Hacker News Reader

Comment by random023987 | Hacker News Reader

Tax shelters are not made for people like you.

The middle class is best served by collective bargaining to increase their wages and benefits, strong consumer protections, and access to affordable health care.

Up to about your first 5-10 million (depending on where you live) you need to play by the rules. After that, you can think about hiring a tax advisor to start scamming the system. But the downmarket financial advisors that serve people with a paltry million or two are mostly focused on selling high-commission financial products.

View on HN

There are tax shelters and loopholes for upper middle class workers. The whole tIRA -> Roth IRA conversion is a trivial way to avoid the Roth IRA income contribution cap. The 401(k) system is itself a tax shelter, and is a larger portion of middle class earners' salary than it is for those with tens of millions. Need I mention HSAs which are like triply-tax protected?

Retirement savings is tax advantaged, however most people consider that a feature of the tax code, rather than a loophole. The traditional to Roth conversion will be of benefit only to those whose post-retirement income puts them in a higher tax bracket than they are currently in. Most middle-class wage earners would not be in that category unless they keep working well into retirement age.

Health Savings Accounts are highly dependent on the circumstances of the individual. Many people with employer-provided health care plans receive minimal benefit from an HSA.

That being sad, you've made you point, in that there are portions of the tax code with deductions accessible to the middle class, like home interest deductions and deductions for charitable giving.

But the, "I'm going to start 12 shell companies and park my money offshore" kind of tax dodges are not really feasible until after your first ten million.

The traditional to Roth conversion can help those who remain in the same bracket as well. This is because by spending Roth dollars one can avoid pushing one's taxable income into the next bracket. Technically, that's what you said, but this can be a significant issue even if one's expenses don't require that income, because of RMDs for tIRA but not Roth IRA. Likely to be an issue for those in the low-single millions of assets which is actually quite a few people who consistently save a large portion of income.

The OP mentioned starting their strategy when they were 25, implying they are/were a "normal" person, which is why I asked, since my vague understanding of the situation in the US matches what you describe, that you have to have gobs of money to begin with before you can really start gaming things.

It sounds like what they are doing may not be 100% audit proof. Do you want to play the shady taxes game and hope you don't get caught?

I will agree with brianwawok. Amount of BS I hear from friends "optimizing" their taxes is staggering. Be very careful about any advice you receive from such entrepreneur. Most of them either breaking laws, or breaking IRS rules, which, unless you got plenty of time and money to challenge in the court, is equivalent of laws for you (I guess until you get to these 10m+ where you can afford to fight IRS - I am not there yet, so can't comment)

Reply on news.ycombinator.com