Personal experience of a businessman: how much taxes do I pay in the USA and Russia
Alexey Kudimov is the head of Direct Line Digital. He is engaged in website development and SEO promotion. He has experience of doing business both in Russia and in the USA and decided to compare the level of taxation. What came of it, said the publication VC.RU.
“When I moved to the USA, I had an imposed thought that taxes are very high here. I don’t even remember where this myth came from, ”notes Alexey.
There may be several reasons for this attitude, in part it is based on films, where the heroes very often complain about the complicated tax system and unaffordable payments. It can also be connected with the Russian media, where taxes in the United States are described as almost the most important evil in the country, which does not give life to ordinary people. But, as it turned out, reality is much different from media and films.
In Russia, all citizens pay 13% of their personal income, although for those who live outside Russia for more than six months a year, the rate rises to 30%.
“I believe that the payment of 13% of their income by all categories of citizens of the country is an extremely unfair decision, the American taxation system in this regard is closer to me, although it is far from ideal,” writes Alexey. - In the US, the system is so complicated that accountants in companies do not even try to calculate the taxes they have to pay for employees. For this there are Payroll Companies, which are outsourcing all calculations. "
Companies send a detailed report with employee data twice a month. The company calculates all taxes, takes money from the account and sends salaries to employees, and taxes to the state.
In addition, you also need to pay Social Security and Medicare taxes (FICA).
- Federal Tax - 6,57% - $ 3
- FICA - 7,65% - $ 4
- State Tax - 0% - $ 0
- Local tax - 0% - $ 0
The final tax rate turns out to be about 14,21%, which is not significantly higher than the 13% that Russians pay.
“In addition to the federal tax, there may be additional state and city taxes. In Austin, Texas, where I now live, there is no personal payroll tax, but this is offset by a high real estate tax. - In Denver, Colorado, I had a state tax. When I moved to Austin, the amount I received after all taxes grew by several hundred dollars every month. It is very important that you can deduct your charity costs, mortgage interest, medical costs, and relocation costs from taxes. But there are many different nuances, so I never bothered and did not subtract anything. "
Also, in the US, money that you decide to put aside in a retirement account is tax-free. But when you reach retirement age, you have to pay 6% of the total to receive the accumulated money, but this is much lower than the payroll tax.
“I really like this system“ People with low incomes pay less taxes ”. If you are a Google programmer in Austin then. it is necessary to pay much more taxes, although it is still quite acceptable - 20%, ”the author writes.
There are many personal tax calculators online. You just need to enter your income, city, state, marital status, and so on.
When you are hired, you fill out a W-4 form that allows you to take tax cuts based on your household size. The tax is influenced not only by the presence of children, but also by all dependents. For example, if your wife does not work or has a lower salary, then you will pay less taxes.
And if you live alone, then you will have to pay much more taxes than a person with the same salary, but who has a wife or husband. In general, every person who depends on your income cuts taxes by about 2-4%.
“Earlier, a personal exemption of $ 4100 was also deducted from the tax base (it depends on the number of children: one child - $ 4100 deduction, two children - $ 4100 * 2). This deduction has been canceled since 2018, ”the author writes.
Many Americans pay personal accountants to manage their finances, including tax refunds.
To correctly compare the taxation system in Russia and the United States, you need to compare different forms of ownership and their differences.
“We have two different companies in the USA and Russia, affiliated through the owner. In Russia it is LLC, and in the USA it is C-Corp. LLC is a limited liability company, where the owners of the company are not liable with their personal property for the debts of the company, and the profit tax is 20%, - says Alexey. “The key tax for the IT industry is insurance payments, that is, payroll tax, since up to 90% of all company costs are payroll costs, that is, this is a very significant burden on companies.”
“Standard insurance payments from wages in Russia are 30% (22% - pension, 5,1% - medical, 2,9% - social), but for the IT industry there is an opportunity to pay 14% at a reduced rate, which we and do. To qualify for this discount, you need to have 90% of your IT revenue. The privilege is valid only until 2023, if it is not extended, ”the author adds.
C-corp is a form of ownership that is automatically issued when a corporation is registered. C-corp has a fixed income tax rate of 21%, which was also introduced by the administration of US President Donald Trump.
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In addition, the state and city in which the company is registered will also take a percentage of the proceeds. For example, in Philadelphia the tax is 1,4% and is taken only from those companies that are registered in this city. But insurance payments per employee are extremely lower and amount to 10,6% per person.
“It should be noted that our company does not pay Sales Tax, as we sell services. If a company sells products, then their taxes are significantly different. For example, in Texas, they have to add 6,25% for each sale to the original price of the product. This is their analogue of VAT.
Only it is never written on the price tag, and as a result, at the checkout, the price difference can be significant, especially in states such as California, where the state tax with the city tax can reach 15%, - notes Alexey. - If a company sells in different states, it must register and pay taxes completely differently. It's okay when sales only take place in two or three states, but if our salespeople start calling or writing to ten different states, then we will have to look for completely different rules ten times and pay according to them. "
“To calculate taxes, let's take an ordinary IT company that spends 70% of its income on employees, with a 20% profitability. Then we get the following numbers.
- C-corp - 10,85% - $ 108
- LLC - 25% - $ 250
- LLC (discount for IT) - 13,80% - $ 138
As a result, the tax burden in Russia is extremely higher, without an IT discount, the difference is almost 2,5 times.
Relationship to taxes in the United States
Of course, no country likes to pay taxes. In the United States, people often get upset when their payments decrease, but Alexey says that he got the impression that this frustration is more of a false one, since you can track where the money is going at any time.
“In the US, when you go out, you see all the money you pay every month around you, so the slight disappointment from taxes is dulled. Or, for example, the quality of education at the school your child goes to directly depends on the amount of tax paid. Therefore, many pay taxes with pride, because they see what they are going for, - says Alexey. - This situation is very different from what I'm used to in Russia. In our country, if you are a law-abiding taxpayer, then in the eyes of the majority you look like an idiot. I think the reason is not even that taxes are very high, but how they are spent, because this is the main problem. "
The conclusions from this whole situation are very interesting.
“It turns out that all my prejudices were wrong, and working here, you will pay the same taxes as in Russia. If you have a family, children and a mortgage, then even a smaller amount than in Russia. You will pay marginally more only if you become a well-to-do class, which is generally more fair, ”the businessman writes. - It turns out that doing business in the United States is much more profitable than in Russia. Salaries in envelopes appeared for a reason, but because our social taxes are heavily raised, provided that for this money we receive social services of a catastrophically low quality. "
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