https://www.propublica.org/article/if-youre-getting-a-w-2-yo…?
“If You’re Getting a W-2, You’re a Sucker”
There are many differences between the rich and the rest of us, but one of the most consequential for your taxes is whether most of your income comes from wages.
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That is why elimination of preferential tax treatments for certain groups of people needs to be totally eliminated.
Tax 100% of all income received, from any/all sources, at one rate.
Then watch the wealthy start to REALLY get “the vapors”.
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I learned that 28 years ago when I quit my engineering job and retired at 38. Once you’re living off an investment portfolio, you almost have to volunteer to pay any taxes by selling something.
The dumbest thing you can do in America, tax-wise, is to work for wage & salary income.
The smartest thing is to be the beneficiary of tax-free inherited wealth with the stepped-up cost basis. Talk about a “free lunch.”
intercst
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That is why elimination of preferential tax treatments for certain groups of people needs to be totally eliminated.
I agree, but it will never happen. The narrative for the last 40 years is the “JCs” are entitled to preferential treatment, because they are “JCs”. And, as it’s legal to bribe public officials, the status quo is pretty secure because the people who benefit from the status quo are also the ones with the most loot with which to pay bribes.
Steve
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“The dumbest thing you can do in America, tax-wise, is to work for wage & salary income.”
Nonsense.
The dumbest thing you can do is depend upon the government to provide for you and your family.
Working allows you to save, develop an emergency fund and grow your savings.
Saving allows you to invest and grow your wealth.
Growing your wealth allows you to pass on an inheritance - should you wish to and should fortune
favor your endeavors.
Howie52
Work works for you.
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"The dumbest thing you can do in America, **tax-wise,** is to work for wage & salary income."
Nonsense.
The dumbest thing you can do is depend upon the government to provide for you and your family.
Working allows you to save, develop an emergency fund and grow your savings.
Saving allows you to invest and grow your wealth.
Growing your wealth allows you to pass on an inheritance - should you wish to and should fortune
favor your endeavors.
The operative word is “tax-wise.” If you want to maximize your savings and grow your wealth, avoiding W-2 income is a huge stepping stone. Tax-wise it is a mistake to exchange your life’s energy for wages. Instead, you want to work for capital gains and dividends.
If your goal is doing good in the world, by doing things like teaching school, fighting fires, or bringing clean drinking water to Africa, more power to you, IMO we need more people like you and you can have a great, fulfilling life dong those things, just keep in mind you’re getting screwed by the tax code.
Why it is good public policy to screw people who work for a living in favor of people who speculate for a living is a fair question, however.
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People have a choice to some extent on careers. People have no choice of inheriting money.
It is wrong to call honest people often making very good money suckers. Then invest in their work on top of that.
Reeks of a guilty conscious.
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It is wrong to call honest people often making very good money suckers.
No one is calling them that.
Reeks of a guilty conscious.
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Definitions
Taxable Income
Income you cannot hide
The Captain
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Tax-wise it is a mistake to exchange your life’s energy for wages. Instead, you want to work for capital gains and dividends.
Agree overall. Which jobs/work would you recommend to an 18 year old high school grad or a 22 year old college grad that provide capital gains and dividends v. wages?
Pete
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Thank you for recommending this post to our Best of feature.
Tax-wise it is a mistake to exchange your life’s energy for wages. Instead, you want to work for capital gains and dividends.
Amen to that!
Why it is good public policy to screw people who work for a living in favor of people who speculate for a living is a fair question, however.
The answer to your “fair question” is that speculators provide the seed money necessary to start and/or expand businesses which hire the W2 workers.
Short of illegal activity the W2 worker gets paid.
The employer, however, has no assurances that his/her efforts will result in a profit (income).
I’ve been a W2 wage worker and I’ve been a speculator; being a successful speculator/job creator is better.
Especially when you take part of that money and invest it in dividend paying stocks.
Desert (CVX, XOM, T, BNS, BKH, ED, ATGFF, NI, NWN, TRP, ENB, WRE, WGL, XEL, DUK, SO & KO) Dave
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Agree overall. Which jobs/work would you recommend to an 18 year old high school grad or a 22 year old college grad that provide capital gains and dividends v. wages?
Progress is not some idealized straight line ascent. One of the biggest beneficiaries of capital gains and dividends started out as a messenger boy. My own story, I spent seven years working for three American multinationals before becoming independent. It was a better education than what a university can provide. Why do you need a college degree? Because business thinks that universities are good at separating the wheat from the chaff, if you got into a good college you are supposedly a low risk candidate.
The Captain
The fellow I mentioned above has his name on colleges and concert halls and it you enjoy your public library, thank him!
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Amen to that!
How did you build your capital to get to enjoy ‘capital gains and dividends?’ Something about selling army surplus?
The Captain
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The answer to your “fair question” is that speculators provide the seed money necessary to start and/or expand businesses which hire the W2 workers.
Fair enough. But that activity does not happen when you buy stocks in the stock market. Except for the initial sale of an IPO, stock market purchases do not provide any seed money to a business. So why should stock market investors get all sorts of tax breaks from that activity?
–Peter
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The operative word is “tax-wise.” If you want to maximize your savings and grow your wealth, avoiding W-2 income is a huge stepping stone. Tax-wise it is a mistake to exchange your life’s energy for wages. Instead, you want to work for capital gains and dividends.
As luck would have it, I went through the proxy statement for Pinnacle West Capital this morning.
The breakdown of the CEO’s pay for 2021: cash salary: $1.1M, non-equity incentive $1.8M. stock awards: $4M. change in pension value and deferred compensation: $1M.
Mr Guldner knows where the tax bite is.
Steve
The employer, however, has no assurances that his/her efforts will result in a profit (income).
In Shinyland, CEO compensation can be completely divorced from corporate success, or lack thereof.
As I have the Pinnacle West proxy in hand:
At the end of 2019, the value of $100 invested in the company in 2016 was $127. The CEO’s compensation that year was $3.9M
At the end of 2020, the value of $100 invested in 16, fell from $127 a year before, to $117. The CEO’s pay grew to $6.8M
At the end of 2021, the value of that $100 investment fell again, from $117 to $108. The CEO’s compensation grew to $8.1M.
My total return on the company for the last two years has been negative, but the CEO’s compensation has more than doubled.
I’ve decided that Pinnacle is getting tossed. Problem is, I’m had it for 10 years, so, in spite of management’s recent performance, the cap gain is not insignificant, so I need to figure out how to manage that.
Steve
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Agree overall. Which jobs/work would you recommend to an 18 year old high school grad or a 22 year old college grad that provide capital gains and dividends v. wages?
Keep in mind I’m not qualified to give tax advice, but since you brought it up let’s throw some spaghetti…let’s say our enterprising young person wants to be a plumber or a CAD operator, say. They could work for a W-2 wage, or they form an S-Corp and get paid as a 1099. Presumably, you’d be paid extra as a 1099 to make up for the lost benefits. At least you ought to be. The advantage of doing that is that as a S-corp some of your income is taxed as W-2 income based on your role in the company, but some of it is paid as dividends that you get as the owner of the company. My accountant tells me a safe income number is 30th income percentile for a given industry. Right there, a whole bunch of income becomes exempt from FICA, and pretty much all you have to do is fill out some forms.
But there are other advantages too. Most people don’t have enough deductions to itemize, but as an S-Corp you can itemize on the 1120-S. For example, the trades it is common for individuals to own most of their own tools. But if you are an S-corp, the S-corp buys the tools and deducts them. Same with work clothes and such. As a business person, you need a home office. At least 40 hours a week of your cell phone plan should be deductible, along with a similar percentage of the cell phone itself, software subscriptions. Etc. W-2 workers have those same expenses, but they mostly don’t get to deduct them.
And there is more. This won’t apply to everyone, but it can be significant: The maximum amount an employee can contribute to a 401(k) is $19,500, plus whatever employer match you get. Google tells me the average employer match is 3.5%. But as the employer yourself, you can match the living sh*t out of that thing. The top theoretical amount is $58,000, and those over 50 get $6500 catch up amount on top of that. That is potentially a ton of dough you can defer.
And it gets better. With a little bit of karate, you can manage your own 401k plan. That allows you to do things like invest in real estate if you like, and otherwise gives you a lot more flexibility over your money. But the real benefit is that it unlocks the Mega Backdoor Roth. Again, some karate involved, but after you’ve maxed out your regular 401K contribution, you can make non-deductible 401K contributions which immediate get converted to Roth 401k contributions. That allows you sock away an additional $39,500 which grows tax free forever in your Roth 401k. That is one helluva deal.
Some employers do offer the MBR in their 401k plans, but most smaller employers don’t, due to the extra karate and the fact that most employees won’t save that much anyway. But if you can get your fangs in that one at a young age you might as well get a retire early tattoo.
Not all employers want 1099s, but many of them secretly do. The reason is it makes staffing easier. The 1099s are the first ones cut, but they are the first ones hired back too. And industries like software that have a history of abusing 1099 employees don’t want “1099s” instead they want to engage “companies.” Even companies with only one employee. A difference with very little distinction. They still want to hire based on the project demand. And our enterprising young person is there to fill their need, and yet receive job creator tax benefits.
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No one is calling them that.
Then the subject line should be different.
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W2 workers are not suckers.
Maybe underpaid.
How did you build your capital to get to enjoy ‘capital gains and dividends?’ Something about selling army surplus?
Ayup!
Once in business for myself:
First I paid off all recurring payments; cars, home, etc.
Then all profits went into improving/enlarging the store(s).
Once that was done I started buying stocks that paid dividends and then set it up so all dividends were automatically reinvested in their stock.
Desert (CVX, XOM, T, BNS, BKH, ED, ATGFF, NI, NWN, TRP, ENB, WRE, WGL, XEL, DUK, SO & KO) Dave
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