Amouranth recently bought a gas station to avoid paying part of its income tax. But it turns out to have been a financial blunder. While she was confident enough in her decision to go buy a second gas station, the banner may well be at a stalemate when it files its next statement.
“Here’s why I bought a gas station,” she says. “It cost me $ 4 million or – $ 110,000 depending on how you look at it. Yes, that’s a negative sign. I got paid $ 110,000 and got a free gas station. And me or you can do it over and over and over again.
Amouranth ran the numbers. “Let’s start,” she said. “Listed for $ 4,000,000. I invest $ 1,000,000 and borrow the rest. The banner estimated the cost of depreciation at $ 3 million before calculating its tax liability. “$ 3,000,000 x 0.37 (my marginal tax rate) = $ 1,110,000. So for 2021, I will owe $ 1,110,000 less in income tax. Remember I invested $ 1,000,000 to buy this gas station. Now I owe $ 1,110,000 less in taxes for the calendar year. “
The problem is, none of this actually holds water. Amouranth seems to have fallen into the trap of amalgamating active and passive income.
Jayson Thornton points out in a video by Spencer Cornelia that “if we’re talking about a 37% marginal tax rate, that’s his personal tax rate. This is not a corporate tax rate because if it was a corporation you would be limited to the 21% tax rate. The financial planner goes on to say that “if we are talking about her personal tax rate, it means that it is a passive investment for her.” The problem in this particular case would be that “you’re limited to deducting a passive investment against passive income, so she probably wouldn’t be able to deduct that passive loss from her ordinary income.”
This is where depreciation comes in. Thornton explains that “Depreciation takes the full cost of an asset purchased by a business and slowly recovers it by taking a small deduction each year over the life of that asset.” The best example would be the wear and tear of a building. Businesses can claim a maintenance deduction that offsets the amount of rent received. Assuming the two are equal, the business would not have to pay tax.
Amouranth is not a business, however. The streamer has both active and passive income. The first comes from his work in the entertainment industry and the second comes from his properties. “It’s not an active commercial enterprise for her,” says Thornton. “It’s not something she’s going to handle.” The result is that it can only “deduct these passive losses from the passive gains.” Cornelia points out that she “tries to offset personal income with business losses and these two are not combined”. He goes on to say that “she would not be able to offset her personal income with the passive losses from depreciating real estate”.
The bottom line is that Amouranth seems to have made a big mistake when she bought these gas stations. There might be details that weren’t revealed, but the streamer is likely to end up paying her taxes like everyone else.
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