revenue this year, and $500,000 in expenses, so you make $550,000.
You should be taxed on the $50,000 and the $550,000, not on the $1,050,000. Otherwise, if business expenses were not deductible, low margin and capital intensive businesses would be punished severely. We would have decreased investment in the economy and everyone would suffer for it.
If individuals could deduct their expenses, it would encourage people to spend every penny they make. The mortgage interest deduction is one example where this nudge becomes apparent (albeit real estate has merit as an investment, not just consumption). We already have a low enough savings rate as it is.
Let’s say you make $100,000 a year as a school teacher in SF, and pay $7K a month for a three bedroom house for your family. That’s $84K just for housing. Food clearly uses up more than the rest.
If people and corporations were taxed the same, you could carry over the loss to a future year where your spouse cashed out some stock (or you got a job that paid a living wage).
Alternatively, we could pay everyone a fair wage, and stop subsidizing zero margin businesses that can’t afford the labor costs (which means things like gas would cost a bit more).
I’m for the latter. People have to work in these zero margin places, and their employers should figure out how to make more of a profit (and pay better), or go under.
Why should my taxes subsidize petroleum distributors, Walmart, Amazon, etc?
If the argument is to say "income is income", then "expenses are expenses" should apply too.
Edit: typo
this is exactly it. Rental costs are deducted as expenses for a corporation, but the same rental expense cannot be deducted from income. Arguably, the cost of staying alive for a person is an expense for making the income!
To make it catagorized would be too complex though - i would propose that personal income should be average-able across that person's lifetime. I.e., if i made $1000000 in one year, i should be able to spread the income from when I first started working (and paying taxes), so that my average income per year is the same number. Then you back pay all the "missing" taxes from those years, rather than suddenly jump to the $1,000,000 tax bracket and the gov't taking 45% from you in one go.
It is true that there are some tax deductions that are abused. However, the effect of encouraging investment by businesses is much more important.
>If you happen to be the owner of a corp you can also use those things to your individual benefit.
This could be considered an abuse. However, the benefit of encouraging investment by businesses far outweighs the negative of this abuse. We tend to focus our attention on a few big individuals who cheat, and this excessive focus throws off our moral intuitions. Heck, the gas station owner might have deducted the cost of buying a toolbox needed at the workplace, and then borrowed a wrench from that toolbox to go home and fix his plumbing. That would be fine with me, to the extent that all the damn tax paperwork stops being worth keeping track of.
