[Just1689]

Not an American here but this could be related to the order in which things pay tax.

If you receive 10K USD as income one month, you would pay tax on that and then be able to buy things

If your business received 10K USD it could buy all sorts of things before declaring a profit and paying tax only on the profit.

[fastball]

Sure, but you can't just classify everything as a business expense.

And regardless, that's not really a carve out for the wealthy, that's just a policy we have because we think it encourages business growth, which is generally a good thing.

[lelanthran]

> Sure, but you can't just classify everything as a business expense.

If the business is buying it, then sure you can. There's limits on this for sole proprietors as the tax authorities will argue that the businessman who bought a yacht "for the business" only ever uses it for himself.

But the rich folk, who have 20% of the company (the largest share, usually), can force the company to buy a yacht where use is limited to that single shareholder ... once again proving that the rich would pay less tax than the poor.

[llimos]

Ok, but why can't I use the same system for my income, and deduct my essentials like rent and power and water before I pay tax on the rest?

[sumtechguy]

Depends on how you structure it. It also depends on how much in assets you have (many people start with a heloc). As if the market takes a dip or long term low inflation you can end up stuck. You also have to be careful not to overleverage yourself. As you can end up borrowing to pay back another loan. It is why you see 'rich movie stare declarers bankruptcy'. It is not risk free. But with discipline you can do it. Also remember you can 'own' more than one company. Perhaps one company owns 5 houses which one of those you happen to live in...

Find yourself an accountant. They will show you how to set it up. It is also usually decently complex enough to be a pain to do in the day to day running of it (hence the accountant).

Also up above I said 'long term low inflation' can hurt? Look at what is going on and you can figure out why suddenly we have lots of it. Think about borrowing at 2-3% and inflation is 5%.

[sidlls]

That's covered under the "standard deduction" in US federal taxes. I'm not saying it's fair--that deduction doesn't really cover rent in most places--but that's the intent. Basically, you can't use the same system because the tax code is rigged in favor of the wealthy.