Ethics Around Reducing Tax Liability

Rental Property Investor · Indianapolis, IN · Member since 2020 · 562 posts · 554 votes

4y

@Hank Olken I have to say, I don’t understand the dilemma. There were a few years before I got into real estate that I looked at the amount of taxes I was paying as an upper middle class family and absolutely wanted to puke.

The tax incentives are there for a reason. There is generally a shortage of housing nationwide. You are providing a service to those who can’t qualify, or don’t have the knowledge, to buy a property on their own. That’s why the government puts tax incentives in place.

So buy rental properties, and give everyone that signs a lease a copy of Rich Dad, or whatever your favorite real estate or investing book is to start them on their journey.

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Jason Merchey

Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes

4y

This is a wonderful OP. I think we live in a society where capitalism is valued, and should be rewarded - hence the tax advantages. I also think we live in a society where billionaires pay on average 21% in total tax - fed, state, local. So it can get a little wonky - after all, the capitalists get the politicians to serve their interests, right?

And to Dave's point, it is true that those who are not "poor" and not "wealthy" tend to have the hardest time tax-wise, in that they are too wealthy to qualify for various tax breaks and the like, and too poor to get their interests really taken care of by the advantageous writing of the tax laws.

I guess I'm a moderate, and that seems to make sense since I'm politically pretty progressive, and also, obviously, an investor for a living.

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Tavis Moore

New to Real Estate · Flowood MS · Member since 2021 · 25 posts · 20 votes

4y

@Hank Olken

Very caring and very thoughtful Hank.

However, in many circles, my opinion on this topic would be very very unpopular especially with my age group, and race.

But honestly, it's all about education..... since I've started on my journey in learning real estate, taxes and etc. The information has been AMAZING because I am the type of person who doesn't ask WHY but ask myself HOW instead. Those like kiyosaki and Trump TELL us they don't pay taxes, and instead of asking how. MANY PEOPLE would rather complain and ask WHY

So once I found out how they have such a low tax liability I went on the journey to learn how I can obtain it, and found it.

I've told many many many people(very low social economics status) to read the rich dad books, tax free wealth, and etc.

And I'll be totally honest..... many people looked at me like I'm a idiot and litterly say "I don't read books"

So based off experience, and A VERY famous book I read and that I believe in (not to get religious)

There's a book, chapter, and verse within it that named

Hosea (4:1)

And just to quote a small part of it

"My people are destroyed for lack of knowledge: because thou hast rejected knowledge."

Understand Hank, on this topic I'm sure I'm one of the perfect candidates to speak on this because your concern most likely has a certain group of people within your thinking process..

So Hank, don't feel guilty. For awhile I thought the same thing but I had to ask myself once again HOW does this effect the economy and my community and I found that the benefits out weight it by the TONS.

Those like Kiyosaki, makes it his business to education the poor, but the poor doesn't care about that. They focus on doing their side of the Cash flow Quardrant . Which is the E side.

Their role is to Spend money, now they could do exactly like all of us and spend it towards learning to improve their family and community situation. Or they could just spend it on things that are (in my opinion) doesn't matter like shoes, cars, and etc.

Capitalism, IS Humanitarianism, and you can't have 1 without the other.

Capitalist use things like Low income tax credits to build housing for the poor, they use incentives to create business that change the world for the better and creat jobsAmazon, netflix)

They invest in farming and energy to feed our communities.

So Hank, in my opinion, I think you should take a deeper dive. Kiyosaki is who I live and die by, and every book he explains that it's important to give back to the world as well as make alot of monew. But PLEASE don't fall into the trap of thinking the GOVT is contributing like they should.

I truly believe if they said "teachers will get paid 40k more if we paid more taxes" everyone in here wouldn't mind paying, but that's not the things they spend tax money one

Black people have been poor and treated unfairly since we came to this country and with being from those areas I understand that it's MY job to fix my communities because the Goverment hold us back more than help.

So I challenge you to get ALL the tax saving legally possible and THEN fund helping these groups get the information and I promise you will learn.

"They perish because of lack of knowledge, because they reject knowledge"

You can only lead the horse to water, but you can't make them drink it.

You cared enough to further your education and learn how. Many would rather focus on other things and ask why my friend .

So EVERYONE.......GET THOSE TAX SAVINGS.

But promise me for every dollar you get untaxed. Take 10% and give to something important. Medical research, afforable housing, homelessness, helping those get jobs not handouts, saving the environment, scholarships and etc. And I promise there is a CPA who can help you find those and make it worth your while👍🏾

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Bruce WoodruffPro Member

Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes

4y

@Hank Olken You can do what you want with your money, however foolish it may be. You sound incredibly naive and uninformed, but you will/may grow out of that. Get some skin in the game and actually work the process for a few years before you form your holier-than-thou opinions.

And don't buy into the notion that wealthy people pay little in taxes. Not true. They pay less in Income Tax because that's not how they make their money. Just like when a former President was maligned for only paying $400 in Income Tax. They didn't mention that he paid $4 million in total tax that year.

It is not your duty to pay extra in taxes. It is your duty to your family and community to pay as little tax as legally possible. That allows you to take care of those around you. The Govt will just waste/mis-spend/steal that money. If that's your goal, go for it. "headsmack'

6 Reply

Scott England

Rental Property Investor · OK · Member since 2015 · 316 posts · 216 votes

4y

@Hank Olken You probably want to go ahead and build that business first, then make your decision. Those tax incentives look less like "favors" and more like necessary write offs the more one gets involved with investment property ownership.

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Johnathon Sesi

Realtor · Rochester Hills, MI · Member since 2018 · 27 posts · 18 votes

4y

@Hank Olken

On of the biggest mind f**ks accomplished by government and the “higher ups” is that “the rich don’t pay their fair share of taxes”. That in turn makes the middle class feel as though the rich should pay more taxes. Why on earth aren’t middle class people asking to have their taxes REDUCED?!?! THAT should be the push. More taxes means more government opportunity to blow our hard earned money.

I don’t think you should have one ounce of guilt for taking advantage of the tax code. You could share your knowledge with those W2’ers and try to encourage them to take the steps needed to be their own boss.

4 Reply

Tony Kim

Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes

4y

Originally posted by @Hank Olken:

Hi all, as I've been getting more into real estate investing, it's become quite clear that the US tax code favors business owners and real estate investors rather than W2 employees or self-employed business owners. On a personal level, I'm very excited about the idea of not paying more tax than I need to and creating a financial tailwind by taking advantage of tax breaks. I'm more than willing to continue to legally take as much advantage of the tax code as I can for me and my family. I have no interest in paying more than I need to at the cost of my family's freedom from financial stress.

Having said that, in the current socio-economic climate where vast inequality and systematic disadvantages are at the forefront of the national conversation, quite frankly I'm feeling guilty about building a business that is reducing my total tax liability because I feel as though I'm taking advantage and participating in a financial system that is causing so much pain for so many.

So those are the two sides to the coin that I'm debating between. I am a capitalist because I believe it's the only system that works on a large scale (don't want to open that can of worms here) but I don't believe in completely uncontrolled and ungoverned capitalism because it allows for the powerful to retain their power forever at the cost of the many. I believe in creating checks and balances in the system to make sure that as many people as possible have similar opportunities for financial, educational, and spiritual success.

Would love to hear thoughts from others in the community who also philosophically fall somewhere between Mr. Monopoly and Karl Marx :)

Would a system like this make you feel less guilty?

Samsung heirs to pay record inheritance tax

THB, I just found this story to be quite outrageous and I don't know all the details. And on the surface, the US inheritance tax rate isn't much better...but I suspect there are many ways in the US to circumvent that tax.

I really think the answer is simple... As you earn money and build you RE empire, just be sure to donate to various charities and philanthropies. I work with local homeless shelters and actively place formerly homeless folks into my units under various programs administered by the city of LA. I don't do this to alleviate any kind of guilt... I do it because I will be helping people who need it and the financial incentives are great.

If you think the US financial system causes so much pain for so many, I really think you need to see what's going on in other countries around the world. The social safety net we have here is so vast and many people rely on it to live...but at the same time, so many people take advantage of it and use it to live a life without worry or ever having to work again. Is there any other place in the world where you can get a free cell phone, virtually free housing, a monthly stipend check, free meals, help with paying your utilities and not be evicted for two years if you decide you don't want to pay rent anymore?

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Dallas Mosier

Attorney · Boston, MA · Member since 2016 · 1 post · 3 votes

4y

There is an apt idiom that is quite applicable to taxes: "Pigs get fat. Hogs get slaughtered." So, you play aggressively with the rules in front of you, but don't obviously break them.

And, as a tax lawyer, my two favorite judicial tax quotes (both by Justice Learned Hand):

"Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes."

Helvering v. Gregory, 69 F.2d 809, 810-11 (2d Cir. 1934).

"Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant."

Commissioner v. Newman, 159 F2d 848 (1947)

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Bill F.

Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes

4y

Originally posted by @Hank Olken:

@Bill F. thank you for your thoughtful response. Can you expand further on your last paragraph I’m not quite following. What is “dipping your hands in others’ pockets”?

My last line was in response to this part of your post:

"But if everyone and especially the most powerful and rich in our society think the same way then we’re not creating an equitable system are we? It’s a collective action problem like voting or bringing a bag to the grocery store: my individual decision won’t change anything at scale but if everyone thinks the same way I do then the larger system will be worse off. So am I right in thinking that this tax situation is a common goods/collective action problem?"

By framing the issue as only something that can be accomplished if everyone behaves in the way that you think is best, then the next logical step to say 'well I don't need to act in this manner until those who really move the needle act that way' and proceed to try and change the behavior of others, since that is how the "problem" gets solved.

Never mind that this construct treats the idea of a problem as a given without ever proving one exists, but that may come from me giving your posts more of a Straussian reading than is fair.

At the end of the day, the question isn't about fairness at all. You think a problem exists and who are we to disagree with you/change your mind. If you think this issue exists, then the core question is: who will allocated the fund most effective to solve the problem as you see it? The government or you via other means?

1 Reply

Jim K.

Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes

4y

@Hank Olken

I would say that you and I have more important things to worry about than making sure the federal government has its hand deep enough in our smaller pockets.

6 Reply

John Nachtigall

Santa Rosa, CA · Member since 2017 · 325 posts · 701 votes

4y

It is an interesting question, my thoughts

Legally and ethically you are not required to pay more than the law requires. You are not "cheating" my following the laws.

Morally you would have to ask yourself if paying "more" taxes would somehow benefit those less fortunate. In fact I would argue that morally the "rich" are paying well beyond their fair share. For example, the top 20% of earners pay 80% of the tax revenue for the federal government and the bottom 50% pay nothing. Now I receive exactly the same about of services from the Federal government as someone who pays no federal tax. We both get protection by the US military, Social Security, access to welfare if we are poor and access to courts as examples. So I am paying 75k+ per year for those services and they are paying nothing. I dont begrudge it, but I certainly don't feel morally deficient.

I think what you are really asking is should the system change, and that is a question about democracy. Despite what everyone tells you, everyone is getting exactly 1 vote. The frustration with those that want to go to a system more like the Scandinavian countries (Democratic Socialism) is that they can't get the votes. They talk about people "voting against themselves" and other nonsense. The truth is that the majority of Americans, regardless of income, prefer a smaller government and a smaller tax bill. It could change anytime, but the votes don't exist.

So to answer your question, no, you are not legally, ethically, or even morally obligated to pay more taxes. And if you feel the existing system is unbalanced or unfair then simply vote, advocate, and maybe even run for office to change the laws. Nothing is stopping you other than convincing a majority you are correct.

Good Luck.

1 Reply

Jordan Woolf

Flipper/Rehabber · Huntsville, AL · Member since 2019 · 117 posts · 57 votes

4y

@Hank Olken tax breaks were created to motivate people to use them not because the government wants less money. The idea is that whatever the tax break is for, it is better for the economy than whatever tax is being paid. I.e. bringing sub par housing up to date is easier for you to do than for the government to do.

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David Smith

Member since 2018 · 39 posts · 16 votes

4y

Have you read "Rich Dad Poor Dad" yet? I think your dilemma will be history after that.

1 Reply

Bruce WoodruffPro Member

Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes

4y

Originally posted by @David Smith:

Have you read "Rich Dad Poor Dad" yet? I think your dilemma will be history after that.

I doubt he's read much of anything.....more likely just got out of college......

2 Reply

Tony Kim

Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes

4y

Originally posted by @Bruce Woodruff:

Originally posted by @David Smith:

Have you read "Rich Dad Poor Dad" yet? I think your dilemma will be history after that.

I doubt he's read much of anything.....more likely just got out of college......

Das Kapital maybe?

2 Reply

David Smith

Member since 2018 · 39 posts · 16 votes

4y

Originally posted by @Bruce Woodruff:

Originally posted by @David Smith:

Have you read "Rich Dad Poor Dad" yet? I think your dilemma will be history after that.

I doubt he's read much of anything.....more likely just got out of college......

If that's the case, red pill or blue pill?

0 Reply

Ryan KellyBusiness Member

Real Estate Broker · Austin, TX · Member since 2018 · 1k+ posts · 1k+ votes

4y

@Hank Olken the U.S. government spends far more money than it receives, creating huge debts it cannot reasonably repay. You, the real estate investor, are paying all your bills, creating housing for citizens, and making a profit in which you can spend on charitable causes. Which person would YOU rather have managing your financial "investments?"

[email protected]512-674-5478

Ryan Kelly Group - Keller Williams5110 Reviews

Website View Page

3 Reply

Tanner McGrew

Member since 2021 · 9 posts · 7 votes

4y

This goes right along with the argument of owning rentals being unethical in a general sense. I have grappled with that a bit in my approach to real estate. Someone broke down all of the jobs that a real estate transaction creates, and the amount of money that is moved through that. Kind of off topic, but sort of related. I feel your pain a bit!

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Jonathan R McLaughlin

Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes

4y

@Hank Olken maybe I missed it, but nowhere here in many responses do I see “campaign for and vote for a tax system you feel is equitable”

And if you are looking for injustice in the tax code I would point you to the failure to adequately tax accumulated capital, the distribution side and the grotesque reduction in estate taxes over the years, carried interest and other gems. Oh and then caps in social security income calculations…

Opinion: our current system advantages large streams and stores of capital much more than it favors your average person who does real estate. Yes

We are like bacteria accidentally benefiting from dropped crumbs: VOTE and in the meantime follow learned hand and the law

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Bruce WoodruffPro Member

Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes

4y

Originally posted by @Tanner McGrew:

This goes right along with the argument of owning rentals being unethical in a general sense.

Never heard that.....once again, college I'm guessing? What is the matter with you guys...?

1 Reply

Joe SplitrockPro Member

Moderator

Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

4y

@Hank Olken it is part of the national conversation because politicians use the topic to divide people. Creating division means people take sides and sadly it helps them get elected. The media lacks understanding of business and taxes, so they are complacent in advancing the narrative. I sometimes think many investors don't even understand tax law and the reason behind tax deductions. It has nothing do due with enriching one group over another.

Tax deductions are business expenses. Repairs, taxes, cell phone, car mileage, insurance are expenses to support my business. Why shouldn't I be able to deduct these expenses from income, before calculating taxes? If a business was unable to deduct expenses, then one of two things would happen:

1. A business would avoid expenses. For a rental, that means delaying repairs and improvements, which means less work for construction workers. The business may use old cars or equipment longer, which means less business for car companies and machine manufacturers and less jobs for their employees. Simply put, discouraging business spending hurts the economy. When the government offers "100% bonus depreciation" this encourages business owners to spend money. That flows to other businesses and drives need for employees. Many tax benefits are specifically designed to stimulate business growth.

2. A business would increase prices, which is rent in this case. If a business tax burden increases, that expense is passed along to customers (tenants in this case). Nobody operates a business to lose money. Not only is it pointless, but it also is not sustainable. When a business is struck by rising costs, they are forced to rise prices. Taxing landlords higher is simply pushing a tax on renters. Since the poorest people in American are mostly renters, you would actually be hurting the poor much more than hurting a business if you raised taxes.

The problem is that people want equality of outcome, not equality of opportunity. That is basically saying it is not good enough to pay for someone's college. You need to guarantee them A's and guarantee them a good job. Arguably the entire act of "giving" things to people instead of making them "earn" things is dangerous. If you earn something, you value it more and you learn a skill. Someone once said if you took all the money in the world and evenly distributed it to every human, within a few years the money would work itself back from those who were poor to those who were rich. Don't take that statement literally, but rather understand the key point. Money is a skill, not an object. The ability to earn money and retain wealth is learned. In American we try to solve poverty by giving people money, not giving them skills to create wealth.

If you want to make a difference, give to charity. Money is fine, but time is even more valuable. Become a mentor and you can create generational wealth by teaching the skills necessary to manage money.

6 Reply

Randall Davis

Flipper/Rehabber · Conroe, TX · Member since 2018 · 13 posts · 1 vote

4y

@Hank Olken

What tax code book are you reading that shows favor to businesses and investors? I would love to pay my CPA to do a simple 1040. Even with all the deductions I still pay in more than a simple w-2 employee or when I was self-employed.

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Kyle McCorkel

Rental Property Investor · Hummelstown, PA · Member since 2015 · 638 posts · 653 votes

4y

Who do you think will put that money to better, more efficient use - you, or the government?

I keep tens of thousands legally, that the government would have otherwise STOLEN, and I sleep like a baby at night

4 Reply

Ken Boone

Investor · Greenville, SC · Member since 2015 · 1k+ posts · 1k+ votes

4y

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Account Closed

Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes

4y

The tax code (and all the rest of the laws) are written by the rich for the benefit of the rich. Especially after Reagan the government gave up even the pretense of caring about the people. So how to counter that? I dont think paying more taxes helps.It just gets fed to large corporations and billionaires through hidden subsidies or blown on useless foreign wars and military expenditures with a tiny fraction going to things people actually need. Political action and voting might but the system is very corrupt and entrenched. Revolution may be a step too far :-). So I dont know.

As others have said, you can make your money by saving on taxes but nothing stops you from using that money in any way you feel is good.

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Ethics Around Reducing Tax Liability

Ethics Around Reducing Tax Liability

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