Imagine a company that paid out salary only from stock. The company would only pay you minimum wage or no wage at all, and the rest of the compensation would be paid out in guaranteed price stock (as in the company will always buy back the stock at a set price). To spend your compensation, you take out low interest loans from this company. Meanwhile, your stock can be reinvested (as you see fit, by default SPY or money market). Even if you get fired, you could continue to stay invested.
Voila, is tax avoidance achieved? This could even work for people earning paycheck to paycheck.
Would this work? Why or why not?
It could be win-win for both employer and employee. The employer can earn a low interest on money that otherwise have "left the door as wages". The employee can dodge taxes.
Would it be possible for normal people to take advantage of borrowing money on capital gains like rich people?
byu/subheight640 inbusiness
Posted by subheight640
3 Comments
How will you pay interest without selling your gains? You are paying tax on that.
What many rich people do is have their company/LLC pay for their 5 star dinners, First Class air travel, country club memberships, etc and then they collect a token salary. The company pays tax at the low corporate rates (or not at all after deductions from keeping their revenue down with all those expensive perks)
Not really. The problem is the IRS treats loans from companies you control or are closely tied to very differently from normal investments. If it’s structured to dodge taxes, it could be considered taxable income or even fraud. Plus, minimum wage laws, employment protections, and reporting rules would still apply. The win-win sounds good in theory, but in practice it would be heavily regulated and risky for both sides.