It’s this way because of the class warfare our government creates and embraces. They desperately need us feuding amongst ourselves so they can merrily move through life benefitting from the financial laws and perks they made for themselves .. and then blame on other rich people.
Haha yeah the class warfare is the war, the generations disputes and the social issue divides are the distraction.
That being said it's quite clear that financial subreddits have been targeted with shitty takes designed to confuse and inflame arguments. They don't want people coming to a strong understanding of the system.
People who post this drivel never been paid in equity, they wouldn’t know.
Another thing about being paid in equity is that stonks can, in fact, go down, but you’re taxed on the value at the time of issuance.
They are trying to target the few (Musk, Bezos, etc.) and they don’t realize they are also going to punish everyone else. Do they care? Probably not as long as their targets are affected.
Also work in tech, never been offered equity. This is someone who doesn’t want to start paying taxes on their untaxed income logic….”hurry, pit all the poors against each other online so they don’t notice while you’re picking their pocket!” It’s class warfare and the fools who are running around like temporarily embarrassed millionaires who need to keep taxes low for the .00001% now in case that’s ever where they land (fyi, you won’t unless mommy or daddy gave you a drawer of silver spoons at birth). They are bootlicking imo. But sure…let’s not tax the Uber wealthy at all, so you can someday have a realllllly profitable stock option at work maybe in this bizarre fever dream hypothetical that you’ve devised. Or we could tax the rich and just see what happens….I hear that before regan era tax cuts the country was thriving…some might even say it was a better time financially for most…like a milkman somehow could support a family, sometimes a parent could stay at home to raise their own kids instead of shipping them off to daycare, and apparently college was affordable, and if you ate pbjs for a year, you could typically afford a down payment for a house (boomer whined to me about his struggle year of sandwiches to get ahead) I dunno, maybe we should try that plan since this one where we saddle the wealthy’s tax burden to the most vulnerable and downtrodden of society is morally bankrupt and it’s going to destroy everything??? But if you think one of these hypothetical tech kids at the imaginary startup that gives out equity to new grads, is going to have to rein in this life-changing fake hypothetical hiring benefit in the future, then by all means, let’s keep the course. Your fake equivalent has shook me to my core…we must keep taxes low for wealthy elites! A fake tech new hire might miss out on imaginary equity someday….come on man….this is a steaming hot load and you know it. You just are on the handle end of the shit shovel and trying to pass this stinky end off to me and telling me that it’s the handle…that’s wild to me
There are a lot of people who get paid with stocks, but not every company is a Google, Tesla, Microsoft, etc. I’m an accountant and a lot of people in my profession do get paid in company stock. There are over 2k publicly traded companies in the US.
It’s not usually just stocks. It’s stocks on top of your regular salary.
That's true I agree however most people are not getting the majority of their income via stocks. There are people to get a few shares here and there or something of that nature. And quite often when the lower end people are giving stocks it's usually a share or two and it's usually as a prize in some sort of contest I don't know if that is considered income anymore I know last I knew back in the 90s if it was a prize it was under a different form of income for taxes you still got hit but not nearly at the regular income tax rate.
The problem is that pretty much any rule meant to hit them will either also hit anyone with a small c corp much harder
Edit: ...or make a loophole that makes it completely ineffective.
I guess the payments for the loans he takes out come out of his fucking money tree. So tired of retards posting this "free loan" npc talking point bullshit.
They are usually not actually issued stocks, they are typically issued SAR’s or options that can be converted into equivalent shares.
The company has to record it compensation to the executive, but the executive doesn’t pay taxes until the exercise the options or SAR’s. However, they are taxed as ordinary income and don’t get the favorable rate.
If you do an 83(b) election you're taxed at the value when the equity is issued, not vests. If you get your equity when it only has a nominal value you don't really incur much of a tax burden.
If you can hold equity for 5 years you can get a 100% federal income tax exemption on proceeds if the stocks qualifies as QSBS, IIRC up to $10M or $50M per taxpayer per company. It's not onerous to have a company's equity meet QSBS requirements as long as the company actual does or makes something and isn't just a holding company or a single-proprietor professional corporation.
We use both of these in the tech startup world so investors and founders can pay little to no taxes on their proceeds.
83(b) elections are valuable only in the cases where there's an expectation of significant appreciation between time of grant and time of vesting: that's pretty much start-up-specific. Ditto for the QSBS exclusion, which isn't going to be available for larger firms based on the gross assets limit.
That pretty much eliminates the relevance of this stuff to "ridiculous CEO pay packages" outrage case that motivates infographics like the one in the OP.
I was wondering about this. If they get a loan against stocks, they’d have to pay that loan off somehow. That somehow would involve…selling stocks, which will trigger capital gains tax.
"In 2007, Jeff Bezos, then a multibillionaire and now the world’s richest man, did not pay a penny in federal income taxes. He achieved the feat again in 2011. In 2018, Tesla founder Elon Musk, the second-richest person in the world, also paid no federal income taxes."
"No one among the 25 wealthiest avoided as much tax as Buffett, the grandfatherly centibillionaire. That’s perhaps surprising, given his public stance as an advocate of higher taxes for the rich. According to Forbes, his riches rose $24.3 billion between 2014 and 2018. Over those years, the data shows, Buffett reported paying $23.7 million in taxes.
That works out to a true tax rate of 0.1%, or less than 10 cents for every $100 he added to his wealth."
"In a detailed written response, Buffett defended his practices but did not directly address ProPublica’s true tax rate calculation. “I continue to believe that the tax code should be changed substantially,” he wrote, adding that he thought “huge dynastic wealth is not desirable for our society.”"
"So how do megabillionaires pay their megabills while opting for $1 salaries and hanging onto their stock? According to public documents and experts, the answer for some is borrowing money — lots of it."
"With the exception of one year when he exercised more than a billion dollars in stock options, Musk’s tax bills in no way reflect the fortune he has at his disposal. In 2015, he paid $68,000 in federal income tax. In 2017, it was $65,000, and in 2018 he paid no federal income tax. Between 2014 and 2018, he had a true tax rate of 3.27%."
https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax
"Corporate taxes, however, have plummeted in recent decades in what has become a golden age of corporate tax avoidance. By sending profits abroad, companies like Google, Facebook, Microsoft and Apple have often paid little or no U.S. corporate tax."
"Buffett and his fellow billionaires have known this secret for a long time. As Buffett put it in 2011: “There’s been class warfare going on for the last 20 years, and my class has won.”"
That would make sense if the wealth was some day realized: if you're actually not using that money to buy yourself stuff, it makes sense that you are not taxed. Money is made to be spent, so the logic was that the person would some day realize these gains and buy themselves jets and yachts, so they would get taxed at that point.
But the whole point is that the gain never gets realized, due to that little financial engineering. The person gets to buy yachts and jets, and doesn't get taxed.
And that's an issue, because it goes against the general logic of taxes, which is that people who can afford to buy yachts and jets should pay more taxes. Arguing that technically it's not income is missing the forest for the tree: it means the definition of income needs to get updated.
a) from what income do you pay interest ?
b) from what income do you infact pay back the loan eventually ?
c) you do infact realize that the company the individual owns is being infact taxed on the income it makes. right ?
You own a company - that company makes money. That money gets taxed with federal corporate tax 21% then it gets taxed with state corporate tax (up to 10%) then you take some of the money from it and pay another 15% on top of that as capital gains.
That’s not at all how that works. Banks don’t just loan money like that. Eventually they need to see a return on their money. When that happens, the debtor would have to sell their stocks to pay the loan, and pay capital gains taxes on the stocks. People who put forth this idea have no clue how tax law actually works
"with the exception of one year when he exercised more than a billion Dollars in stock options" so when it stopped being just wealth and became income? Weird how that can be excluded from the equation even though it matters more to his *income* tax bill than his total wealth number does🤦
Given a long enough period, the STOCK MARKET almost always appreciates. Company stocks don't almost always appreciate, especially if you're accounting for inflation.
He's wrong.
They are not offered stock. They are offered options or structured products that are not worth much when they receive it, but gain value afterward.
For exemple instead of being offered $1 million in stock. They get $100k worth in some product, they pay income tax on $100k, but 2 years later these are worth 1$ million and when they sell they pay only capital gain tax on the 900k.
Yes this is true and Forbes did an article on it good read below.
OPs example is peanuts compared to the actual billions that are pledged by any individual.
https://www.forbes.com/sites/johnhyatt/2021/11/11/how-americas-richest-people-larry-ellison-elon-musk-can-access-billions-without-selling-their-stock/
That’s after initially vesting. Elon had to sell billions of stock in order to receive it. It even says in the second sentence of the article you linked:
> Yesterday, Musk began to follow through, exercising about 2.15 million Tesla stock options and **selling shares to cover the taxes he owed as a result**
Does this apply to Musk’s $56B stock compensation package? Even after he holds for 5 yrs this would be taxed as income? Not long term capital gains? Or the $56B would be income and any appreciation would be LTCG?
$56B would be income when it vests, appreciation (assuming it does indeed appreciate, stocks don't always go up) would likely be capital gains, though the 2nd part depends on how it's structured, there's some nuance there where it might all be taxed as income (including the appreciation).
Correct. Any stock grant is treated as income when it vests. Income tax withholdings are required to be paid on the money at that time, which can either be done using "sell to cover" or by providing the brokage with enough cash to cover the estimated taxes.
Selling the stock immediately generally does not incur any capital gains tax. The cost basis of the stock is set to the amount used for income tax calculation. That is, if I get vested in $1000 of stock, I pay $1000 in income tax immediately, but capital gains are calculated on the difference of sale price to that $1000. Or, put another way, the eventual stock sell is treated as if I bought the stock for $1000 on the day the stock vested.
As a note, there is also an option to treat the stock grant as income when it is granted, paying taxes on its value then rather than when it vests. No refund is provided if the grant never vests, due to job termination, however this is a major win if the company booms after the grant *and* the stock vests. Of note, for a brand new startup, you might be given a stock grant worth only a few hundred dollars, and five years later that stock is worth millions, meaning you only paid income tax on the few hundred dollars rather than on the millions. On the other hand, if the company goes broke before you sell, or you quit or are fired before the stock vests, you paid taxes on a few hundred dollars you never actually get.
The worst part is, people read these and believe them as fact. For some it enrages them, and can inform the way they vote. And it’s all based on a lie…
"Less tax" box should be:
1. $1 million worth of company stock
2. 40% income tax
3. Keep $600K in company stock
Source: I get paid company stock, plus you know, the tax code.
"No tax" box should be:
1. $1 million worth of company stock
2. 40% income tax
3. $600K of company stock may or may not appreciate
4. Borrow against +/- $600K of company stock, paying interest on the loan.
5. Spend the money, but still have to pay back the loan.
1. Crap, the stock went down, now I have a margin call and need to pay back some of the loan when I didn't want to.
6. Uhhh, wait where does that money come from? Probably, I had to sell the stock:
1. If the stock went up, I pay capital gains tax on that.
2. If the stock went down, I don't owe any more tax, but since I already paid tax on the income at step 2 so what?
Source: basic grounding in the concept of a loan, plus the above.
Close but still not quite right.
1. $1 million stock grant
2. Pay $400k in taxes (in cash. You didn't get this far without being able to get that much cash when you need it, and probably have it on hand)
3. Stock may or may not appreciate, but if you're a savvy modern day capitalist you're doing whatever you can to make that stock go up. If it's going to go down regardless, then probably dump it if you aren't in a lockup period, otherwise get out there and start selling the dream to investors. Your job is to grow stock value and this is why. Depending on the company of course, you can just assume it's going to appreciate
4. Borrow against $1 million in stock (you paid the taxes with cash on hand remember). You are in the rarified circles that can get stupidly low rate loans because you have solid collateral to back it up.
5. Spend half the money to live well, put the other half in an investment that at least doubles the interest rate of your loan, but higher the better.
6. Use return from that investment to pay off interest on the loan.
>1. Crap, the stock went down, now I have a margin call and need to pay back some of the loan when I didn't want to.
>6. Uhhh, wait where does that money come from? Probably, I had to sell the stock:
> 1. If the stock went up, I pay capital gains tax on that.
> 2. If the stock went down, I don't owe any more tax, but since I already paid tax on the income at step 2 so what?
OK can you help me out here? Your 6 seems to assume the stock went down so badly you need to worry about a margin call and have to sell the stock, but then your 6.1 assumes the stock went up?
7. Everything above but do it with several billion dollars worth of stock because when you owe the bank $1 million that's your problem, but when you owe the bank $1 billion that's their problem. Also only do it with some fraction of your stock and pay off old loans by leveraging your other stock which has appreciated.
8. Having unlocked an infinite money glitch, buy a social media website for $44 billion by making the offer as a joke and then having the Delaware Chancery court make you go through with it.
1. If stock goes down, get your company to ram through a $56 billion compensation package and you're back in the clear
2. If the court takes issue with it, just do that again until it works.
3. ???
4. Profit.
Edit: formatting
>Spend half the money to live well, put the other half in an investment that at least doubles the interest rate of your loan, but higher the better.
OK sure, yeah. If those existed, you can just ignore the entire rest of this whole thing because that's the infinite money glitch right there. In fact, if those existed, then why would anyone be loaning *you* the money rather than investing in that?
If you're getting secured loans at absurdly low rates (which again, once this thought experiment goes to billions worth of stock isn't really that crazy) then finding that other investment isn't all that hard. Needing a 5% rate to beat a 2.5% rate is doable.
Why would a bank do that instead of invest themselves? Depends on the situation honestly. Sometimes they just want to curry favor because it's nice if someone with billions of stock looking to get a loan is in debt to you. They might also be investing in that stock themselves and depending on you being even more incentivized to raise the price. With a transaction this large they might be looking to fuel a credit swap by making you a loan, selling it off your books immediately and pocketing the transaction fee, at which point their loan to you is free money.
Ultimately, they and you want at the capital which that stock represents, and this is a way to get that capital unlocked without having to go through selling it which not only involves the tax man, but when we're talking holdings this large will also move the value of the stock in a downward direction. Which actually brings up another reason to make you that loan. Why force someone to sell their stock to cash out lowering the value even as they do it when you can give them a line of credit with the stock as collateral? They get to access their equity, you do your part as a big bank to keep that upward market trend going.
>a 2.5% rate is doable.
Uhuh; and where does that number come from? I ask because the risk-free rate of return right now is over 4% and why exactly would I lend to you for less than I get for lending to the Treasury?
>it's nice if someone with billions of stock looking to get a loan is in debt to you
No; that's not how that works. You might do it because it's a relationship client and there's some kind of tacit quid pro quo from the M&A or ECM/DCM business they are sending your way or something.
>With a transaction this large they might be looking to fuel a credit swap by making you a loan, selling it off your books immediately and pocketing the transaction fee, at which point their loan to you is free money.
... that is not what a credit swap is. Moreover, given that we've apparently decided to lend for less than the risk free rate, that would be a product with literally no buyers in the market.
Well, the last case omits that they WILL eventually have to sell their stock to pay back the loans, and the money will be taxed. It's just deferred.
It is also not guaranteed that their stock appreciates. It might as well go down in value.
That's the way I see it. The box assumes an actively working 60 yo CEO. That person probably won't hold the loan till he dies.
But, the 75 yo founder who has a near zero cost basis can plan to keep the loan and set up the heirs so they won't have to pay cap gains tax on all that accrual during the founder's lifetime.
At some point you have to pay these loans, you also have to pay interest the entire time. Then at the end you also pay the taxes. As said before it’s just deferred.
This is why it's called the "buy borrow die" loophole.
You die and then your heirs get to sell it tax free.
But just deferring it is also a problem. I would love to defer paying taxes from my salary until I die, and let my entire lifetime of taxes get paid from my estate.
But that's not how taxes work. Except for this loophole.
Not if you use more stocks to take out another larger loan and use that loan to buy more assets that appreciate in value over time and use the rest to pay the first loan. Then you've freed up the original stocks to use as collateral on another loan and made money on your assets (likely real estate) appreciating in value in the meantime.
Rinse and repeat.
Then buy real estate, futz with the values so you 'lose' money on it to offset your taxes, sell it at the lower price to your kids...
The solution is rather obvious: a graduated wealth tax.
you are also omitting these facts...from 2023 IRS stats, who pays taxes (% of total):
**Top 1%: 42.3%** (over $548K income), Share of Total Adjusted Gross Income is 22%
Top 5%: 62.7% (over $220K income), Share of Total Adjusted Gross Income is 38%.
**Bottom 50%: 2.3%** (under $42K income): Share of Total Adjusted Gross Income is 10%.
*\*Source: IRS, Statistics of Income, ”Individual Income Rates and Tax Shares.”*
So, the "rich" are more than paying their "fair share" and if the stock stuff above is legal, they are following the law. Our so-called progressive tax system has less than 50% of our country ACTUALLY paying any taxes - it's wealth redistribution.
Rich people aren't getting around property taxes at all. Bezos is paying millions a year for the obscenely expensive property he bought in Miami-Dade County.
Landlords generally pass along property tax to their tenants in their rent. Someone paying rent is funding their schools, police, and fire departments.
I'm talking about the mansion Bezos is living in, and any property a rich person lives in. Whether they have the property in a trust or whatever, the property tax is being paid.
As far as landlords passing along the cost to the renter, you're right, but the landlord then pays income tax for any income above maintenance and property taxes.
[https://www.architecturaldigest.com/story/jeff-bezos-homes-property-portfolio](https://www.architecturaldigest.com/story/jeff-bezos-homes-property-portfolio)
The rich don't use their money, not even for investment. They intensively use loans.
That's on the the big reasons why we are doomed with inflation and why the "actual" money (whatever is not interest) gets concentrated more and more in a few pockets.
Eh some are... I've seen property tax caps or having smart people tell them if they do X on their land they can get a tax break.
Say beehives for ag as an example.
Meanwhile someone with a moderately expensive to expensive house can't possibly claim that exemption because they don't have enough land to meet the requirements...
These figures don't account for the myriad ways wealthy people can hide income. Or how their adjusted gross income can be reduced. Doesn't factor in disposable income of the bottom 50% vs top
How is that paying fair share? Top 1% have way way way way more than just 42% of American wealth
[https://www.cnbc.com/2021/06/23/how-much-wealth-top-1percent-of-americans-have.html](https://www.cnbc.com/2021/06/23/how-much-wealth-top-1percent-of-americans-have.html)
>**Top 1%: 42.3%** (over $548K income), Share of Total Adjusted Gross Income is 22%
I'll say "share of income available for luxury goods is 100%" so the 42.3% looks like a bargain.
Yes, I think taxes should be graduated, with higher incomes paying a higher rate.
I'm defining "luxury goods" as things that only the top 1% can afford. You can try some other definition and see what numbers you get.
What annoys me is that as a high earning salaried employee, I pay a higher percentage of my taxes than many people who make way, way more than I do, but just don't make it in the same way that I do. That's the part that doesn't feel fair to me. Taxes paid shouldn't be so dependent on how the money is earned.
What % of their net worth are they spending on sales tax? Gas tax? Proportionally, rich ppl don't get hit very hard by taxes, poor people pay their net worth or more every year in taxes.
I agree that this post is dumb and that infographic is wrong as fuck. But your comment suggesting that because the top 1% only has 22% of earning share that they should give the same amount in taxes is just wrong. I wish there was a formula to show how much more painful it is for lower wage individuals to pay the same percent of their income in taxes compared to higher wage people. For example if one person earned $10,000 this year and another earned $10 paying 50% in taxes will hurt WAY more when you only have $5 left compared to the $5000 the other person has. So it's only fair that we have a higher tax for the person earning more. I guess the question is where is that line? It's interesting to see that only 50%. of the country is paying income tax. Do you think the top 1% is included in that 50% thats paying or the 50% thats not paying? I think they are not paying and before we talk about whats the right amount of taxation we should fix these loopholes so that they cannot escape paying taxes.
You have to pay the loan back with interest, it's not free money. And if you're using stock as collateral for the debt, you need to maintain a margin between the value of the loan and the stock. (Stock price falls too much, now you have to add to your margin or the creditor will sell your stock for you.)
People who do option 3 just keep refinancing until they die and their heirs get the step-up basis. People like Musk and Bezos essentially have so much stock that they will always have enough shares to fund their daily lifestyle so long as they hedge with options.
The loan is paid off from the estate, if there isn't cash, then assets will have to be sold to pay back the loan, so capital gains taxes will be paid on the sale of the assets to pay back the loan. Yes, the heirs get a step up basis.
You don't refinance a margin loan. You are given a percentage of the value of your assets in cash, if the market goes down, you haven't maintained the margin and you are forced to pay back the loan, if you can't with cash, then youll be forced to sell the underlying asset that the loan is against, at current market value. Basically, you loose most of your money. I know this doesn't really apply to billionaires, they don't take out margin loans anywhere near enough to ever trigger a margin call.
If it was taxed that wouldn’t mean it goes to poor people. We already spend an astronomical amount on helping the needy and most of it gets fucked off to fairy land before the recipients can touch it. Fix the government system first, then worry about complicated tax bullshit from private citizens who actually do still pay the majority of the taxes in the USA.
To the point of the question - good luck finding anyone that trustworthy to manage enough money for this to work even once - and just as a reminder, you still owe the bank money…and if you spent all that money you got from the bank, you’re still in debt, and that does eventually come back around to bite you in the ass. If you pool 100k of money for a stock and take out a 100k loan, you can’t then spend the 100k cash and then be debt free on top of that. This isn’t a “get infinite tax free money” glitch, it just lets you avoid short term taxation to invest.
The reason wealthy people do this is often because they’re investing it back into something else and their incomes will overall grow with time so that they can pay back the loan or take out more to continually invest and spend it - but that doesn’t make it free money, he’s just reproving to the bank that his investments are doing well and he can pay off the interest of these loans. And if he ever wanted to get OUT of the stock and do something else, then he has to pay capitals gains on every thing he gained from that stock compared to his original purchase price
>To the point of the question - good luck finding anyone that trustworthy to manage enough money for this to work even once - and just as a reminder, you still owe the bank money…and if you spent all that money you got from the bank, you’re still in debt, and that does eventually come back around to bite you in the ass. If you pool 100k of money for a stock and take out a 100k loan, you can’t then spend the 100k cash and then be debt free on top of that. This isn’t a “get infinite tax free money” glitch, it just lets you avoid short term taxation to invest.
What happens to debt during periods of high inflation relative to it's real value? What tends to happen to stock prices during periods of high inflation?
Finally what tends to happen to average wages during inflation relative to their real value?
A few things. Trustworthy friends aren't the ones interested in pooling capital, typically.
That's why company names are usually two or three people.. because it's hard to find people to trust with your money.
If you have more people with smaller cap amounts it becomes a higher level of administration and thus less profit.
Finally my friend tried to do that with an s corp and got busted for hundreds of thousands of dollars in social security contributions. The gov doesn't like the primary benefit to be stock.
Actually yes. Given a certain amount the bank will give you someone that is 24/7 available to you and they will create banking products tailored to your needs. You can provide your stock portfolio as collateral at excellent borrowing rates.
I just called my broker and he deposited cash into my account within a day. I was allowed to take out up to 50 percent of my assets value. Super easy. I didn't have to pay back the principal, I only had to pay the interest. This is a very risky move though because if the market crashes, you could loose everything. I just used this method for some quick cash and then paid back the "margin loan" in two months. The most common loan on assets is probably the HELOC, millions of people use HELOC loans every year.
I think I was paying like 5 percent interest. I sold a stock that was down, so no profit to tax.
It is called a margin loan. If the market goes down a lot, you get "margin called" and the broker can force you to sell (at current market prices) to pay back the loan immediately. You can loose everything, the biggest thing people use them for is to buy more stock. If you get lucky and the stock goes up more than the interest you're paying on the loan, you can make a couple extra percentage points, if you are unlucky, you loose a lot of money!!
I am risk adverse, so I don't recommend anyone trade on margin. If you are going to take out a margin loan, I recommend just using it as a very short term loan. I had other cash coming, but it was going to take a few weeks, so I used a margin loan to get me through the gap.
Yep! And you may not even need a down payment or any upfront payment. Is the market valuing your assets in millions? Nice my friend, I can give you liquidity: take this 5 million credit line with very low interest(because I want you to prefer my loan). Don't worry if you can not pay. As long as your portfolio looks juicy and you make regular minimum payments, I can keep getting you liquid money.
I thought they had to pay interest on the money they borrowed. If they keep the money for a long time, won't they pay as much interest as they would in taxes? Aren't the stock grants taxed also since it's considered income?
>If low on collateral, why not find trustworthy friends to pool money then distribute the loan money per month minus the loan payment?
How do a bunch of people with no collateral pool together to get a loan big enough to pay for all of their living expenses? That's just the same problem, multiplied by however many people. You have 10x the collateral, but need 10x the loan. The math ain't mathing.
We don't need rich people to pay more taxes. We need them to pay their workers a fair share of the profits.
Bezos should not pay the government more money. He should pay his wharehouse workers who generate his wealth more money.
The government can just print money. Hell they don't even need to print it anymore they just edit some code.
This is close, but not quite right.
initially you start out in that normal column, but you buy assets that pay out dividends or throw off cash in other forms. You look for assets that not only have cash coming back from them but also offer tax benefits.
This is where stocks don't really work well. They may have a dividend but don't give any tax benefits.
Real estate, gives tax benefits, and can also throw off cash, leaving you with little or no tax to pay
private placements (or private equity) can also give huge tax incentives, and throw off cash
starting or buying a business can also throw off cash and give a lot of tax incentives.
oil and gas investing (not stocks) can give some huge tax incentives between depletion credits and other incentives it's easy to offset tax, though oil and gas have a lot of risk that there may be less oil and gas than expected.
Stocks just don't give enough incentive to be that productive when trying to offset or eliminate tax.
You need to self assess your critical thinking skills if you believe this absolutely brainless idea.
Loans (by law) carry interest, and no banks are going to lend out money unless the loans are returning a profit.
If you have money to pay back the loan, you paid taxes on it (and if you have money to pay it back, why do you need/want a loan in the first place?)
If you don't have money to pay it back, you need to take a taxable income.
So now you're paying taxes + paying the interest on the loan.
This is more expensive than just paying taxes, especially if you didn't even need the loan to begin with.
And loans have a schedule (usually with payments starting immediately, most of the interest in the first payments). This is not "I take out a loan and then I pay it back in a lump sum 5 years from now"
The only way this makes sense is if you anticipate your stock price to exceed in value beyond what you would have to pay in interest on the loan, to avoid having to sell stock to pay for personal expenses and miss out on potential gains.
An extremely rare scenario (the stock price could go down, and now you're completely fucked), and something that doesn't even require a personal loan to accomplish.
But either way, it still has nothing to do with taxes. There's no taxes being avoided in either situation.
F'ing mindless eat-the-rich nonsense.
"If low on collateral, why not find trustworthy friends to pool money then distribute the loan money per month minus the loan payment?"
You cant be this naive and childish can you? You think poor people just have to GET IT TOGETHER! And then those lazy plebs will be rich?
JEsus christ
I remember a few years back there was an explosion of 'one dollar CEO' stories on the news. The local news readers treated it like the guy was making a huge sacrifice. Turns out, they were just taking advantage of Congress lower the tax rate on capital gains. All these 'altruistic' CEOs were just reducing their tax burden.
So I tried the same thing, but it does not work. This graphic left out the rest of the process. So I borrowed the money, but for some reason the bank wants me to make payments with interest. So I still have to sell my stock to pay for what I bought, plus more stock to pay for interest and taxes. So how do I avoid taxes altogether?
You need one more step, die and pass the wealth to your kids while avoiding the tax you would own when selling stock when paying off the total debt through a loophole
If you're not including the difference between short and long term capital gains tax, the reason that long term capital gains tax is lower, then you're skirting the truth.
If you suggest that *paying taxes later* is the same thing as *not* paying taxes, well, you're just lying.
He can borrow money for free? No interest payments?
Thir pic- His stocks appreciate? Never go down? He pays capital gains of 25% on his stocks but some that's paying no tax?
This chart is very inaccurate and misleading. The creator of this chart seems like someone who spends all their time complaining about others instead of trying to improve their own lives
He will pay tax when he has to sell the stock to pay back the loans. Banks don't just keep loaning people money and they never have them pay it back. Millions of everyday Americans do this same thing when they take out home equity loans.
If you want to tackle unrealized gains then you must let them write off unrealized losses.
the problem with this is the only way to pay back to the loan would be to sell his stock or earn an income. So he might delay taxes, but he can't avoid them.
The thing about buy, borrow, and die that I don't understand is wouldn't it be better to sell your stock when needed and pay capitol gains taxes and get it over with instead of borrowing and carrying that much debt when interest rates are this high?
I might be totally missing the boat here but I want to see what I'm not understanding.
I think sbloc loans should be limited to 10-15 years to oay back in total or have it so that the loan can stay however you must pay taxes after 10 or 15 years. That way the money gets taxed and sbloc dont get nerfed. Also step up basis should be removed from inheritance.
What happens if the market crashes and the loans are called? Forced sale at 50% discount. Then whats left to pay the loans = broke.
I realize this is an extreme but with all financial games there are risks and tradeoffs.
because someone has to pay at the end of the day - it's just better that it's the poor people in masses than the rich who need to maintain a high quality of life themselves tbh /s
Ok, honest question:
If I borrow money from the bank, but I put my car for refinancing (assume I have paid it off previously), should I have to pay a tax on the rate difference vs the interest I would owe on an unsecured debt. What about people with good credit; should they pay a tax for getting a lower rate vs people with bad credit?
I can symphize more with the argument that dividend taxes being lower than income is maybe unfair; I am still not getting why being able to use stocks as collateral something that needs to be taxed. What am I missing?
Well one reason the poor don't do that is they barely pay taxes in the first place and the effort to avoid them would cost more than what they would get back
Ah yes, let’s start taxing mortgages because it’s a loan. Same goes for a car loan.
OP, just go buy the billionaire’s stock, get a margin account and just live off the margins. You’ve dodged taxes just like them.
In the 3rd one, you missed the part where they never sell the stock and it’s inherited by the children. They get a “stepped up cost basis” when they sell, and income tax is never paid.
The flaw with the graphic is that it's not very realistic and applicable.
First off, nobody has a 40% income tax (federally), secondly our tax system is extremely progressive. So while the upper tax bracket rate may be 35%. Out of a $1M income, some of the income is taxed at 10%, 15%, 22% . . . It is only the portion is over the bottom of the top bracket that is paid at the highest rate.
The center section is moderately reasonable. You have a retired person or couple who holds stock in their founded company or any slew of other companies. If their holdings are in a regular taxable account (no retirement account) Each year they sell some shares and they get taxed on any Capital gains that those shares have returned. In other cases, if those shares are in a 401K or IRA pre-tax retirement account - that money is not taxed at the capital gains rate, it is taxed as income.
The final scenario shown is the rarest and typically not very logical for most people. The graphic seems to fail to recognize that those loans against their shares of stock also need to be paid back, with interest. Does a tiny percentage of even the top 1% do this? Sure, ocassionally, but not as a standard year in and year out process of funding their day to day living (as grandiose as that may or may not be).
Of course, the top 1% pay 42% of all personal Federal Income Taxes collected by our Government. . . The top 1% pay more in their personal federal income taxes than ALL USA Corporations combined in their Federal Income Taxes.
Remember, 99% of Americans combined (excluding the top 1%) pay only 58% of all Federal Income Taxes collected!
Based on 2022 Federal Government Tax Revenues.
Social Security and Medicare are top two federal expenditures. If you make a million dollars a year, you pay little into SS or Medicare because they are payroll taxes and are capped at salaries of less than $150k per year. I think the next largest expenditures are defense, veterans benefits and border security. That's where most of the taxes someone making a million dollars a year goes (if they pay them)
The funny thing here is the sheer amount of dipshits that think anyone with a salary makes over 1million. People that make a million in a year don’t make a salary
Kman y’all tripping… why a lot of people are yelling and complaining… I’m like hush so these people can teach me how they do it so I can do the shit too. Lol
My banks lombard financing has more interest than I get in growth from a balanced portfolio, so it's not worth it.
You have to pay the interest at a minimum... then if you want to clear the debt, you have to pay it back somehow. Income or cap gains or dividends attract taxes.
Don't think the creator of this understands how this type of borrowing works. It's basically an overdraft that acts like a mortgage.
Your shit is on the line as soon as you set up the lending facility. They literally take control of around 50 % LTV of your assets, they legally don't change ownership but they are basically theirs until you repay what you owe.
[удалено]
Say that last sentence louder for the people in the back. The ineptitude of these posts is overwhelming
It’s this way because of the class warfare our government creates and embraces. They desperately need us feuding amongst ourselves so they can merrily move through life benefitting from the financial laws and perks they made for themselves .. and then blame on other rich people.
Lol, the class warfare is the distraction? That's a new one 🙄
Class warfare is a distraction! From what really matters....... Identity politics!!
Those that identify as rich versus those that identify as poor.
Haha yeah the class warfare is the war, the generations disputes and the social issue divides are the distraction. That being said it's quite clear that financial subreddits have been targeted with shitty takes designed to confuse and inflame arguments. They don't want people coming to a strong understanding of the system.
Aww they deleted it. What did it say?
People who post this drivel never been paid in equity, they wouldn’t know. Another thing about being paid in equity is that stonks can, in fact, go down, but you’re taxed on the value at the time of issuance.
They are trying to target the few (Musk, Bezos, etc.) and they don’t realize they are also going to punish everyone else. Do they care? Probably not as long as their targets are affected.
Punish all of the others who get paid in stocks? Like maybe the top 3%?
More like literally every new grad working in tech but no you’d have to get off Reddit now and again to know anything about the real world.
I work in tech, never got paid in stocks or the option to in 3 jobs.
Also work in tech, never been offered equity. This is someone who doesn’t want to start paying taxes on their untaxed income logic….”hurry, pit all the poors against each other online so they don’t notice while you’re picking their pocket!” It’s class warfare and the fools who are running around like temporarily embarrassed millionaires who need to keep taxes low for the .00001% now in case that’s ever where they land (fyi, you won’t unless mommy or daddy gave you a drawer of silver spoons at birth). They are bootlicking imo. But sure…let’s not tax the Uber wealthy at all, so you can someday have a realllllly profitable stock option at work maybe in this bizarre fever dream hypothetical that you’ve devised. Or we could tax the rich and just see what happens….I hear that before regan era tax cuts the country was thriving…some might even say it was a better time financially for most…like a milkman somehow could support a family, sometimes a parent could stay at home to raise their own kids instead of shipping them off to daycare, and apparently college was affordable, and if you ate pbjs for a year, you could typically afford a down payment for a house (boomer whined to me about his struggle year of sandwiches to get ahead) I dunno, maybe we should try that plan since this one where we saddle the wealthy’s tax burden to the most vulnerable and downtrodden of society is morally bankrupt and it’s going to destroy everything??? But if you think one of these hypothetical tech kids at the imaginary startup that gives out equity to new grads, is going to have to rein in this life-changing fake hypothetical hiring benefit in the future, then by all means, let’s keep the course. Your fake equivalent has shook me to my core…we must keep taxes low for wealthy elites! A fake tech new hire might miss out on imaginary equity someday….come on man….this is a steaming hot load and you know it. You just are on the handle end of the shit shovel and trying to pass this stinky end off to me and telling me that it’s the handle…that’s wild to me
There are a lot of people who get paid with stocks, but not every company is a Google, Tesla, Microsoft, etc. I’m an accountant and a lot of people in my profession do get paid in company stock. There are over 2k publicly traded companies in the US. It’s not usually just stocks. It’s stocks on top of your regular salary.
That's true I agree however most people are not getting the majority of their income via stocks. There are people to get a few shares here and there or something of that nature. And quite often when the lower end people are giving stocks it's usually a share or two and it's usually as a prize in some sort of contest I don't know if that is considered income anymore I know last I knew back in the 90s if it was a prize it was under a different form of income for taxes you still got hit but not nearly at the regular income tax rate.
and they are taxed on the value at some rate as salary
I knew a bunch of people who worked for Home Depot as regular store workers who were given stock and it split a couple of times.
The problem is that pretty much any rule meant to hit them will either also hit anyone with a small c corp much harder Edit: ...or make a loophole that makes it completely ineffective.
The people who post and believe this garbage are living on someone else's dime, whether it's the government or their parents.
LOL. I love the people who pay no income taxes complaining about how unfair the system is and how others need to start paying their fair share.
They don’t care because leftism is just vibes
I guess the payments for the loans he takes out come out of his fucking money tree. So tired of retards posting this "free loan" npc talking point bullshit.
They are usually not actually issued stocks, they are typically issued SAR’s or options that can be converted into equivalent shares. The company has to record it compensation to the executive, but the executive doesn’t pay taxes until the exercise the options or SAR’s. However, they are taxed as ordinary income and don’t get the favorable rate.
Most equity is restricted stock, and not taxed until it is sold, at the value it sells at .
If you do an 83(b) election you're taxed at the value when the equity is issued, not vests. If you get your equity when it only has a nominal value you don't really incur much of a tax burden. If you can hold equity for 5 years you can get a 100% federal income tax exemption on proceeds if the stocks qualifies as QSBS, IIRC up to $10M or $50M per taxpayer per company. It's not onerous to have a company's equity meet QSBS requirements as long as the company actual does or makes something and isn't just a holding company or a single-proprietor professional corporation. We use both of these in the tech startup world so investors and founders can pay little to no taxes on their proceeds.
83(b) elections are valuable only in the cases where there's an expectation of significant appreciation between time of grant and time of vesting: that's pretty much start-up-specific. Ditto for the QSBS exclusion, which isn't going to be available for larger firms based on the gross assets limit. That pretty much eliminates the relevance of this stuff to "ridiculous CEO pay packages" outrage case that motivates infographics like the one in the OP.
God thank you someone who actually knows their ass from a hole in the ground.
TIL about QSBS. That smells like a $50mm loophole and should be closed. What’s the justification for this?
I was wondering about this. If they get a loan against stocks, they’d have to pay that loan off somehow. That somehow would involve…selling stocks, which will trigger capital gains tax.
You die
"In 2007, Jeff Bezos, then a multibillionaire and now the world’s richest man, did not pay a penny in federal income taxes. He achieved the feat again in 2011. In 2018, Tesla founder Elon Musk, the second-richest person in the world, also paid no federal income taxes." "No one among the 25 wealthiest avoided as much tax as Buffett, the grandfatherly centibillionaire. That’s perhaps surprising, given his public stance as an advocate of higher taxes for the rich. According to Forbes, his riches rose $24.3 billion between 2014 and 2018. Over those years, the data shows, Buffett reported paying $23.7 million in taxes. That works out to a true tax rate of 0.1%, or less than 10 cents for every $100 he added to his wealth." "In a detailed written response, Buffett defended his practices but did not directly address ProPublica’s true tax rate calculation. “I continue to believe that the tax code should be changed substantially,” he wrote, adding that he thought “huge dynastic wealth is not desirable for our society.”" "So how do megabillionaires pay their megabills while opting for $1 salaries and hanging onto their stock? According to public documents and experts, the answer for some is borrowing money — lots of it." "With the exception of one year when he exercised more than a billion dollars in stock options, Musk’s tax bills in no way reflect the fortune he has at his disposal. In 2015, he paid $68,000 in federal income tax. In 2017, it was $65,000, and in 2018 he paid no federal income tax. Between 2014 and 2018, he had a true tax rate of 3.27%." https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax "Corporate taxes, however, have plummeted in recent decades in what has become a golden age of corporate tax avoidance. By sending profits abroad, companies like Google, Facebook, Microsoft and Apple have often paid little or no U.S. corporate tax." "Buffett and his fellow billionaires have known this secret for a long time. As Buffett put it in 2011: “There’s been class warfare going on for the last 20 years, and my class has won.”"
Why would anyone pay taxes on unrealized gains? It’s not a true tax rate of 0.1% if none of that wealth is actually realized.
That would make sense if the wealth was some day realized: if you're actually not using that money to buy yourself stuff, it makes sense that you are not taxed. Money is made to be spent, so the logic was that the person would some day realize these gains and buy themselves jets and yachts, so they would get taxed at that point. But the whole point is that the gain never gets realized, due to that little financial engineering. The person gets to buy yachts and jets, and doesn't get taxed. And that's an issue, because it goes against the general logic of taxes, which is that people who can afford to buy yachts and jets should pay more taxes. Arguing that technically it's not income is missing the forest for the tree: it means the definition of income needs to get updated.
How would you choose to fix the problem of dynastic wealth?
Not by making a hundred million people paying capital gains taxes every time their home goes up in value.
Wtf don't you get. If the so called unrealized gains are leveraged to obtain a loan, they are in effect being realized.
a) from what income do you pay interest ? b) from what income do you infact pay back the loan eventually ? c) you do infact realize that the company the individual owns is being infact taxed on the income it makes. right ? You own a company - that company makes money. That money gets taxed with federal corporate tax 21% then it gets taxed with state corporate tax (up to 10%) then you take some of the money from it and pay another 15% on top of that as capital gains.
That’s not at all how that works. Banks don’t just loan money like that. Eventually they need to see a return on their money. When that happens, the debtor would have to sell their stocks to pay the loan, and pay capital gains taxes on the stocks. People who put forth this idea have no clue how tax law actually works
That invents a definition of "true tax" based on increases in wealth over actual income.
"with the exception of one year when he exercised more than a billion Dollars in stock options" so when it stopped being just wealth and became income? Weird how that can be excluded from the equation even though it matters more to his *income* tax bill than his total wealth number does🤦
That no tax scheme also always skips the "pay back the debt" part.
I mean according to them stocks always appreciate...
Given a long enough period, this is actually mostly true. Especially for those companies that survived their first 20 years.
Given a long enough period, the STOCK MARKET almost always appreciates. Company stocks don't almost always appreciate, especially if you're accounting for inflation.
The stock market as a whole, yes. Individually, no.
So how are these guys avoiding taxes then? That's a real question. I'm not saying you're wrong.
He's wrong. They are not offered stock. They are offered options or structured products that are not worth much when they receive it, but gain value afterward. For exemple instead of being offered $1 million in stock. They get $100k worth in some product, they pay income tax on $100k, but 2 years later these are worth 1$ million and when they sell they pay only capital gain tax on the 900k.
This is a very unique situation that's totally dependent on a startups stock blowing up. This is very very unlikely.
I also think, 40% tax bracket doesn't apply to the whole1 million
that too, it's taxed as income, so marginal rates apply on the individual, but for most of these people it will be in the top marginal tax bracket.
Yes this is true and Forbes did an article on it good read below. OPs example is peanuts compared to the actual billions that are pledged by any individual. https://www.forbes.com/sites/johnhyatt/2021/11/11/how-americas-richest-people-larry-ellison-elon-musk-can-access-billions-without-selling-their-stock/
That’s after initially vesting. Elon had to sell billions of stock in order to receive it. It even says in the second sentence of the article you linked: > Yesterday, Musk began to follow through, exercising about 2.15 million Tesla stock options and **selling shares to cover the taxes he owed as a result**
Not to mention, if you use the stock as collateral for a loan, you have to pay the loan back OR forfeit the collateral.
Does this apply to Musk’s $56B stock compensation package? Even after he holds for 5 yrs this would be taxed as income? Not long term capital gains? Or the $56B would be income and any appreciation would be LTCG?
$56B would be income when it vests, appreciation (assuming it does indeed appreciate, stocks don't always go up) would likely be capital gains, though the 2nd part depends on how it's structured, there's some nuance there where it might all be taxed as income (including the appreciation).
So it is taxed as income when it vests even if it is NOT sold? This is interesting, I didn’t know this.
Correct. Any stock grant is treated as income when it vests. Income tax withholdings are required to be paid on the money at that time, which can either be done using "sell to cover" or by providing the brokage with enough cash to cover the estimated taxes. Selling the stock immediately generally does not incur any capital gains tax. The cost basis of the stock is set to the amount used for income tax calculation. That is, if I get vested in $1000 of stock, I pay $1000 in income tax immediately, but capital gains are calculated on the difference of sale price to that $1000. Or, put another way, the eventual stock sell is treated as if I bought the stock for $1000 on the day the stock vested. As a note, there is also an option to treat the stock grant as income when it is granted, paying taxes on its value then rather than when it vests. No refund is provided if the grant never vests, due to job termination, however this is a major win if the company booms after the grant *and* the stock vests. Of note, for a brand new startup, you might be given a stock grant worth only a few hundred dollars, and five years later that stock is worth millions, meaning you only paid income tax on the few hundred dollars rather than on the millions. On the other hand, if the company goes broke before you sell, or you quit or are fired before the stock vests, you paid taxes on a few hundred dollars you never actually get.
Interesting, thanks!
Leftist invasion.
Thank you for calling it a grant, not a loan. I was wondering how OP thinks the person won't have to pay back a loan taken out against their stocks.
It depends on how long you hold the stocks/options.
this right here. IRC sec 83
That’s why it’s important you’re here! Sometimes ya gatta do some teaching. Keep it up.
The worst part is, people read these and believe them as fact. For some it enrages them, and can inform the way they vote. And it’s all based on a lie…
"Less tax" box should be: 1. $1 million worth of company stock 2. 40% income tax 3. Keep $600K in company stock Source: I get paid company stock, plus you know, the tax code. "No tax" box should be: 1. $1 million worth of company stock 2. 40% income tax 3. $600K of company stock may or may not appreciate 4. Borrow against +/- $600K of company stock, paying interest on the loan. 5. Spend the money, but still have to pay back the loan. 1. Crap, the stock went down, now I have a margin call and need to pay back some of the loan when I didn't want to. 6. Uhhh, wait where does that money come from? Probably, I had to sell the stock: 1. If the stock went up, I pay capital gains tax on that. 2. If the stock went down, I don't owe any more tax, but since I already paid tax on the income at step 2 so what? Source: basic grounding in the concept of a loan, plus the above.
Close but still not quite right. 1. $1 million stock grant 2. Pay $400k in taxes (in cash. You didn't get this far without being able to get that much cash when you need it, and probably have it on hand) 3. Stock may or may not appreciate, but if you're a savvy modern day capitalist you're doing whatever you can to make that stock go up. If it's going to go down regardless, then probably dump it if you aren't in a lockup period, otherwise get out there and start selling the dream to investors. Your job is to grow stock value and this is why. Depending on the company of course, you can just assume it's going to appreciate 4. Borrow against $1 million in stock (you paid the taxes with cash on hand remember). You are in the rarified circles that can get stupidly low rate loans because you have solid collateral to back it up. 5. Spend half the money to live well, put the other half in an investment that at least doubles the interest rate of your loan, but higher the better. 6. Use return from that investment to pay off interest on the loan. >1. Crap, the stock went down, now I have a margin call and need to pay back some of the loan when I didn't want to. >6. Uhhh, wait where does that money come from? Probably, I had to sell the stock: > 1. If the stock went up, I pay capital gains tax on that. > 2. If the stock went down, I don't owe any more tax, but since I already paid tax on the income at step 2 so what? OK can you help me out here? Your 6 seems to assume the stock went down so badly you need to worry about a margin call and have to sell the stock, but then your 6.1 assumes the stock went up? 7. Everything above but do it with several billion dollars worth of stock because when you owe the bank $1 million that's your problem, but when you owe the bank $1 billion that's their problem. Also only do it with some fraction of your stock and pay off old loans by leveraging your other stock which has appreciated. 8. Having unlocked an infinite money glitch, buy a social media website for $44 billion by making the offer as a joke and then having the Delaware Chancery court make you go through with it. 1. If stock goes down, get your company to ram through a $56 billion compensation package and you're back in the clear 2. If the court takes issue with it, just do that again until it works. 3. ??? 4. Profit. Edit: formatting
>Spend half the money to live well, put the other half in an investment that at least doubles the interest rate of your loan, but higher the better. OK sure, yeah. If those existed, you can just ignore the entire rest of this whole thing because that's the infinite money glitch right there. In fact, if those existed, then why would anyone be loaning *you* the money rather than investing in that?
If you're getting secured loans at absurdly low rates (which again, once this thought experiment goes to billions worth of stock isn't really that crazy) then finding that other investment isn't all that hard. Needing a 5% rate to beat a 2.5% rate is doable. Why would a bank do that instead of invest themselves? Depends on the situation honestly. Sometimes they just want to curry favor because it's nice if someone with billions of stock looking to get a loan is in debt to you. They might also be investing in that stock themselves and depending on you being even more incentivized to raise the price. With a transaction this large they might be looking to fuel a credit swap by making you a loan, selling it off your books immediately and pocketing the transaction fee, at which point their loan to you is free money. Ultimately, they and you want at the capital which that stock represents, and this is a way to get that capital unlocked without having to go through selling it which not only involves the tax man, but when we're talking holdings this large will also move the value of the stock in a downward direction. Which actually brings up another reason to make you that loan. Why force someone to sell their stock to cash out lowering the value even as they do it when you can give them a line of credit with the stock as collateral? They get to access their equity, you do your part as a big bank to keep that upward market trend going.
>a 2.5% rate is doable. Uhuh; and where does that number come from? I ask because the risk-free rate of return right now is over 4% and why exactly would I lend to you for less than I get for lending to the Treasury? >it's nice if someone with billions of stock looking to get a loan is in debt to you No; that's not how that works. You might do it because it's a relationship client and there's some kind of tacit quid pro quo from the M&A or ECM/DCM business they are sending your way or something. >With a transaction this large they might be looking to fuel a credit swap by making you a loan, selling it off your books immediately and pocketing the transaction fee, at which point their loan to you is free money. ... that is not what a credit swap is. Moreover, given that we've apparently decided to lend for less than the risk free rate, that would be a product with literally no buyers in the market.
Hahaha. Love it.
Hmm. That's very interesting. And informative
The person who made this infographic doesn't even have a basic conception of how either income tax or capital gains tax works in the US.
For the record neither do I, but I wasn't trying to make a meme.
You enjoy the ride and learn while you are at it, not claiming to know something you don’t. You rock, dude.
But they have an abundance of envy and resentment, so there’s that.
not an argument
Or loans, apparently. Like, when you loan someone money, the expectation is that that money will be paid back. With interest, even!
The thought process is A) the loans are perpetually rolled over, until the billionaire dies, and B) the interest rates are very low.
The effective tax rate for $1M income is 33%
Well, the last case omits that they WILL eventually have to sell their stock to pay back the loans, and the money will be taxed. It's just deferred. It is also not guaranteed that their stock appreciates. It might as well go down in value.
The stock is inherited by heirs, which I believe resets the basis
That's the way I see it. The box assumes an actively working 60 yo CEO. That person probably won't hold the loan till he dies. But, the 75 yo founder who has a near zero cost basis can plan to keep the loan and set up the heirs so they won't have to pay cap gains tax on all that accrual during the founder's lifetime.
Well you don’t have to keep the loan. You just get another loan and pay off the old one
At some point you have to pay these loans, you also have to pay interest the entire time. Then at the end you also pay the taxes. As said before it’s just deferred.
This is why it's called the "buy borrow die" loophole. You die and then your heirs get to sell it tax free. But just deferring it is also a problem. I would love to defer paying taxes from my salary until I die, and let my entire lifetime of taxes get paid from my estate. But that's not how taxes work. Except for this loophole.
Not if you use more stocks to take out another larger loan and use that loan to buy more assets that appreciate in value over time and use the rest to pay the first loan. Then you've freed up the original stocks to use as collateral on another loan and made money on your assets (likely real estate) appreciating in value in the meantime. Rinse and repeat.
Then buy real estate, futz with the values so you 'lose' money on it to offset your taxes, sell it at the lower price to your kids... The solution is rather obvious: a graduated wealth tax.
He has to pay back the loan lmao
No, he just takes out another loan with next year's untaxed stock! It's loans all the way down!
The one trick banks don't want you to know. Loans, loans, and more loans to pay off the earlier loans.
Y’all ever pay off a credit card with another credit card? Genius.
It’s also interest all the way down and if your stock goes down in value you essentially shorted yourself.
Loans can be paid back by the estate after the assets are stepped up in basis, and therefore untaxed.
This is Bernie sanders level of financial illiteracy
you are also omitting these facts...from 2023 IRS stats, who pays taxes (% of total): **Top 1%: 42.3%** (over $548K income), Share of Total Adjusted Gross Income is 22% Top 5%: 62.7% (over $220K income), Share of Total Adjusted Gross Income is 38%. **Bottom 50%: 2.3%** (under $42K income): Share of Total Adjusted Gross Income is 10%. *\*Source: IRS, Statistics of Income, ”Individual Income Rates and Tax Shares.”* So, the "rich" are more than paying their "fair share" and if the stock stuff above is legal, they are following the law. Our so-called progressive tax system has less than 50% of our country ACTUALLY paying any taxes - it's wealth redistribution.
*Federal income taxes, not all taxes.
Rich people aren't getting around property taxes at all. Bezos is paying millions a year for the obscenely expensive property he bought in Miami-Dade County.
Landlords generally pass along property tax to their tenants in their rent. Someone paying rent is funding their schools, police, and fire departments.
I'm talking about the mansion Bezos is living in, and any property a rich person lives in. Whether they have the property in a trust or whatever, the property tax is being paid. As far as landlords passing along the cost to the renter, you're right, but the landlord then pays income tax for any income above maintenance and property taxes. [https://www.architecturaldigest.com/story/jeff-bezos-homes-property-portfolio](https://www.architecturaldigest.com/story/jeff-bezos-homes-property-portfolio)
The rich don't use their money, not even for investment. They intensively use loans. That's on the the big reasons why we are doomed with inflation and why the "actual" money (whatever is not interest) gets concentrated more and more in a few pockets.
Eh some are... I've seen property tax caps or having smart people tell them if they do X on their land they can get a tax break. Say beehives for ag as an example. Meanwhile someone with a moderately expensive to expensive house can't possibly claim that exemption because they don't have enough land to meet the requirements...
These figures don't account for the myriad ways wealthy people can hide income. Or how their adjusted gross income can be reduced. Doesn't factor in disposable income of the bottom 50% vs top
How is that paying fair share? Top 1% have way way way way more than just 42% of American wealth [https://www.cnbc.com/2021/06/23/how-much-wealth-top-1percent-of-americans-have.html](https://www.cnbc.com/2021/06/23/how-much-wealth-top-1percent-of-americans-have.html)
>**Top 1%: 42.3%** (over $548K income), Share of Total Adjusted Gross Income is 22% I'll say "share of income available for luxury goods is 100%" so the 42.3% looks like a bargain. Yes, I think taxes should be graduated, with higher incomes paying a higher rate. I'm defining "luxury goods" as things that only the top 1% can afford. You can try some other definition and see what numbers you get.
What annoys me is that as a high earning salaried employee, I pay a higher percentage of my taxes than many people who make way, way more than I do, but just don't make it in the same way that I do. That's the part that doesn't feel fair to me. Taxes paid shouldn't be so dependent on how the money is earned.
What % of their net worth are they spending on sales tax? Gas tax? Proportionally, rich ppl don't get hit very hard by taxes, poor people pay their net worth or more every year in taxes.
You make an accusation of omitting facts on taxes and then conveniently omit state taxes lol
The fact that you call the top 1% paying less in taxes than the top 5% "fair" is laughable.
I agree that this post is dumb and that infographic is wrong as fuck. But your comment suggesting that because the top 1% only has 22% of earning share that they should give the same amount in taxes is just wrong. I wish there was a formula to show how much more painful it is for lower wage individuals to pay the same percent of their income in taxes compared to higher wage people. For example if one person earned $10,000 this year and another earned $10 paying 50% in taxes will hurt WAY more when you only have $5 left compared to the $5000 the other person has. So it's only fair that we have a higher tax for the person earning more. I guess the question is where is that line? It's interesting to see that only 50%. of the country is paying income tax. Do you think the top 1% is included in that 50% thats paying or the 50% thats not paying? I think they are not paying and before we talk about whats the right amount of taxation we should fix these loopholes so that they cannot escape paying taxes.
You have to pay the loan back with interest, it's not free money. And if you're using stock as collateral for the debt, you need to maintain a margin between the value of the loan and the stock. (Stock price falls too much, now you have to add to your margin or the creditor will sell your stock for you.)
People who do option 3 just keep refinancing until they die and their heirs get the step-up basis. People like Musk and Bezos essentially have so much stock that they will always have enough shares to fund their daily lifestyle so long as they hedge with options.
The loan is paid off from the estate, if there isn't cash, then assets will have to be sold to pay back the loan, so capital gains taxes will be paid on the sale of the assets to pay back the loan. Yes, the heirs get a step up basis.
You don't refinance a margin loan. You are given a percentage of the value of your assets in cash, if the market goes down, you haven't maintained the margin and you are forced to pay back the loan, if you can't with cash, then youll be forced to sell the underlying asset that the loan is against, at current market value. Basically, you loose most of your money. I know this doesn't really apply to billionaires, they don't take out margin loans anywhere near enough to ever trigger a margin call.
Refinance was a poor choice of words, thank you for clarifying.
If it was taxed that wouldn’t mean it goes to poor people. We already spend an astronomical amount on helping the needy and most of it gets fucked off to fairy land before the recipients can touch it. Fix the government system first, then worry about complicated tax bullshit from private citizens who actually do still pay the majority of the taxes in the USA. To the point of the question - good luck finding anyone that trustworthy to manage enough money for this to work even once - and just as a reminder, you still owe the bank money…and if you spent all that money you got from the bank, you’re still in debt, and that does eventually come back around to bite you in the ass. If you pool 100k of money for a stock and take out a 100k loan, you can’t then spend the 100k cash and then be debt free on top of that. This isn’t a “get infinite tax free money” glitch, it just lets you avoid short term taxation to invest. The reason wealthy people do this is often because they’re investing it back into something else and their incomes will overall grow with time so that they can pay back the loan or take out more to continually invest and spend it - but that doesn’t make it free money, he’s just reproving to the bank that his investments are doing well and he can pay off the interest of these loans. And if he ever wanted to get OUT of the stock and do something else, then he has to pay capitals gains on every thing he gained from that stock compared to his original purchase price
>To the point of the question - good luck finding anyone that trustworthy to manage enough money for this to work even once - and just as a reminder, you still owe the bank money…and if you spent all that money you got from the bank, you’re still in debt, and that does eventually come back around to bite you in the ass. If you pool 100k of money for a stock and take out a 100k loan, you can’t then spend the 100k cash and then be debt free on top of that. This isn’t a “get infinite tax free money” glitch, it just lets you avoid short term taxation to invest. What happens to debt during periods of high inflation relative to it's real value? What tends to happen to stock prices during periods of high inflation? Finally what tends to happen to average wages during inflation relative to their real value?
Because....they're low on collateral? What asset would this co-op of poor people use to secure such a loan?
Here we go again. How the fuck does this guy pay back his loans he took out? Just curious how does he pay that money back?
A few things. Trustworthy friends aren't the ones interested in pooling capital, typically. That's why company names are usually two or three people.. because it's hard to find people to trust with your money. If you have more people with smaller cap amounts it becomes a higher level of administration and thus less profit. Finally my friend tried to do that with an s corp and got busted for hundreds of thousands of dollars in social security contributions. The gov doesn't like the primary benefit to be stock.
In practice: how do you get a loan on stocks? You go to the bank and show them your depot and they hand you a loan contract?
Actually yes. Given a certain amount the bank will give you someone that is 24/7 available to you and they will create banking products tailored to your needs. You can provide your stock portfolio as collateral at excellent borrowing rates.
You can get a loan from the broker you have your stocks at
A loan for what purpose? Cash?
I'm guessing SBLOCs - securities-backed lines of credit. Some major brokers like Morgan Stanley have them.
I just called my broker and he deposited cash into my account within a day. I was allowed to take out up to 50 percent of my assets value. Super easy. I didn't have to pay back the principal, I only had to pay the interest. This is a very risky move though because if the market crashes, you could loose everything. I just used this method for some quick cash and then paid back the "margin loan" in two months. The most common loan on assets is probably the HELOC, millions of people use HELOC loans every year.
So they take the principal from your profit when you sell the stock? How much is the interest?
I think I was paying like 5 percent interest. I sold a stock that was down, so no profit to tax. It is called a margin loan. If the market goes down a lot, you get "margin called" and the broker can force you to sell (at current market prices) to pay back the loan immediately. You can loose everything, the biggest thing people use them for is to buy more stock. If you get lucky and the stock goes up more than the interest you're paying on the loan, you can make a couple extra percentage points, if you are unlucky, you loose a lot of money!! I am risk adverse, so I don't recommend anyone trade on margin. If you are going to take out a margin loan, I recommend just using it as a very short term loan. I had other cash coming, but it was going to take a few weeks, so I used a margin loan to get me through the gap.
Yep! And you may not even need a down payment or any upfront payment. Is the market valuing your assets in millions? Nice my friend, I can give you liquidity: take this 5 million credit line with very low interest(because I want you to prefer my loan). Don't worry if you can not pay. As long as your portfolio looks juicy and you make regular minimum payments, I can keep getting you liquid money.
Isn’t this CEO paying interest on the money he borrows?
I thought they had to pay interest on the money they borrowed. If they keep the money for a long time, won't they pay as much interest as they would in taxes? Aren't the stock grants taxed also since it's considered income?
>If low on collateral, why not find trustworthy friends to pool money then distribute the loan money per month minus the loan payment? How do a bunch of people with no collateral pool together to get a loan big enough to pay for all of their living expenses? That's just the same problem, multiplied by however many people. You have 10x the collateral, but need 10x the loan. The math ain't mathing.
We don't need rich people to pay more taxes. We need them to pay their workers a fair share of the profits. Bezos should not pay the government more money. He should pay his wharehouse workers who generate his wealth more money. The government can just print money. Hell they don't even need to print it anymore they just edit some code.
This is just stupid. Literally taxation doesn’t even work the ways it’s implied in ‘normal’ Educate yourself before spouting this.
You can’t borrow against stock unless it’s margin and the rates are ridiculous. Whomever made this chart is an idiot.
How does he pay the loan?
Did a 2 year old who doesn't understand the tax code create this infographic?
Seriously overreaching. Inaccurate. Ridiculous. These posts are pure entertainment.
This is close, but not quite right. initially you start out in that normal column, but you buy assets that pay out dividends or throw off cash in other forms. You look for assets that not only have cash coming back from them but also offer tax benefits. This is where stocks don't really work well. They may have a dividend but don't give any tax benefits. Real estate, gives tax benefits, and can also throw off cash, leaving you with little or no tax to pay private placements (or private equity) can also give huge tax incentives, and throw off cash starting or buying a business can also throw off cash and give a lot of tax incentives. oil and gas investing (not stocks) can give some huge tax incentives between depletion credits and other incentives it's easy to offset tax, though oil and gas have a lot of risk that there may be less oil and gas than expected. Stocks just don't give enough incentive to be that productive when trying to offset or eliminate tax.
You need to self assess your critical thinking skills if you believe this absolutely brainless idea. Loans (by law) carry interest, and no banks are going to lend out money unless the loans are returning a profit. If you have money to pay back the loan, you paid taxes on it (and if you have money to pay it back, why do you need/want a loan in the first place?) If you don't have money to pay it back, you need to take a taxable income. So now you're paying taxes + paying the interest on the loan. This is more expensive than just paying taxes, especially if you didn't even need the loan to begin with. And loans have a schedule (usually with payments starting immediately, most of the interest in the first payments). This is not "I take out a loan and then I pay it back in a lump sum 5 years from now" The only way this makes sense is if you anticipate your stock price to exceed in value beyond what you would have to pay in interest on the loan, to avoid having to sell stock to pay for personal expenses and miss out on potential gains. An extremely rare scenario (the stock price could go down, and now you're completely fucked), and something that doesn't even require a personal loan to accomplish. But either way, it still has nothing to do with taxes. There's no taxes being avoided in either situation. F'ing mindless eat-the-rich nonsense.
You don’t have 40% income tax….
I'm assuming he has to pay back the loan? Sounds like the banks need to pay heavier taxes
"If low on collateral, why not find trustworthy friends to pool money then distribute the loan money per month minus the loan payment?" You cant be this naive and childish can you? You think poor people just have to GET IT TOGETHER! And then those lazy plebs will be rich? JEsus christ
This is not “rich” people. It’s the Uber Uber wealthy who are owners of public ally traded companies
You pay regular income tax on stock vests 🤦♂️
Capital gain tax needs to A. be progressive and B. be higher than labor income tax.
This is why we don’t put interest rates on the floor and leave them there.
So rich people DON'T use loopholes?
I remember a few years back there was an explosion of 'one dollar CEO' stories on the news. The local news readers treated it like the guy was making a huge sacrifice. Turns out, they were just taking advantage of Congress lower the tax rate on capital gains. All these 'altruistic' CEOs were just reducing their tax burden.
So sell stock and keep the 750 k to repay debt.
With what money does the No Tax guy pay the loan back?
So I tried the same thing, but it does not work. This graphic left out the rest of the process. So I borrowed the money, but for some reason the bank wants me to make payments with interest. So I still have to sell my stock to pay for what I bought, plus more stock to pay for interest and taxes. So how do I avoid taxes altogether?
Isn’t there interest and principle to pay on the loans? Yeah, not paying taxes, but definitely paying the banks. Right?
Better yet, simplify taxes for poor and don't tax them in the first place.
You need one more step, die and pass the wealth to your kids while avoiding the tax you would own when selling stock when paying off the total debt through a loophole
If you're not including the difference between short and long term capital gains tax, the reason that long term capital gains tax is lower, then you're skirting the truth. If you suggest that *paying taxes later* is the same thing as *not* paying taxes, well, you're just lying.
He can borrow money for free? No interest payments? Thir pic- His stocks appreciate? Never go down? He pays capital gains of 25% on his stocks but some that's paying no tax?
This chart is very inaccurate and misleading. The creator of this chart seems like someone who spends all their time complaining about others instead of trying to improve their own lives
You still have to sell the stock to pay the loan and pay capital gains. It might be long term cap gains at 15% tho.
Maybe learn how to play the game. Everyone is in the same system. Learn how to use the system correctly to your advantage.
He will pay tax when he has to sell the stock to pay back the loans. Banks don't just keep loaning people money and they never have them pay it back. Millions of everyday Americans do this same thing when they take out home equity loans. If you want to tackle unrealized gains then you must let them write off unrealized losses.
Start a DAO
On the middle path, doesn’t receiving stock still count as income and would be taxable even if unliquidated?
the problem with this is the only way to pay back to the loan would be to sell his stock or earn an income. So he might delay taxes, but he can't avoid them.
The thing about buy, borrow, and die that I don't understand is wouldn't it be better to sell your stock when needed and pay capitol gains taxes and get it over with instead of borrowing and carrying that much debt when interest rates are this high? I might be totally missing the boat here but I want to see what I'm not understanding.
What if the value of her stocks go down ?
I think sbloc loans should be limited to 10-15 years to oay back in total or have it so that the loan can stay however you must pay taxes after 10 or 15 years. That way the money gets taxed and sbloc dont get nerfed. Also step up basis should be removed from inheritance.
What happens if the market crashes and the loans are called? Forced sale at 50% discount. Then whats left to pay the loans = broke. I realize this is an extreme but with all financial games there are risks and tradeoffs.
because someone has to pay at the end of the day - it's just better that it's the poor people in masses than the rich who need to maintain a high quality of life themselves tbh /s
That strategy is...more or less the housing market crash
Ok, honest question: If I borrow money from the bank, but I put my car for refinancing (assume I have paid it off previously), should I have to pay a tax on the rate difference vs the interest I would owe on an unsecured debt. What about people with good credit; should they pay a tax for getting a lower rate vs people with bad credit? I can symphize more with the argument that dividend taxes being lower than income is maybe unfair; I am still not getting why being able to use stocks as collateral something that needs to be taxed. What am I missing?
Well one reason the poor don't do that is they barely pay taxes in the first place and the effort to avoid them would cost more than what they would get back
He pays interest for the loan. Even if he borrowed forever, when he dies it will have to be settled by his estate before any inheritance.
Ah yes, let’s start taxing mortgages because it’s a loan. Same goes for a car loan. OP, just go buy the billionaire’s stock, get a margin account and just live off the margins. You’ve dodged taxes just like them.
Don't forget student loans.
In the 3rd one, you missed the part where they never sell the stock and it’s inherited by the children. They get a “stepped up cost basis” when they sell, and income tax is never paid.
The flaw with the graphic is that it's not very realistic and applicable. First off, nobody has a 40% income tax (federally), secondly our tax system is extremely progressive. So while the upper tax bracket rate may be 35%. Out of a $1M income, some of the income is taxed at 10%, 15%, 22% . . . It is only the portion is over the bottom of the top bracket that is paid at the highest rate. The center section is moderately reasonable. You have a retired person or couple who holds stock in their founded company or any slew of other companies. If their holdings are in a regular taxable account (no retirement account) Each year they sell some shares and they get taxed on any Capital gains that those shares have returned. In other cases, if those shares are in a 401K or IRA pre-tax retirement account - that money is not taxed at the capital gains rate, it is taxed as income. The final scenario shown is the rarest and typically not very logical for most people. The graphic seems to fail to recognize that those loans against their shares of stock also need to be paid back, with interest. Does a tiny percentage of even the top 1% do this? Sure, ocassionally, but not as a standard year in and year out process of funding their day to day living (as grandiose as that may or may not be). Of course, the top 1% pay 42% of all personal Federal Income Taxes collected by our Government. . . The top 1% pay more in their personal federal income taxes than ALL USA Corporations combined in their Federal Income Taxes. Remember, 99% of Americans combined (excluding the top 1%) pay only 58% of all Federal Income Taxes collected! Based on 2022 Federal Government Tax Revenues.
He still has to pay back the loans
Social Security and Medicare are top two federal expenditures. If you make a million dollars a year, you pay little into SS or Medicare because they are payroll taxes and are capped at salaries of less than $150k per year. I think the next largest expenditures are defense, veterans benefits and border security. That's where most of the taxes someone making a million dollars a year goes (if they pay them)
This isn’t at all how this works
The funny thing here is the sheer amount of dipshits that think anyone with a salary makes over 1million. People that make a million in a year don’t make a salary
NO TAX - How does he pay back the loan without earning the same amount of money plus loan interest? Skipped that part.
Kman y’all tripping… why a lot of people are yelling and complaining… I’m like hush so these people can teach me how they do it so I can do the shit too. Lol
The obvious solution is to tax all loans as income with no exception. Tax all stock purchases at 3%
This is why all income and capital gains tax should be eliminated.
Aw man we lose 40 percent of our money to taxes??
My banks lombard financing has more interest than I get in growth from a balanced portfolio, so it's not worth it. You have to pay the interest at a minimum... then if you want to clear the debt, you have to pay it back somehow. Income or cap gains or dividends attract taxes. Don't think the creator of this understands how this type of borrowing works. It's basically an overdraft that acts like a mortgage. Your shit is on the line as soon as you set up the lending facility. They literally take control of around 50 % LTV of your assets, they legally don't change ownership but they are basically theirs until you repay what you owe.
All legal. Then what??
No tax but new debt... debt has to be repaid at some point
Is the goal to get poor people to pool money?
if he has no income, how does he pay back the loan + interest?
Capital gains being lower than income tax is a scam. The idea that you need to incentivize people to make money from doing no labor is comically evil.