How to defer US taxes

Business “Reinvestment” and IRS Risk

• Many commenters warn that you cannot just “reinvest all revenue” to show zero profit.
• Capital expenditures are depreciated over time, not fully expensed; you can’t freely reclassify profit as reinvestment.
• If a business shows losses or no meaningful profit for years, IRS may treat it as a hobby, disallowing deductions.
• Rental real estate is a partial exception: decades of paper losses via depreciation are common and accepted.
• Several emphasize: consult a competent accountant; misuse of “expense everything” quickly turns into tax fraud.

Depreciation, Real Estate, and Recapture

• Depreciation lowers taxable income now, but can be “recaptured” on sale, sometimes causing tax even when selling below purchase price.
• Real estate rules are complex: straight‑line schedules, cost segregation, Sections 1245/1250, 1031 exchanges.
• Some landlords feel “trapped” because exiting can trigger large tax bills; others say this is well‑known and part of the trade.

Why Deferral Matters: Step-Up and “Buy, Borrow, Die”

• Deferring taxes acts like an interest‑free loan from the government; you invest the untaxed money.
• U.S. “step‑up in basis” at death can erase capital gains for heirs, enabling “buy, borrow, die”:
  • Buy appreciating assets,
  • Borrow against them for living expenses (loans aren’t income),
  • Die, wiping out unrealized gains via step‑up; estate sells to pay loans.
• Some argue this is mainly for the ultra‑wealthy with bespoke low‑interest, asset‑backed loans, though similar mechanics exist at smaller scales.

Counterexamples and International Comparisons

• Critics note that in Canada death triggers a deemed disposition; capital gains are taxed in the estate instead of via inheritance tax.
• Debate over which system is “fairer,” especially regarding generational wealth and family homes/farms.
• Some suggest taxing gains when realized (sale or borrowing against increased value) and eliminating step‑up.

Ethics and Politics of Tax Minimization

• Some commenters see aggressive deferral as socially harmful and advocate “just pay your taxes.”
• Others argue governments misuse funds (wars, cuts to social programs) and morally justify minimizing taxes within the law.
• There is disagreement over how much tax money actually funds social goods vs. military or “waste.”

IRS Enforcement, Filing Behavior, and Penalties

• A few people see these strategies as audit magnets; others say they’re standard practice if done correctly.
• Some report people simply not filing and waiting for IRS bills; others call this risky and suboptimal versus using a tax professional.
• IRS letters are described as bureaucratic rather than “angry,” but experiences vary; resolving errors can be stressful.
• Tax penalties are likened to a high‑interest loan (e.g., ~7%+), not “cheap financing.”