Sports Owners Use Their Teams to Avoid Millions in Taxes(propublica.org)
propublica.org
Sports Owners Use Their Teams to Avoid Millions in Taxes
https://www.propublica.org/article/the-billionaire-playbook-how-sports-owners-use-their-teams-to-avoid-millions-in-taxes
236 comments
> it's shocking and eye-opening how many schemes (aka "legal structures") you can employ to preserve your wealth and reduce taxation which are available to everyone regardless of their social status. It's just that... most of us mere mortals don't know anything about them. In fact, some of this stuff seems borderline illegal
Be careful. There are a lot of creative interpretations of the tax code out there that genuinely are illegal. People who employ them often assume they’re fine because they haven’t been audited or caught yet, but that doesn’t make them legal.
Always, always refer to a qualified accountant to review any tax strategies that seem too good to be true. YouTube is a fun place to learn about things, but the goal of YouTube producers is to get more clicks, not necessarily give the most accurate legal advice.
Be careful. There are a lot of creative interpretations of the tax code out there that genuinely are illegal. People who employ them often assume they’re fine because they haven’t been audited or caught yet, but that doesn’t make them legal.
Always, always refer to a qualified accountant to review any tax strategies that seem too good to be true. YouTube is a fun place to learn about things, but the goal of YouTube producers is to get more clicks, not necessarily give the most accurate legal advice.
> People who employ them often assume they’re fine because they haven’t been audited or caught yet, but that doesn’t make them legal.
There's also the pack effect. Kind of like how few folks taking the EITC actively trade stock, it looks 'normal' for rich people to do these things, whereas the same device when used by someone of more modest means is more likely to attract attention.
Not to mention having fewer resources to fight if you are audited.
There's also the pack effect. Kind of like how few folks taking the EITC actively trade stock, it looks 'normal' for rich people to do these things, whereas the same device when used by someone of more modest means is more likely to attract attention.
Not to mention having fewer resources to fight if you are audited.
> Not to mention having fewer resources to fight if you are audited.
Can't find the link now, but I read somewhere that the IRS avoids audits if the risk of losing is higher (i.e. the person in question has more resources to fight it $). So their enforcement is heavily skewed towards average people.
Which corroborates this statement.
> more modest means is more likely to attract attention
Can't find the link now, but I read somewhere that the IRS avoids audits if the risk of losing is higher (i.e. the person in question has more resources to fight it $). So their enforcement is heavily skewed towards average people.
Which corroborates this statement.
> more modest means is more likely to attract attention
Poor IRS, if only it had some good government contacts, it could ask them to improve the law and close those loopholes. Oh well.
The reason the IRS takes this tactic is it is literally underfunded. It does not have enough money to go after every millionaire and fight those court battles, even though there's a near certainty that it was in the legal right and enforcement of that type would bring back multiple dollars for every dollar spent on enforcement. The IRS does this calculus every single year, submits it as a report to the legislature, and then often has it's budget cut
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At least in Canada, it seems that the worst that can happen with a creative interpretation is that you are forced to pay it back.
Assuming its a legit misunderstanding and not intentionally malicious, pay it back with interest seems reasonable to me.
In the US you're forced to pay it back with significant additional penalties on top of the back taxes owed.
that's only for rich people going using KPMG.
I would argue that the failing is not in the education system, but instead that the tax structure of a country should not be built in such a way that those with the time and resources to spend can effectively game the system to pay significantly less of a percentage of their total wealth than those who are less wealthy.
Notice that the current infrastructure bill before the U.S. Congress includes a provision to increase enforcement resources for the IRS. Those resources have been cut considerably in recent years, and restoring them is expected to pay for itself several times over, by catching people cheating on their taxes.
Conservative groups are mobilizing to oppose increasing the funding:
https://www.washingtonpost.com/business/2021/07/07/irs-taxes...
Conservative groups are mobilizing to oppose increasing the funding:
https://www.washingtonpost.com/business/2021/07/07/irs-taxes...
I’d wager the additional people caught “cheating” will likely be small business owners while the fat cats continue business as usual.
Based on what?
The IRS does catch cheating wealthy people, but their personnel for doing so has been reduced by ~30%. What do you suggest? Let them keep cheating?
The IRS does catch cheating wealthy people, but their personnel for doing so has been reduced by ~30%. What do you suggest? Let them keep cheating?
"Fat cat" is a relative term. You might be surprised to know how many people of modest means think that every small business owner is a fat cat.
Hell, I used to own a single family house that I rented out and I had to listen to snarky comments from tenants who assumed I was rich. Newsflash: I'm not!
Hell, I used to own a single family house that I rented out and I had to listen to snarky comments from tenants who assumed I was rich. Newsflash: I'm not!
> It's just that... most of us mere mortals don't know anything about them.
I thought it was just that the vast majority of mere mortals simply did not possess the sufficient wealth to take advantage.
I thought it was just that the vast majority of mere mortals simply did not possess the sufficient wealth to take advantage.
You can start an s-Corp, and as an employee of the Corp, you pay yourself a reasonable salary. Say 40% of gross (you'll pay social security, unemployment, etc as an employee drawing a salary).
Then as the owner of the Corp, your compensation gets distributed as a dividend. With a dividend, you don't pay taxes on FICA.
You'll save ~15% in taxes.
You could do this with a simple s-Corp created with LegalZoom. $400.
Lyft drivers can drive as an S-Corp if they wish.
It’s not that exclusive.
Then as the owner of the Corp, your compensation gets distributed as a dividend. With a dividend, you don't pay taxes on FICA.
You'll save ~15% in taxes.
You could do this with a simple s-Corp created with LegalZoom. $400.
Lyft drivers can drive as an S-Corp if they wish.
It’s not that exclusive.
> You can start an s-Corp, as an employee of the Corp, pay yourself a “reasonable” salary on say 40% of the gross (pay social security, unemployment, etc).
> As the owner of the Corp, pay the rest of the comp as a dividend. Thus avoiding fica taxes.
Sounds good in theory, but if you're operating as a consultant, charging clients one rate, and then only claiming 40% of that is your "reasonable salary" then the IRS is likely to see right through your scheme. They can, and will, send the S-Corp a bill for unpaid taxes when they recharacterize those "dividend payments" as salary for you.
> You could do this with a simple s-Corp created with LegalZoom. $400.
Starting an S-Corp is only the beginning. S-Corps are legally required to do a lot of record keeping, paperwork, filing, and even hold shareholder meetings with recorded minutes. Yes, even if you're the only shareholder and you're meeting with yourself.
Some number of people do abuse the S-Corp status to dodge taxes by paying themselves in dividends with a token salary, but it's not an easy or risk-free tax dodge. The IRS may be understaffed for audits (for now) but they're not dumb when they actually start looking into these things.
> As the owner of the Corp, pay the rest of the comp as a dividend. Thus avoiding fica taxes.
Sounds good in theory, but if you're operating as a consultant, charging clients one rate, and then only claiming 40% of that is your "reasonable salary" then the IRS is likely to see right through your scheme. They can, and will, send the S-Corp a bill for unpaid taxes when they recharacterize those "dividend payments" as salary for you.
> You could do this with a simple s-Corp created with LegalZoom. $400.
Starting an S-Corp is only the beginning. S-Corps are legally required to do a lot of record keeping, paperwork, filing, and even hold shareholder meetings with recorded minutes. Yes, even if you're the only shareholder and you're meeting with yourself.
Some number of people do abuse the S-Corp status to dodge taxes by paying themselves in dividends with a token salary, but it's not an easy or risk-free tax dodge. The IRS may be understaffed for audits (for now) but they're not dumb when they actually start looking into these things.
> The IRS may be understaffed for audits (for now) but they're not dumb when they actually start looking into these things.
People don't get this. I have a family friend was was an IRS agent specializing in a few niche frauds. His personal caseloads pulled in 9-figure recoveries and a few criminal prosecutions a year. When he started in the late 80s, there were about 100 agents working those cases. When he retired a few years ago, it had attrited down to 4, and was doing half of the cases he had been due to the travel requirements for audit and court appearances, which could take him as far away as Guam or as close as in his backyard.
Definitely a super-smart dude, I remember going to parties with some of his work buddies and they were a unique group of really passionate nerds about tax and accounting issues.
People don't get this. I have a family friend was was an IRS agent specializing in a few niche frauds. His personal caseloads pulled in 9-figure recoveries and a few criminal prosecutions a year. When he started in the late 80s, there were about 100 agents working those cases. When he retired a few years ago, it had attrited down to 4, and was doing half of the cases he had been due to the travel requirements for audit and court appearances, which could take him as far away as Guam or as close as in his backyard.
Definitely a super-smart dude, I remember going to parties with some of his work buddies and they were a unique group of really passionate nerds about tax and accounting issues.
Your FUD isn't needed.
This is a perfectly reasonable approach.
You're both an employee and an owner of the Corp. And are entitled to benefits on each side.
Dividend distributions are a common means of compensation to share holders. You are an investor in the company.
Your usage of "scheme" is interesting and probably one of the many reasons why people like Bezos bring up so much vitriol when discussing taxes.
I see this approach as a perfectly legitimate, thoughtful structure to the issue of division between employee and ownership compensation. You see it as a "scheme".
This is a perfectly reasonable approach.
You're both an employee and an owner of the Corp. And are entitled to benefits on each side.
Dividend distributions are a common means of compensation to share holders. You are an investor in the company.
Your usage of "scheme" is interesting and probably one of the many reasons why people like Bezos bring up so much vitriol when discussing taxes.
I see this approach as a perfectly legitimate, thoughtful structure to the issue of division between employee and ownership compensation. You see it as a "scheme".
Generally, if your S-Corps income exceeds the FICA threshold (currently $142,800), you must first pay yourself $142,800 as FICA-taxable salary before you can pay yourself a dividend.
If your one-person S-Corp doesn't reach that level of income, all of its earnings should be paid as a salary subject to FICA.
Also...S-corps don't pay dividends. I don't know who told you that. S-Corps are pass-through entities, so the portion of income paid to an owner other than as a salary retains the character it had when the S-corp received it, meaning that ordinary income to the S-Corp...is also taxable ordinary income to the owner.
Importantly, this taxation applies whether the S-Corp actually send the earnings onward to its owners. S-Corps, like partnerships, may then distribute this already-taxed income to its owners then or at any point in the future, and it will be tax free, because the owners have already paid taxes on it.
If your one-person S-Corp doesn't reach that level of income, all of its earnings should be paid as a salary subject to FICA.
Also...S-corps don't pay dividends. I don't know who told you that. S-Corps are pass-through entities, so the portion of income paid to an owner other than as a salary retains the character it had when the S-corp received it, meaning that ordinary income to the S-Corp...is also taxable ordinary income to the owner.
Importantly, this taxation applies whether the S-Corp actually send the earnings onward to its owners. S-Corps, like partnerships, may then distribute this already-taxed income to its owners then or at any point in the future, and it will be tax free, because the owners have already paid taxes on it.
>Generally, if your S-Corps income exceeds the FICA threshold (currently $142,800), you must first pay yourself $142,800 as FICA-taxable salary before you can pay yourself a dividend
This isn't supported by Sean McAlary LTD, Inc. v. Commissioner, T.C. Summary Opinion 2013-62.
"The IRS, as it’s wont to do, argued that McAlary was not reasonably compensated, and once again, the Service took a scientific approach. Utilizing the same engineer employed by the IRS in JD & Associates and Watson, the IRS determined that $100,000 of the $240,000 distribution represented McAlary’s “reasonable” compensation."
https://www.forbes.com/sites/anthonynitti/2013/08/12/s-corpo...
This isn't supported by Sean McAlary LTD, Inc. v. Commissioner, T.C. Summary Opinion 2013-62.
"The IRS, as it’s wont to do, argued that McAlary was not reasonably compensated, and once again, the Service took a scientific approach. Utilizing the same engineer employed by the IRS in JD & Associates and Watson, the IRS determined that $100,000 of the $240,000 distribution represented McAlary’s “reasonable” compensation."
https://www.forbes.com/sites/anthonynitti/2013/08/12/s-corpo...
Your citation supports my point.
The $142k is the inflation adjusted FICA salary threshold, which was lower when this case was heard back in 2013.
The $142k is the inflation adjusted FICA salary threshold, which was lower when this case was heard back in 2013.
>Generally, if your S-Corps income exceeds the FICA threshold (currently $142,800), you must first pay yourself $142,800 as FICA-taxable salary before you can pay yourself a dividend.
Source?
>If your one-person S-Corp doesn't reach that level of income, all of its earnings should be paid as a salary subject to FICA.
Source?
Source?
>If your one-person S-Corp doesn't reach that level of income, all of its earnings should be paid as a salary subject to FICA.
Source?
> if you're operating as a consultant, charging clients one rate, and then only claiming 40% of that is your "reasonable salary"
Why would that be off? 40% sounds exactly right; large consultancies pay their consultants 40% (or less!) of what they’re charging clients for said consultants’ time.
Maybe what you’re more concerned about here would be giving giving a 40%-of-revenue salary plus a 60%-of-revenue dividend. But the dividend wouldn’t be 60%. You, as the S-Corp, would be paying into all the regular withholding stuff companies have to pay into on behalf of their employees (social security, etc.). Ever heard the phrase “employing someone at a given salary, costs ≥200% of that salary”? It’s not far off.
Why would that be off? 40% sounds exactly right; large consultancies pay their consultants 40% (or less!) of what they’re charging clients for said consultants’ time.
Maybe what you’re more concerned about here would be giving giving a 40%-of-revenue salary plus a 60%-of-revenue dividend. But the dividend wouldn’t be 60%. You, as the S-Corp, would be paying into all the regular withholding stuff companies have to pay into on behalf of their employees (social security, etc.). Ever heard the phrase “employing someone at a given salary, costs ≥200% of that salary”? It’s not far off.
My accountant working for respected accounting firm in my state literally told me to do this. I've spoken with others, and this is the exact advice they give to S-Corp clients.
I pay myself a "salary" of $60k and the rest (~$240k) is dividends. I pay my taxes quarterly too.
I pay myself a "salary" of $60k and the rest (~$240k) is dividends. I pay my taxes quarterly too.
75% of households earn under $120k per year. With max 401k, HSA, IRA, standard deduction, and a couple other easy to use deductions, is it worth it for them to go through all that trouble?
If you're W-2 it really doesn't matter at all though yeah?
And if the money you're making isn't all that much saving 15% could easily be not worth the trouble of doing it. Or add up to even $400.
And if the money you're making isn't all that much saving 15% could easily be not worth the trouble of doing it. Or add up to even $400.
The FICA net benefit window for s-corps is pretty narrow in the face of the 199A deduction. I haven't run the numbers recently but s-corp doesn't make sense until you hit something like $100k gross income to start with because of the tax prep fees and then social security tax stops at $160k-ish of W2 income.
The 199A deduction lets most sole proprietorships deduct 20% of net income. S-corps can only deduct 20% of payroll.
There are certainly other benefits to operating as an S-Corp (using an HRA and HSA in the same tax year is a particular favorite) but the income/fica benefits are overstated these days.
The 199A deduction lets most sole proprietorships deduct 20% of net income. S-corps can only deduct 20% of payroll.
There are certainly other benefits to operating as an S-Corp (using an HRA and HSA in the same tax year is a particular favorite) but the income/fica benefits are overstated these days.
Was just working through this calculator
https://proconnect.intuit.com/tax-reform/entity-selection-ca...
It does appear that a Schedule C ends up with more cash after taxes, when factoring in the 199a. I need to revisit my assumptions.
https://proconnect.intuit.com/tax-reform/entity-selection-ca...
It does appear that a Schedule C ends up with more cash after taxes, when factoring in the 199a. I need to revisit my assumptions.
> HRA and HSA in the same tax year
Curious, what's the benefit there?
Curious, what's the benefit there?
An HRA lets you deduct 100% of qualified medical expenses by paying for them through your company. An HSA lets you deduct up to $7200 for future medical expenses.
In 2016 we deducted something like $40k off of our income between premiums, deductibles and copays (HRA) and maxing our HSA.
In 2016 we deducted something like $40k off of our income between premiums, deductibles and copays (HRA) and maxing our HSA.
Well, to benefit from that, you also have to make more money than the reasonable salary every year, which a driver probably won't be doing by much.
It is also more work though. An S-Corp needs to have shareholder meetings, corporate bylaws, keep meetings minutes, final annual reports, requires a board of directors, and you have to be a US citizen/resident. These are all doable of course, but you have to make sure it's worth the tradeoff. The richer you are, the easier it is to hire someone to do all of this extra stuff for you.
When I worked in a firm (doing tax law), I loved seeing posts like this online, because the idiots that followed this advice provided a steady stream of clients needing help with their IRS audits.
If someone actually does follow your advice they will be audited, they will owe penalties and back taxes to the IRS. This is also known as a "false tax return", and so the statute of limitations never expires and the IRS has until the end of time to audit the understated returns.
If someone actually does follow your advice they will be audited, they will owe penalties and back taxes to the IRS. This is also known as a "false tax return", and so the statute of limitations never expires and the IRS has until the end of time to audit the understated returns.
Agree. I would love it if someone can rattle off a list of tax havens that I am simply unaware of.
Can I buy a major league sports team?
Can I get millions of stock options to be valued at pennies on the dollar to put in my Roth IRA?
Where has school failed me?
Can I buy a major league sports team?
Can I get millions of stock options to be valued at pennies on the dollar to put in my Roth IRA?
Where has school failed me?
You can funnel money through an LLC and write it off in addition to your own personal standard deduction.
How much will it cost to set up an LLC? How many recurring fees will this incur?
[deleted]
Depends on state of incorporation. It's usually a low one-time fee -- Texas is $300. There's also no need to incorporate in a state you are physically present in, but it makes taxes simpler if the state you're in requires state income tax.
California has a minimum $800 annual tax. The first year is waived for any LLC, LP, & LLP set up during 2021-23 due to the pandemic.
Setting up an LLC varies by state, but to pay someone else to do this for you (like LegalZoom) it's about $350 + $50 for an EIN. Then there's a filing you have to make every so-many years (like 10 years. I don't know how much that costs).
A tax haven LLC with one employee is going to be exposed as a sham by an audit. The wealthy need staff to run their operations and can credibly claim that they are a legitimate business.
This isn't entirely true, but it really depends on how you read OPs point. I know people who have LLC setup to buy rental property. At a very minimum they write off depreciation cost of the properties against their taxes. I wouldn't call it a tax haven LLC though.
You can write off rental property depreciation even if you don't have an LLC. Per my extremely limited understanding, the LLC provides a liability shield for your personal assets against litigious tenants (though it won't save you if there was genuine negligence). It can also hide your identity from people trolling property rolls to find wealthy people to sue.
Here's one - a Charitable Remainder Trust (CRT) allows you to donate your wealth, get a tax deduction on it and setup an income stream from it for as long as you're alive before the funds go to charity. This is highly simplified, but it's a way to avoid capital gains on your wealth and costs ~$3K to setup and doesn't require much "wealth" to begin with. How many people know about this? Probably very few. And that's my point.
> Here's one - a Charitable Remainder Trust (CRT) allows you to donate your wealth, get a tax deduction on it and setup an income stream from it for as long as you're alive before the funds go to charity.
The catch, of course, is that the funds actually get donated to charity in the end.
It's not so much that people are unaware that this exists. It's that it's not actually an attractive option for most people who wish to leave their inheritance to their children.
The catch, of course, is that the funds actually get donated to charity in the end.
It's not so much that people are unaware that this exists. It's that it's not actually an attractive option for most people who wish to leave their inheritance to their children.
There is definitely a catch and the catch is that you still pay taxes on that stream of income, but not as much as you would have if you paid the tax on capital gains and yes, some funds still go to charity in the end. Like I said, my description was simplified for brevity. Here's the full video [1] about this as it pertains to crypto (but it doesn't have to). He goes into explaining how to actually distribute the wealth to your family after your death (via Irrevocable Life Insurance Trust) at the end of the video.
[1] https://www.youtube.com/watch?v=7CMks9_PVqs
[1] https://www.youtube.com/watch?v=7CMks9_PVqs
So this is just saying "When I die, donate anything left in the CRT to $charity. But as long as I'm alive, pay me $amount monthly?"
That's..wild.
That's..wild.
In all my years, anytime someone says there’s this easy way to avoid taxes that no one is taking advantage of, it is because there is a catch or downside that does not make it worth it to be popular.
In the internet era, information spreads pretty quickly, so I imagine a tax benefit will be quickly disseminated so either it is brand new or you should take it with a boulder of salt.
https://www.investopedia.com/terms/c/charitableremaindertrus...
In this case, this seems like a pretty big drawback. And I assume sure you cannot just set yourself up as beneficiary.
> Charitable remainder trusts are irrevocable. This means that they cannot be modified or terminated without the beneficiary's permission. The grantor or trustor, having transferred assets into the trust, effectively removes all of her rights of ownership to the assets and the trust upon creation of its irrevocable status.
In the internet era, information spreads pretty quickly, so I imagine a tax benefit will be quickly disseminated so either it is brand new or you should take it with a boulder of salt.
https://www.investopedia.com/terms/c/charitableremaindertrus...
In this case, this seems like a pretty big drawback. And I assume sure you cannot just set yourself up as beneficiary.
> Charitable remainder trusts are irrevocable. This means that they cannot be modified or terminated without the beneficiary's permission. The grantor or trustor, having transferred assets into the trust, effectively removes all of her rights of ownership to the assets and the trust upon creation of its irrevocable status.
Others might simply refuse to take advantage of a loophole they don't consider right. People rallying under the "avoidance is not evasion" flag rarely seem to be terribly far from not minding a little taxdodging if they knew they wouldn't get caught, despite all their claims to never go beyond avoidance, but there are many who are not in that camp.
Has there ever been a state in recent history that simply refused to start the deduction game?
Has there ever been a state in recent history that simply refused to start the deduction game?
I agree - practical financial education is a huge, glaring omission from most curriculums. However, even if it wasn't, universal availability isn't a good argument for the societal benefit, morality, or legality of these practices, since to say they would still disproportionately benefit the wealthy would be an understatement.
Schemes that get more widely used are removed from the tax code and something else is put in their place. The fact their only used by a small percentage of the population is a feature not a bug. Governments spend mind boggling amounts of money, most people need to hand over a large fraction of their earnings or the system fails.
Apologies if the below comes across as inflammatory. It's not the intention, however it's largely the same as what you're saying, only how things actually play out in reality today. It doesn't need to be this way. It shouldn't be this way. Unfortunately, it is this way.
> Schemes that get more widely used are removed from the tax code and something else is put in their place.
Schemes that benefit the income-class are removed from the tax code
> The fact their only used by a small percentage of the population is a feature not a bug.
The fact they're only used by the very wealthy is a feature, not a bug.
> Governments spend mind boggling amounts of money, most people need to hand over a large fraction of their earnings or the system fails.
Governments are paid by the ultra weathly to siphon more money their way, most non-ultra-wealthy people need to hand over a large fraction of their earnings or the system fails.
> Schemes that get more widely used are removed from the tax code and something else is put in their place.
Schemes that benefit the income-class are removed from the tax code
> The fact their only used by a small percentage of the population is a feature not a bug.
The fact they're only used by the very wealthy is a feature, not a bug.
> Governments spend mind boggling amounts of money, most people need to hand over a large fraction of their earnings or the system fails.
Governments are paid by the ultra weathly to siphon more money their way, most non-ultra-wealthy people need to hand over a large fraction of their earnings or the system fails.
Well, sure but I try and avoid inflammatory language when it comes to taxes etc. People get really uptight that of course X, when you bring up say ‘business shield their owners from liability’ like whatever is being discussed is some inherent property or the universe rather than simply a social contract subject to change.
People pretend anything that is currently benefiting them is simply a forgone conclusion in part to avoid having to defend it. Nobody wants to admit that say “companies should pay taxes” because incorporation brings benefits and those benefits should have an associated cost.
I use the liability thing because it’s such an old social contract. Plenty of more recent exceptions evoke similar responses from those who benefit.
People pretend anything that is currently benefiting them is simply a forgone conclusion in part to avoid having to defend it. Nobody wants to admit that say “companies should pay taxes” because incorporation brings benefits and those benefits should have an associated cost.
I use the liability thing because it’s such an old social contract. Plenty of more recent exceptions evoke similar responses from those who benefit.
The problem is you are trying to base a tax code on "should," which is why it's broken in the first place. The problem with taxing corporations is that it isn't clear cut what their income is. Individual income is much more easily defined, (even if it comes from distributions from corporations) so taxes that target individuals tend to be more successful.
I don’t mean should as in an ethical argument. Forcing people to do paperwork to get shielded from liability is simply less efficient than shielding everyone from liability. Yes the second option seems silly, but if there is zero costs to forming a cooperation then why would anyone refrain?
The only way such a system is a good idea is if there is some reason for people not to incorporate.
The only way such a system is a good idea is if there is some reason for people not to incorporate.
It is actually quite interesting what you can find on youtube these days. There are people that have instead purchased very cheap property and are living debt free. Those people are talking about society as still having slavery - in effect - because they realize, after their freedom, what it actually was the entire time. So it's not just about tax evasion or what have you, there are all sorts of ways to restructure one's life. We don't all need what we think we need.
> Those people are talking about society as still having slavery - in effect - because they realize, after their freedom, what it actually was the entire time.
Comparing a mortgage to slavery is wildly out of touch with the horrors of actual slavery. Let’s pick a different word to discuss the relative inconvenience of having to have a job in modern society.
Comparing a mortgage to slavery is wildly out of touch with the horrors of actual slavery. Let’s pick a different word to discuss the relative inconvenience of having to have a job in modern society.
Indentured servitude?
Technically available to everyone. The issue is that > 90% of people have an income that is majority W-2 wages, and there isn't really a good way to avoid that.
Many people avoid a lot of taxes on their w-2 wages by not earning much money. They never develop much personal human capital. They don’t acquire specialized job skills. As a country the US should be more concerned about the fact that sixty percent of households don’t earn enough to sustain their lifestyle and receive large amounts of government aid in the form of services and transfers.
Alot of the "entrepreneurship" stuff is grey-area stuff that doesn't get enforced well due to complexity and de-funding of IRS enforcement. It's all good until it isn't.
The real "cheat" for US taxes is real property. At the small scale, you buy one of more multi-family properties and use cash rents and improvements to get rid of taxable income. At the larger scale, there are many different schemes to defer or eliminate tax liability. Looking at the business model for franchised hotels (Hampton Inns, Holiday Inn, Courtyards, etc) provides alot of perspective.
The real "cheat" for US taxes is real property. At the small scale, you buy one of more multi-family properties and use cash rents and improvements to get rid of taxable income. At the larger scale, there are many different schemes to defer or eliminate tax liability. Looking at the business model for franchised hotels (Hampton Inns, Holiday Inn, Courtyards, etc) provides alot of perspective.
> It's just that... most of us mere mortals don't know anything about them.
It’s less that than that they’re not worth the trouble without a fair amount of capital at stake. It’s not worth hiring accountants and lawyers, setting up trusts, etc. if you don’t have enough tax savings to balance out those upfront costs – for many people, it’d be easier and a better return to put the same money in an index fund.
It’s less that than that they’re not worth the trouble without a fair amount of capital at stake. It’s not worth hiring accountants and lawyers, setting up trusts, etc. if you don’t have enough tax savings to balance out those upfront costs – for many people, it’d be easier and a better return to put the same money in an index fund.
how many schemes (aka "legal structures") you can employ to preserve your wealth and reduce taxation which are available to everyone regardless of their social status.
Examples?
Examples?
It's not a massive news by any means. I know plenty of low income folks who use 1 member corporations to minimize their taxes. I mean, it's a pretty common knowledge.
Thanks for the link, I've been thinking a lot about this lately. Like:
- Why can Trump write off a $70k haircut but I can't write off a $35 haircut?
- Why can my employer buy my laptop, and I can use it in my off time for video games but if I buy a laptop, even to help with say an LLC I might own, I can only write off the 'portion' used for work?
- Why can my employer buy us lunch but if I work on my own I can't write off a meal except under specific circumstances?
At what point is a corporation able to do the above? Can other normal citizens also do it or is the system kinda rigged against us (even if unintentionally)?
- Why can Trump write off a $70k haircut but I can't write off a $35 haircut?
- Why can my employer buy my laptop, and I can use it in my off time for video games but if I buy a laptop, even to help with say an LLC I might own, I can only write off the 'portion' used for work?
- Why can my employer buy us lunch but if I work on my own I can't write off a meal except under specific circumstances?
At what point is a corporation able to do the above? Can other normal citizens also do it or is the system kinda rigged against us (even if unintentionally)?
>- Why can Trump write off a $70k haircut but I can't write off a $35 haircut?
Probably claims it as a necessary expense for being on TV.
>Why can my employer buy my laptop, and I can use it in my off time for video games but if I buy a laptop, even to help with say an LLC I might own, I can only write off the 'portion' used for work?
Stuff provided to employees for personal use is supposed to be taxed as a benefit. It's just likely that this hasn't been investigated by the IRS.
> - Why can my employer buy us lunch but if I work on my own I can't write off a meal except under specific circumstances?
That one's a can of worms and I know the rules have changed a number of times on this. You might consider inviting potential client to lunch. Then he or she might invite you next time as a potential vendor to lunch.
Similarly: company retreats, teambuilding exercises, and gifts to clients. Consult your tax professional.
Probably claims it as a necessary expense for being on TV.
>Why can my employer buy my laptop, and I can use it in my off time for video games but if I buy a laptop, even to help with say an LLC I might own, I can only write off the 'portion' used for work?
Stuff provided to employees for personal use is supposed to be taxed as a benefit. It's just likely that this hasn't been investigated by the IRS.
> - Why can my employer buy us lunch but if I work on my own I can't write off a meal except under specific circumstances?
That one's a can of worms and I know the rules have changed a number of times on this. You might consider inviting potential client to lunch. Then he or she might invite you next time as a potential vendor to lunch.
Similarly: company retreats, teambuilding exercises, and gifts to clients. Consult your tax professional.
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Why doesn't the author just call it depreciation, which is what it is? It's as if they're trying to make a story about some new mystery loophole....
This is almost always the case when you are reading about “the rich evading taxes” — the “loopholes” involves are typically just standard tax code tools that were put there for the reason (to incentivize certain behaviors), and the “evaders” typically just use them in exactly the way they were meant by legislators to be used.
When reading these articles just replace “loophole“ with “totally legal process” and see if it still seems wrong.
The word has a nearly constant emotional appeal now. I can think of another topic that it is used a ton and means less than nothing. It should be considered bad writing by now.
The word has a nearly constant emotional appeal now. I can think of another topic that it is used a ton and means less than nothing. It should be considered bad writing by now.
Yes, but the question is: Is this because those people are buddies of politicians and so politicians reward that behaviour because those people want to own teams? It is often difficult to find out about what is the cause and what the effect.
Depreciation was introduced to US tax code in 1909. If the legislators want to vindictively punish owners of sports teams, and deny them use of tool that’s available to everyone else, then they have to do it by new explicit rule making. However, it is beyond clear that it is not being “buddies” with politicians that allows sports team owners to depreciate them.
Please read the article next time.
"Congress inaugurated the modern era of amortization by simplifying the rules in 1993: Under the new regime, the purchaser of a business would be allowed, over the span of 15 years, to write off more types of intangible assets. This might have been welcome news for the sports business. But Congress explicitly excluded the industry from the law.
Following lobbying by Major League Baseball, in 2004, sports teams were granted the right to use this deduction as part of a tax bill signed by President George W. Bush, himself a former part owner of the Texas Rangers. Now, team owners could write off the price they paid not just for player contracts, but also a range of other items such as TV and radio contracts and even goodwill, an amorphous accounting concept that represents the value of a business’ reputation. Altogether, those assets typically amount to 90% or more of the price paid for a team."
"Congress inaugurated the modern era of amortization by simplifying the rules in 1993: Under the new regime, the purchaser of a business would be allowed, over the span of 15 years, to write off more types of intangible assets. This might have been welcome news for the sports business. But Congress explicitly excluded the industry from the law.
Following lobbying by Major League Baseball, in 2004, sports teams were granted the right to use this deduction as part of a tax bill signed by President George W. Bush, himself a former part owner of the Texas Rangers. Now, team owners could write off the price they paid not just for player contracts, but also a range of other items such as TV and radio contracts and even goodwill, an amorphous accounting concept that represents the value of a business’ reputation. Altogether, those assets typically amount to 90% or more of the price paid for a team."
Depreciation for players in sports teams was introduced in 1909? Didn't know, I'm not from the US, so thank you.
No, the point is that there is no special treatment in the tax code with respect to depreciation and sports teams. Same rules as for everything else apply.
Some would argue that a factory machine that breaks over time is different from a sports player who gets better and more valuable over time.
But I guess if you squeeze your eyes hard enough, everything looks the same.
But I guess if you squeeze your eyes hard enough, everything looks the same.
Kind of depends. Every player eventually depreciates in value as age and wear increases. Some players will first appreciate as they hit their prime, but not all.
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Sports teams are capital assets whose value decreases over time? I mean, if you use the definitions of words, yes. If you use a reasonable perspective -- no, this isn't true, the value of a team is reasonably independent of the purchase price, the asset's value and earning capacity fluctuate over time, and it's a collection of people you're paying salaries to, not a fixed asset.
That is the exact term the author uses:
> But Veeck dreamed up an innovation, a way to get a second tax deduction for the same players: depreciation. The way he accomplished this was by separately buying the contracts before the old company was liquidated, instead of transferring them to the new company as had been done before. That meant that the contracts were treated as a separate asset.
They also discuss how the problem is not the concept of depreciation but the relatively recent changes allowing it to be used for things which don’t depreciate or where the valuations are highly subjective.
> But Veeck dreamed up an innovation, a way to get a second tax deduction for the same players: depreciation. The way he accomplished this was by separately buying the contracts before the old company was liquidated, instead of transferring them to the new company as had been done before. That meant that the contracts were treated as a separate asset.
They also discuss how the problem is not the concept of depreciation but the relatively recent changes allowing it to be used for things which don’t depreciate or where the valuations are highly subjective.
Because depreciation is an accounting term, and a 101 understanding of it hides more than it reveals. Like anything accounting based, it's a collection of many little rules and norms that add up to something. Finding the operative level of abstraction is always a game of tricky compromise. It's either all forest or all trees, and to be more than a take-my-word approximation an article needs to become a multi part lesson in accounting standards and tax law.
True for most tax "loopholes."
All that said, I'd love to see the rolled up sleeves version actually going over the account... or a fictitious one. Let's be real though. It's more likely to get eyeball on HN than elsewhere, but 96.2% would not read it and we would still be discussing it based on a surface level, bias-ridden understanding.
True for most tax "loopholes."
All that said, I'd love to see the rolled up sleeves version actually going over the account... or a fictitious one. Let's be real though. It's more likely to get eyeball on HN than elsewhere, but 96.2% would not read it and we would still be discussing it based on a surface level, bias-ridden understanding.
It's super confusing:
> the purchase price was composed of assets... that degrade over time ... in few industries is that tax treatment more detached from economic reality than in professional sports ... Ballmer still gets to deduct the value of those assets over time
I'm reading this and thinking, wait are they just talking about depreciation? That's not something special about sports teams, it's also very common in real estate.
Calling it a "financial magic trick" only makes the obfuscation worse.
> the purchase price was composed of assets... that degrade over time ... in few industries is that tax treatment more detached from economic reality than in professional sports ... Ballmer still gets to deduct the value of those assets over time
I'm reading this and thinking, wait are they just talking about depreciation? That's not something special about sports teams, it's also very common in real estate.
Calling it a "financial magic trick" only makes the obfuscation worse.
With a physical building, that make sense. They do get old, and in theory, should have its value degrade over time. I would hope that land ownership however does not get to enjoy the same tax cut.
Do a sport team have it value degrade, and if so, by how much each year?
Do a sport team have it value degrade, and if so, by how much each year?
Sports players need replacement much earlier than buildings...
Depreciation related accounting standards vary quite a lot, depending on what's depreciating and how it's valued in the first place.
Yeah but they are depreciating things that aren't expected to depreciate. Like the brand and value of player contracts. Effectively, they are saying the value of the franchise nears 0 after 7 years or whatever that time frame is. Clearly that's not what's happening. It's just a hand out to rich people.
Depreciating things for tax purposes isn't about their actual value dropping, that's not always relevant, other than figuring out the timeline of how they can be deducted. It's about being forced to gradually deduct the expense of capital assets. (As opposed to all at once)
We tax income, because that's the actual money you make. So if I buy a business for $500 and only make $100 a year, I'm not really making money until after 5 years. If I have to depreciate that asset over 10 years then I can deduct $50 a year and have to pay taxes on $50.
Depreciation is a handout to the tax man honestly. The reality is that until you have made more money than the purchase price you are not really making money.
We tax income, because that's the actual money you make. So if I buy a business for $500 and only make $100 a year, I'm not really making money until after 5 years. If I have to depreciate that asset over 10 years then I can deduct $50 a year and have to pay taxes on $50.
Depreciation is a handout to the tax man honestly. The reality is that until you have made more money than the purchase price you are not really making money.
> Yeah but they are depreciating things that aren't expected to depreciate.
You need to be more precise with "depreciate."
These assets (tangible/intangible) have a limited useful life and generate revenues beyond the current period. For sports franchises, there's no guarantee that they'll be around forever, and they also require continuous working capital maintenance and capex to continue operating.
There are limits to what can be depreciated.
Generally, IP needs to be purchased (not self-built) in order to be depreciable.[0]
[0] https://www.investopedia.com/ask/answers/061715/intellectual...
You need to be more precise with "depreciate."
These assets (tangible/intangible) have a limited useful life and generate revenues beyond the current period. For sports franchises, there's no guarantee that they'll be around forever, and they also require continuous working capital maintenance and capex to continue operating.
There are limits to what can be depreciated.
Generally, IP needs to be purchased (not self-built) in order to be depreciable.[0]
[0] https://www.investopedia.com/ask/answers/061715/intellectual...
Is real estate actually treated as depreciation, or is it an asset with associated maintenance costs?
Depreciation is just an accounting trick, e.g. if you buy a laptop, you can’t put it in costs immediately (in the profit = sales - costs equation), it depreciates over say 4 years (i.e. only 25% of the purchase price can be accounted as cost each year).
Does this really happen with property? There’s no fundamental reason why a 100 year house wouldn’t be worth just as much as a new one, with proper maintenance (which can, and IMO should, be accounted separately).
Depreciation is just an accounting trick, e.g. if you buy a laptop, you can’t put it in costs immediately (in the profit = sales - costs equation), it depreciates over say 4 years (i.e. only 25% of the purchase price can be accounted as cost each year).
Does this really happen with property? There’s no fundamental reason why a 100 year house wouldn’t be worth just as much as a new one, with proper maintenance (which can, and IMO should, be accounted separately).
In Japan houses depreciate quickly because there isn't a restrictive housing code that prevents new housing from being built.
Also, houses built today have better design and better safety. I wouldn't want to live in a 100 year old house in LA.
Also, houses built today have better design and better safety. I wouldn't want to live in a 100 year old house in LA.
You’re using the word “depreciate” in the common usage (“value of an asset goes down”) not in the accounting usage (“a line in the P&L statement used to offset the profit and pay less tax”)
Are you saying landlords in Japan cannot use depreciation against profits made?
Every single one of these propublica articles has been preying on people's lack of financial knowledge to push a political agenda.
Has ProPublica actually shown anyone to have broken the law in these articles? If not, then they are just trying to stoke the fires of class warfare.
ProPublica hasn't asserted illegality — or, at least, that's not the main focus of their stories so far?
Genuine, partly-rhetorical: Which of the PRISM stories that came out after the Snowden revelations asserted and proved illegality? IIRC, no one from the government nor any of the C-suite tech executives who secretly approved the surveillance were charged or convicted with anything.
Looking at the lengthy Wikipedia article [0], I see that foreign governments said "nightmarish if true". James Clapper and President Obama himself acknowledged the existence of the program and defended it as passionately and robustly as any of the rich people defending their tax situations.
Should Snowden/Greenwald/Guardian/WaPo held off on publishing the PRISM revelations until they had proof of criminality in hand?
[0] https://en.wikipedia.org/wiki/PRISM_(surveillance_program)#M...
Genuine, partly-rhetorical: Which of the PRISM stories that came out after the Snowden revelations asserted and proved illegality? IIRC, no one from the government nor any of the C-suite tech executives who secretly approved the surveillance were charged or convicted with anything.
Looking at the lengthy Wikipedia article [0], I see that foreign governments said "nightmarish if true". James Clapper and President Obama himself acknowledged the existence of the program and defended it as passionately and robustly as any of the rich people defending their tax situations.
Should Snowden/Greenwald/Guardian/WaPo held off on publishing the PRISM revelations until they had proof of criminality in hand?
[0] https://en.wikipedia.org/wiki/PRISM_(surveillance_program)#M...
Whether or not it's legal isn't the point of the article though.
It even highlights how they're using recent changes in the tax code to claim depreciation on assets that either don't actually depreciate or the value is highly subjective.
It's a lot more than just "Oh boo boo is us our asset lost value last year so now we don't have to pay taxes".
It even highlights how they're using recent changes in the tax code to claim depreciation on assets that either don't actually depreciate or the value is highly subjective.
It's a lot more than just "Oh boo boo is us our asset lost value last year so now we don't have to pay taxes".
Its not that its lost value, its when a capital expense is recognized as an operating expense...
Also, capital gains are assessed relative to the depreciated price of the asset, so if there is a wild divergence between that and market value, the owner will pay a huge tax bill on sale.
Also, capital gains are assessed relative to the depreciated price of the asset, so if there is a wild divergence between that and market value, the owner will pay a huge tax bill on sale.
Legal behavior is often worth writing about. I read these stories as reporting on class warfare, not stoking it.
No.
This is the problem with the post-Wikileaks concept of "leaked documents". By default, the reader is lead to believe that by a document being leaked it demonstrates something nefarious or shadowy.
We saw this most notably with the Panama Papers and the Podesta emails. No one was directly prosecuted as a result of evidence derived from the wholesale publishing of the material. In the case of Podesta, it revealed absolutely nothing. So much so that a certain group of people became obsessed with innocuous messages about pizza.
The ProPublica IRS hack, in my opinion, is doing nothing for journalism ethics.
This is the problem with the post-Wikileaks concept of "leaked documents". By default, the reader is lead to believe that by a document being leaked it demonstrates something nefarious or shadowy.
We saw this most notably with the Panama Papers and the Podesta emails. No one was directly prosecuted as a result of evidence derived from the wholesale publishing of the material. In the case of Podesta, it revealed absolutely nothing. So much so that a certain group of people became obsessed with innocuous messages about pizza.
The ProPublica IRS hack, in my opinion, is doing nothing for journalism ethics.
This IRS leak clearly demonstrates something nefarious or shadowy. Nefarious things like using appreciating sports teams for claiming depreciation can be totally legal.
Billions of tax dollars have been recovered due to the Panama Papers alone [1]. The Podesta emails were BS, but everyone in the know always have agreed on that.
How you can claim that the ProPublica IRS leak isn't good journalism is unclear to me. In the few articles they've published, they've clearly exposed the nefarious practice of legal tax avoidance using specific leaked information that wasn't documented or widely known before.
[1] https://www.icij.org/investigations/panama-papers/panama-pap...
Billions of tax dollars have been recovered due to the Panama Papers alone [1]. The Podesta emails were BS, but everyone in the know always have agreed on that.
How you can claim that the ProPublica IRS leak isn't good journalism is unclear to me. In the few articles they've published, they've clearly exposed the nefarious practice of legal tax avoidance using specific leaked information that wasn't documented or widely known before.
[1] https://www.icij.org/investigations/panama-papers/panama-pap...
> became obsessed with innocuous messages about pizza.
Totally innocuous. I mean, who doesn't write vague messages about pizza and pasta? Who doesn't collect art depicting stylized child abuse? Who isn't friends with convicted child molesters? It's all merely a coincidence.
Of course it's impossible to get direct prosecution from any leaks of vague messages. That doesn't mean they aren't nefarious or shadowy. Here's another totally innocuous message from a high-level "waste-management consultant" in New Jersey: "Hey Paulie, our friend with the hair needs to go".
Totally innocuous. I mean, who doesn't write vague messages about pizza and pasta? Who doesn't collect art depicting stylized child abuse? Who isn't friends with convicted child molesters? It's all merely a coincidence.
Of course it's impossible to get direct prosecution from any leaks of vague messages. That doesn't mean they aren't nefarious or shadowy. Here's another totally innocuous message from a high-level "waste-management consultant" in New Jersey: "Hey Paulie, our friend with the hair needs to go".
If we as a society never questioned the validity of laws, we'd still be ruled by kings.
because the focus of the article is the social/societal context and impact of these rules not a technical description of how the wealthy use them. That is why negative semantic words are used as opposed to words that indicate a crime was committed. The point is specifically that these aren't a crime.
They are not a crime because the representatives of the elite wrote the tax code in the USA. Let's be honest here.
Huh?
The depreciation of assets is a rich-unfriendly feature of the tax code. It explicitly prevents the rich (those buying big assets) from writing of the expense in a single tax year and therefore reducing their profit and so their tax.
Unlike, say salary expenses, it forces them to defer most of the expense to future years, earning the tax collector more money earlier.
So if you don't depreciation, are you arguing for no expensing of capital assets, ever? (Which makes no sense).
Perhaps could you be precise how some mythical non-elite person would write this aspect of the tax code?
The depreciation of assets is a rich-unfriendly feature of the tax code. It explicitly prevents the rich (those buying big assets) from writing of the expense in a single tax year and therefore reducing their profit and so their tax.
Unlike, say salary expenses, it forces them to defer most of the expense to future years, earning the tax collector more money earlier.
So if you don't depreciation, are you arguing for no expensing of capital assets, ever? (Which makes no sense).
Perhaps could you be precise how some mythical non-elite person would write this aspect of the tax code?
The conversation evolved in to "tax loopholes" generally.
I always figured the first thing a reporter would do, if not an expert in an area, is find someone who is to explain it to them.
Either they don’t do that OR they do it and just dismiss the expert’s opinion (e.g. “oh depreciation, yeah that’s standard, every businesses uses that to properly account for the cost of capital investment”)
Either they don’t do that OR they do it and just dismiss the expert’s opinion (e.g. “oh depreciation, yeah that’s standard, every businesses uses that to properly account for the cost of capital investment”)
They do. They even describe how Bill Veeck started the practice.
This type of reporting is always confusing to me- the author cites precise tax rates for each— concession worker 14.1%, Lebron James 35.6%, and Steve Ballmer 12%— but then critiques the tax code for allowing Ballmer to take depreciation deductions without making clear if 12% is artificially low due to depreciation deductions or if his “real” tax rate (before allowing for specious depreciation deductions) is actually MUCH lower than 12%.
I suspect it’s the latter, but if he author’s goal is to incite the reader’s sense of injustice, eliminating the depreciation deduction won’t radically change the disparity between these people’s tax rates.
I suspect it’s the latter, but if he author’s goal is to incite the reader’s sense of injustice, eliminating the depreciation deduction won’t radically change the disparity between these people’s tax rates.
>Ballmer reported making $656 million. The dollar figure he paid in taxes was ... $78 million ... his federal income tax rate was just 12%
Am I misunderstanding, or is this not stating that 12% was his real tax rate?
Am I misunderstanding, or is this not stating that 12% was his real tax rate?
I think OP just didn't read the article
I think Lebron is either being very altruistic in paying his share of taxes, or he needs to to hire Balmer's accountants!
There's no way he pays that much, professional athletes have very complicated tax schemes where they sell their likeness or branding under different companies and entities for a start.
A $2 billion sports franchise is so obviously not a 90% amortizable asset. The Clippers don’t even own their stadium.
I didn't see where the article describes the other side of the transaction. For one, all of the assets that were depreciated should then not count as capital gains basis when the team is sold [0]. Furthermore, if any new contract is created that is declared to have value beyond a player's salary (to continue the depreciation game after purchase), that should look like an immediate chunk of income at the time of signing, right?
IMO the real tax inequality isn't "loopholes" of deductions that can be narrated into extravagances, but rather that the tax code deliberately privileges those with more wealth. Capital gains is limited to 15% regardless of income, instead of the same graduated scale as everything else. And even more harshly, individual taxpayers don't get to deduct their "personal" expenses (eg transportation, food, utilities, housing is limited, healthcare is limited) even though they're necessary expenses for performing whatever job gives them income.
[0] I guess this is escapable by dying, which is perhaps the long term plan.
IMO the real tax inequality isn't "loopholes" of deductions that can be narrated into extravagances, but rather that the tax code deliberately privileges those with more wealth. Capital gains is limited to 15% regardless of income, instead of the same graduated scale as everything else. And even more harshly, individual taxpayers don't get to deduct their "personal" expenses (eg transportation, food, utilities, housing is limited, healthcare is limited) even though they're necessary expenses for performing whatever job gives them income.
[0] I guess this is escapable by dying, which is perhaps the long term plan.
A sports team is a business, all businesses deduct their costs in order to calculate the profit, on which they pay tax. That is exactly what is happening here. The biased snide tone of the article pretends their is something unusual about this and says right in the headline that taxes are being avoided. In fact the correct amount of tax is being paid, it’s millions and millions of dollars, and hundreds of people are being employed.
ProPublica is just working within the bounds of the tax returns that were stolen from the IRS.
"when owners sell their teams, they have to pay back the taxes they avoided by using amortization"
Well that’s an inconvenient fact. So what the article should really say is “loophole allows team owners to delay paying tax until sale.” Snooze.
Isn't this literally the same thing with the "jeff bezos isn't paying tax" story? He's not taxed, because the tax system doesn't tax on unrealized gains, and he'll eventually get taxed?
The definition of "unrealized gains" needs to be tightened, IMO, especially when used as security against "loans", or any other instrument used by the stockholder to otherwise gain liquidity without technically realizing the gains. Which is to say, there are convoluted transactions that are in effect selling shares, but the IRS doesn't presently classify as such.
Except for all the loopholes created to help people like Bezos to avoid "eventually getting taxed". Estate Tax laws are one area, trusts are another (they even call it the "Trust Fund Loophole"), non-profits are a third, carried interest is a fourth.
>Estate Tax laws are one area, trusts are another (they even call it the "Trust Fund Loophole"),
You can't combine both. If you use one you lose the benefits of the other, see my sibling comment.
>non-profits are a third
Sure, moving your wealth to a nonprofit is tax free. But then what? If you want to spend it (on personal stuff, not curing the word of malaria or whatever), you still get taxed.
>carried interest is a fourth
I skimmed the wikipedia article and it looks like it's just like ISOs, but for investment managers?
>The logic was that the non-financial partner's "sweat equity" was also an investment, since it entailed the risk of loss if the exploration was unsuccessful
You can't combine both. If you use one you lose the benefits of the other, see my sibling comment.
>non-profits are a third
Sure, moving your wealth to a nonprofit is tax free. But then what? If you want to spend it (on personal stuff, not curing the word of malaria or whatever), you still get taxed.
>carried interest is a fourth
I skimmed the wikipedia article and it looks like it's just like ISOs, but for investment managers?
>The logic was that the non-financial partner's "sweat equity" was also an investment, since it entailed the risk of loss if the exploration was unsuccessful
==I skimmed the wikipedia article and it looks like it's just like ISOs, but for investment managers?==
If you are saying that investment manager inventives should be taxed as "performance-based compensation for management services", then you are arguing for it to be taxed as regular income. This is how bonuses are taxed for everyone else.
If you are saying that investment manager inventives should be taxed as "performance-based compensation for management services", then you are arguing for it to be taxed as regular income. This is how bonuses are taxed for everyone else.
At the long-term capital gains rate, maybe.
What would capture a lot of revenue from people like Bezos is to tax stock option gains, when realized, as regular income.
Then companies couldn't shelter their CEOs from tax by paying them mostly in options rather than salary. And the CEO would still care about growing the company so that their after-tax gains are maximized.
What would capture a lot of revenue from people like Bezos is to tax stock option gains, when realized, as regular income.
Then companies couldn't shelter their CEOs from tax by paying them mostly in options rather than salary. And the CEO would still care about growing the company so that their after-tax gains are maximized.
>And the CEO would still care about growing the company so that their after-tax gains are maximized.
but the strike price of such options have to be the market price (when they're granted). They can't give bezos options with $0.01 strike price when AMZN is trading at $3600[1]. In that sense, it already works like how you want it to work.
[1] well they can, but they wouldn't be ISOs and would be taxed at regular tax rates.
but the strike price of such options have to be the market price (when they're granted). They can't give bezos options with $0.01 strike price when AMZN is trading at $3600[1]. In that sense, it already works like how you want it to work.
[1] well they can, but they wouldn't be ISOs and would be taxed at regular tax rates.
I hope you didn't fall asleep before reading the next two sentences:
"But even if owners ultimately repay the taxes they skipped, deferring payment of those taxes for years, sometimes decades, essentially amounts to an interest-free loan from taxpayers. An owner could reap huge gains by investing that money."
"If owners die while holding their stake, as many do, the tax savings may never be repaid. And their heirs can generally restart the amortization cycle anew."
These are each clear loopholes. The first sentence is about how time value of money matters when talking about billions of dollars. The second sentence gives you an idea of why it was so "important" to weaken the Estate Tax in 2017.
"But even if owners ultimately repay the taxes they skipped, deferring payment of those taxes for years, sometimes decades, essentially amounts to an interest-free loan from taxpayers. An owner could reap huge gains by investing that money."
"If owners die while holding their stake, as many do, the tax savings may never be repaid. And their heirs can generally restart the amortization cycle anew."
These are each clear loopholes. The first sentence is about how time value of money matters when talking about billions of dollars. The second sentence gives you an idea of why it was so "important" to weaken the Estate Tax in 2017.
The first sounds like the government is encouraging investment in capital infrastructure leading to growth. This happens all the time and its a non-story.
I cant speak to the tax burden on inheritance, I know debts and expenses are often paid out of an estate first however.
I cant speak to the tax burden on inheritance, I know debts and expenses are often paid out of an estate first however.
This would also allow the owners to realize this money as capital gains instead of income (lower tax rate), right?
Yes, I also believe they wouldn't pay Social Security or Medicare taxes on it.
Ah, the best of all tax loopholes, _death_
It really is a tax loophole though--for capital gains, the basis is reset upon transferring to your heirs.
https://www.investopedia.com/terms/s/stepupinbasis.asp https://www.peoplestaxpage.org/buy-borrow-die
https://www.investopedia.com/terms/s/stepupinbasis.asp https://www.peoplestaxpage.org/buy-borrow-die
Yes, the joke being that it's sort of hard to personally recognize the benefits of the loophole.
Basis step up should be eliminated though. I can't see any economic justification for it.
Basis step up should be eliminated though. I can't see any economic justification for it.
The article also goes on to state that the depreciation has a finite time limit.
The actual headline: "Government providing depreciation that amounts to an interest free loan to billionaires in exchange for investing in capital assets" doesn't fit with the sensationalist nature of the piece
The actual headline: "Government providing depreciation that amounts to an interest free loan to billionaires in exchange for investing in capital assets" doesn't fit with the sensationalist nature of the piece
Propublica seems to love these sort of articles.
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Lebron is trying to do the same thing, he's set to become a billionaire himself and is a minority owner in Fenway sports group : https://www.beaconjournal.com/story/sports/2021/03/16/lebron...
"Shaq is rich. The white man that signs his check, is wealthy." - Chris Rock
>Khan responded: “We’re a nation of laws. U.S. Congress passes them. In the case of tax laws, the IRS applies and enforces the regulations, which are absolute. We simply and fully comply with those very IRS regulations.”
I think this says everything that needed to be said. The core of the issue with all rich tax evasion, are the laws themselves allowing for it to happen legally, albeit not morally.
I think this says everything that needed to be said. The core of the issue with all rich tax evasion, are the laws themselves allowing for it to happen legally, albeit not morally.
Why the switch from real dollars to income tax rates? When I pay for my meal at a restaurant, I pay for what I ordered, not a percentage of my income.
.. because certain economic constructs are not available unless-until a mass of capital is involved. The whole point is that very significant changes in taxation are only available at the far ends of capital accumulation.
Its not a problem that winners get more winnings, until the whole system tips into massive acceleration for say, less than one percent of the educated, voting population of a political economy. In the case of accelerating returns on investment and lowering tax liability, there might be no upper bound on how much money flows in one direction.
Its not a problem that winners get more winnings, until the whole system tips into massive acceleration for say, less than one percent of the educated, voting population of a political economy. In the case of accelerating returns on investment and lowering tax liability, there might be no upper bound on how much money flows in one direction.
Because the point the author wants to make doesn't really stand if you look at the dollar amounts rather than the percentages...
The 'fair' way to do capitalism is everyone pays a fixed dollar value of taxes - since everyone gets equal benefit from the army, the courts, schools, etc. So they should pay equally.
Yet for various reasons that doesn't lead to good outcomes... So having tax percentages, and even escalating tax percentages, is a 'hack' that doesn't really have a theoretical basis. And therefore it doesn't really seem like people should be criticising that this hack is unfairly implemented when the vast majority of people still are better off than the theoretical capitalistic approach.
The 'fair' way to do capitalism is everyone pays a fixed dollar value of taxes - since everyone gets equal benefit from the army, the courts, schools, etc. So they should pay equally.
Yet for various reasons that doesn't lead to good outcomes... So having tax percentages, and even escalating tax percentages, is a 'hack' that doesn't really have a theoretical basis. And therefore it doesn't really seem like people should be criticising that this hack is unfairly implemented when the vast majority of people still are better off than the theoretical capitalistic approach.
> since everyone gets equal benefit from the army, the courts, schools, etc. So they should pay equally.
This isn't true. Bezos benefits a lot more than I do from all of those things. As an example, the court system will enforce his property claims, and he has a lot more of them that need enforcing than I do.
This isn't true. Bezos benefits a lot more than I do from all of those things. As an example, the court system will enforce his property claims, and he has a lot more of them that need enforcing than I do.
That’s where you’re doing it wrong. You buy a meal and you just pay for it, end of story. But you should buy a sports team and you can write off the $ against your earnings.
Both are full of intangible value to you (a nice seat where people treat you like you’re important because you sign the cheque, the hard value accruing to you being minimal in either case).
Maybe you could buy 1/10000th of the restaurant instead of the meal, and maybe pay for the ingredient cost while the rest could be a loss that was paid out to the staff.
Both are full of intangible value to you (a nice seat where people treat you like you’re important because you sign the cheque, the hard value accruing to you being minimal in either case).
Maybe you could buy 1/10000th of the restaurant instead of the meal, and maybe pay for the ingredient cost while the rest could be a loss that was paid out to the staff.
Aren't these deductions built into the tax code? They are there to take advantage of and these people are using them. As long as they are not doing illegal and shady things like it was claimed about a recent popular figure, I don't see anything wrong with it. Would anyone not deduct their children's day care work because it's not fair to people below them in the economic ladder? We can have a conversation about whether all those deductions are fair or not but saying they are taking advantage of the system purposely built for them is unnecessary. There is no political will to change the tax code and may be these kind of perverse arguments will finally change the landscape and give our cowardly politicians the push they need.
> Aren't these deductions built into the tax code? They are there to take advantage of and these people are using them. There is no political will to change the tax code
You have to ask yourself: how did these deductions get into the tax code in the first place, and why is there no political will to change it? I mean, they didn't just appear there. So who put them there and why?
The tax code was just changed in 2017. There was plenty of political will to pass a $2T tax bill that sent 80% of the benefits to the wealthiest Americans and corporations. That happened. It included all kinds of benefits for the wealthy, including lowering the estate tax and corporate tax rate. The corporate tax cuts were permanent, while the individual tax cuts we all got will expire soon.
If Congress can do that, isn't there any political will to allow me to deduct my children's day care? If I had a billion dollars, I'd send a pack of lobbyists to DC just like AT&T and maybe they could muster up some "political will" to change the tax code too.
In short, when the wealthiest Americans use their wealth to leverage Congress to perpetuate their wealth, it's not enough to say "Well, what they're doing is 100% legal, so I guess there's nothing shady and illegal going on here." If "legal" just means "whatever money can buy", then what's even the point of law?
You have to ask yourself: how did these deductions get into the tax code in the first place, and why is there no political will to change it? I mean, they didn't just appear there. So who put them there and why?
The tax code was just changed in 2017. There was plenty of political will to pass a $2T tax bill that sent 80% of the benefits to the wealthiest Americans and corporations. That happened. It included all kinds of benefits for the wealthy, including lowering the estate tax and corporate tax rate. The corporate tax cuts were permanent, while the individual tax cuts we all got will expire soon.
If Congress can do that, isn't there any political will to allow me to deduct my children's day care? If I had a billion dollars, I'd send a pack of lobbyists to DC just like AT&T and maybe they could muster up some "political will" to change the tax code too.
In short, when the wealthiest Americans use their wealth to leverage Congress to perpetuate their wealth, it's not enough to say "Well, what they're doing is 100% legal, so I guess there's nothing shady and illegal going on here." If "legal" just means "whatever money can buy", then what's even the point of law?
You are right. I was coming to the same conclusion myself towards the end of my comment above.
TL;DR Treat sports franchises differently from other businesses.
“Please excuse any typos, wrote this on my phone in a hurry”
It’s less about sports owners vs person on the street than it is about any business owner and their employees. The business owner most likely does pay an overall lower tax rate. It is a broader philosophical conundrum.
On the one hand, you want to encourage entrepreneurship. Without a disproportionate reward, why would anyone be willing to take on the regulatory burden of a owning a business. On the other hand, we wish to promote equal treatment. Same laws for everyone.
So maybe, the real conversation should be about simplification of tax law to promote a less disproportionate divide between being an employer and an employee. The compliance frameworks and tax laws are as it is horrendously complicated in every country I’ve ever worked in. How about simplifying them? Have income > X? Pay Y tax. Not only will this promote egalitarianism, it will ease the complexity of running a business.
A good compromise then? In theory. In practice, that’s never going to happen. Governments are not autocratic. They need consensus to move forward. Making a change like this will involve appealing to all kinds of govt. leaders with differing vested interests. It’s the very reason behind our (US/Canada) countless tax rebates clauses and provisions. Local leaders creating new subsidy programs to attract more businesses (that translates into jobs) for their constituents.
Hmm..what can we do then? Treat sports franchises differently from other businesses. Somewhere in the countless points the author makes, they brought this up. I think there’s some real substance here.
“Please excuse any typos, wrote this on my phone in a hurry”
It’s less about sports owners vs person on the street than it is about any business owner and their employees. The business owner most likely does pay an overall lower tax rate. It is a broader philosophical conundrum.
On the one hand, you want to encourage entrepreneurship. Without a disproportionate reward, why would anyone be willing to take on the regulatory burden of a owning a business. On the other hand, we wish to promote equal treatment. Same laws for everyone.
So maybe, the real conversation should be about simplification of tax law to promote a less disproportionate divide between being an employer and an employee. The compliance frameworks and tax laws are as it is horrendously complicated in every country I’ve ever worked in. How about simplifying them? Have income > X? Pay Y tax. Not only will this promote egalitarianism, it will ease the complexity of running a business.
A good compromise then? In theory. In practice, that’s never going to happen. Governments are not autocratic. They need consensus to move forward. Making a change like this will involve appealing to all kinds of govt. leaders with differing vested interests. It’s the very reason behind our (US/Canada) countless tax rebates clauses and provisions. Local leaders creating new subsidy programs to attract more businesses (that translates into jobs) for their constituents.
Hmm..what can we do then? Treat sports franchises differently from other businesses. Somewhere in the countless points the author makes, they brought this up. I think there’s some real substance here.
I feel like the tax code ought to be biased towards benefitting small businesses, but super-tight on those processing larger amounts of money. And it ought to all be tied back to a person who controls the business so you can't just game this by creating more legal entities.
All those sorts of flat tax ideas tend to fall down when considering how 'income' is calculated. Unless the policy says the state gets x% of every dollar of revenue, which creates wild disparities between industries with different margins and generally upends the idea of 'income', such a policy is quickly in the business of deciding what expenses can be netted against which sources of income by whom ...
This is just depreciation. It's an accounting thing, not a tax thing. Everyone gets depreciation. Any dollar you spend to make money you usually get to deduct. Propublica seems to hate depreciation. These articles are hard to read sometimes. Depreciation is a real thing. It reflects the use of the underlying asset.
This article is another rehash of "businesses get better tax breaks than you do". I don't think this is very revelatory -- we already knew this.
Also interesting is this particular article is talking about carry forward losses. Regular people can carry forward losses too, it just doesn't happen very much because it only applies to investments. But if have a big investment loss, you can carry that forward as well. You can also depreciate your assets like Ballmer does. It's just that you probably don't have enough to deduct to get beyond the standard deduction.
The real problem with our tax code is that it favors capital over labor. Losses tied to capital can be written off, but losses tied to labor cannot (like the food, shelter, and clothing you need so you can live to work another day).
Imagine how our world would change if you could write off your rent, meals, and clothes. Anyone living paycheck to paycheck wouldn't pay any taxes at all. Of course it would also discourage savings, so we'd have to find a balance somewhere.
Also interesting is this particular article is talking about carry forward losses. Regular people can carry forward losses too, it just doesn't happen very much because it only applies to investments. But if have a big investment loss, you can carry that forward as well. You can also depreciate your assets like Ballmer does. It's just that you probably don't have enough to deduct to get beyond the standard deduction.
The real problem with our tax code is that it favors capital over labor. Losses tied to capital can be written off, but losses tied to labor cannot (like the food, shelter, and clothing you need so you can live to work another day).
Imagine how our world would change if you could write off your rent, meals, and clothes. Anyone living paycheck to paycheck wouldn't pay any taxes at all. Of course it would also discourage savings, so we'd have to find a balance somewhere.
> Losses tied to capital can be written off, but losses tied to labor cannot
An even better word here is 'expenses'. Businesses pay tax revenue net of expenses, people pay tax on revenue, and Propublica is shocked - shocked! - by what businesses can count as expenses.
I suppose there's an argument that standard exemption/deduction are an estimate of baseline expenses to sustain labor, and additional costs over that are consumption that shouldn't be allowed to be netted against revenue (labor income). Does one's _entire_ rent go toward sustaining their productive capacity, or does is some part of that accrue to personal enjoyment? Of course, for most workers, even the 12k deduction probably doesn't feel anywhere close to basic living expenses,
It is nice to imagine a fairer system that would allow the high cost of living in most US cities to be reflected in the treatment of labor income, but that sounds like even more complexity to add to the tax code.
An even better word here is 'expenses'. Businesses pay tax revenue net of expenses, people pay tax on revenue, and Propublica is shocked - shocked! - by what businesses can count as expenses.
I suppose there's an argument that standard exemption/deduction are an estimate of baseline expenses to sustain labor, and additional costs over that are consumption that shouldn't be allowed to be netted against revenue (labor income). Does one's _entire_ rent go toward sustaining their productive capacity, or does is some part of that accrue to personal enjoyment? Of course, for most workers, even the 12k deduction probably doesn't feel anywhere close to basic living expenses,
It is nice to imagine a fairer system that would allow the high cost of living in most US cities to be reflected in the treatment of labor income, but that sounds like even more complexity to add to the tax code.
yes, one depreciates a sports teams asset, but it will eventually depreciate to zero. then when you sell it, 100% will be capital gain (still less than income tax, but a bit closer, especially on these high wealth individuals).
the bigger deal would be the fact that if held to death (much like with other assets) the cost basis resets to. so what was once depreciated to 0% of value, is now cost basis as value at time of inheritance.
I'm sort of leaning towards the belief that the reset of the cost basis should perhaps be limited to normal tax free estate limits, and anything above that, does not get reset.
the bigger deal would be the fact that if held to death (much like with other assets) the cost basis resets to. so what was once depreciated to 0% of value, is now cost basis as value at time of inheritance.
I'm sort of leaning towards the belief that the reset of the cost basis should perhaps be limited to normal tax free estate limits, and anything above that, does not get reset.
We should call sports a religion and tax them the same. We could then remove sports from schools as a separation of church and state. We could also use this as an opportunity to correct our tax code.
My local bookstore is already working on this: https://imgur.com/a/PSpOGn2
Then they would pay no taxes.
I’m by no means an anti-taxxer, but can we stop with these articles that suggest they’ve discovered some shadowy billionaire tax fraud, but then go on to explain the literal tax code?
Hunting down every possible tax deduction should be a national sport. Everyone should be using every legal means possible to reduce their tax burden.
Rich people use their various assets to avoid millions of taxes in every industry.
We need a minimum tax.
In the plus side at least the government doesnt get the money
Either this the biggest concentration of actual multi-millionaires in the history of a forum thread or they can pat themselves in their backs and laugh all the way to the bank since the hoi-polloi fiercely fight the ideological battle for them. I suppose from the misguided belief they will soon join the club.
The only thing I dislike about this is these tools aren't available to the common person. Tax is extortion and theft: either pay or go to jail, and if you refuse, especially if you're a person of color, the police will show up with guns to harm you.
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Extortion and theft implies you didn't voluntarily accept to be taxed and that you aren't getting anything in return.
Don't want to pay high American taxes and enjoy our roads and such? No problem. Guatemala has very low tax rates. UAE has no income tax. Don't like regulations in general? Somalia will be right up your alley.
No one is forcing you to stay in American and pay these taxes. That is your choice.
Don't want to pay high American taxes and enjoy our roads and such? No problem. Guatemala has very low tax rates. UAE has no income tax. Don't like regulations in general? Somalia will be right up your alley.
No one is forcing you to stay in American and pay these taxes. That is your choice.
You are ill informed regarding the US tax code. Unlike a majority of the world's countries, the US will tax you even if you live abroad.
Not if you give up your citizenship. After all, why would you want to be a part of country if you think it's extorting and stealing from you?
I'm assuming you have zero complaints or commentary about any piece of us politics or policy right? After all if you did you should move to Guatemala right?
Guess we should have just remained a colony of Britain huh? If people didn't like the rules they should have just moved somewhere else. After all, the rules are the rules and if you don't like them the only thing you should do is go somewhere else right?
What a hypocritical, disingenuous argument this is.
Guess we should have just remained a colony of Britain huh? If people didn't like the rules they should have just moved somewhere else. After all, the rules are the rules and if you don't like them the only thing you should do is go somewhere else right?
What a hypocritical, disingenuous argument this is.
Your argument is disingenuous.
You are trying to twist his argument into "if you have any complaint, you should leave". But that's not his argument.
His argument is that if you disagree with taxation specifically, you should leave. He's fine with taxation. He probably believes that any other issues he may or may not have with his government can be fixed within that system without compromising the things he likes about it too much. He doesn't believe you can't remove taxes without compromising everything he likes about his country.
Argue his point, not some make-believe exaggeration.
You are trying to twist his argument into "if you have any complaint, you should leave". But that's not his argument.
His argument is that if you disagree with taxation specifically, you should leave. He's fine with taxation. He probably believes that any other issues he may or may not have with his government can be fixed within that system without compromising the things he likes about it too much. He doesn't believe you can't remove taxes without compromising everything he likes about his country.
Argue his point, not some make-believe exaggeration.
See "Expatriation tax"
https://www.irs.gov/individuals/international-taxpayers/expa...
https://www.irs.gov/individuals/international-taxpayers/expa...
its almost like that is WHY the US taxes overseas citizens...they don't want freeloaders relying on the benefits of their citizenship without understanding how it is paid for.
Not only that. If you renounce citizenship you are exit taxed on all your assets worth over 2 mil as a disincentive to high net worth individuals from jumping ship. Most aggressive tax regime in the world in many respects.
If you have over $2m, the argument that U.S. taxation is extortion is even less convincing. Such people have the means to hire lawyers and grease the wheels to emigrate to a wide swath of countries.
The most desirable places often have high tax rates, though. Funny how it works out like that.
The most desirable places often have high tax rates, though. Funny how it works out like that.
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that is handle-able as well
https://travel.state.gov/content/travel/en/legal/travel-lega...
you could also opt to make no money, that gets you out of taxes. It isn't 'fraud' or 'theft' or 'extortion' its a social contract.
https://travel.state.gov/content/travel/en/legal/travel-lega...
you could also opt to make no money, that gets you out of taxes. It isn't 'fraud' or 'theft' or 'extortion' its a social contract.
When did anybody voluntarily accept to be taxed? It was a law created via the slippery slope just as they are trying to do now with the wealth tax.
It's sort of unbelievable to me that you advocate for the death of a person if they don't comply with giving you something that is rightfully theirs.
If you're talking about income taxes in the US, that's a stretch. I worked my way into a bad place with regard to self-employment taxes owed, and I was able to set up a payment plan with a ridiculously low amount each month. Obviously if you intentionally refuse to pay, that's a different story.
This is what I always find funny about people using billionaires as an example of failure of capitalism. Many of the ways that todays billionaires profit is more socialistic in nature than capitalistic.
This isnt a story of some ruthless baron aggressively beating his competitors in the market. He's literally just having the money handed to him as a redistribution by the government.
This isnt a story of some ruthless baron aggressively beating his competitors in the market. He's literally just having the money handed to him as a redistribution by the government.
How is handing the government 6 dollars instead of 10 a redistribution by the government? The entire article is about using depreciation, which is an unbelievably common tax strategy when you buy a depreciating item (tools, computers, cars, etc). In fact I’d say it’s used by nearly 90% of small and large businesses.
It’s definitely NOT something that only the rich know how to use.
It’s definitely NOT something that only the rich know how to use.
I wonder in this case if they are impairing goodwill (the price paid in excess of the book value of the physical assets) or if it is truly depreciating physical assets that need to be replaced in the future. If the latter, this is what all businesses do and makes complete sense, but if the former it is just a tax deferral strategy and in the future they’ll sell to another billionaire at a higher price and have to recognize the capital gain.
When the government takes x percent of everyone's income but says that one class of people only has to pay .2x percent, it's a handout.
For the people who understand this, understand how to leverage it, and have the resources to leverage it, it's the biggest handout of all time.
For the people who understand this, understand how to leverage it, and have the resources to leverage it, it's the biggest handout of all time.
> This isnt a story of some ruthless baron aggressively beating his competitors in the market. He's literally just having the money handed to him as a redistribution by the government.
That is exactly why it's a failure of modern capitalism.
That is exactly why it's a failure of modern capitalism.
What is capitalist about the government handing out wealth as privilege?
It seems like you just don't like our society. And then label our society as capitalist so whatever you don't like about our society is therefor a failure of capitalism. I mean sure, given those definitions I'd agree with you. The problem is that "whatever the US does" is not the definition of capitalism.
It seems like you just don't like our society. And then label our society as capitalist so whatever you don't like about our society is therefor a failure of capitalism. I mean sure, given those definitions I'd agree with you. The problem is that "whatever the US does" is not the definition of capitalism.
If a certain state of affairs ("crony capitalism" or "socialistic handing out wealth") is a natural consequence of capitalism, as the other commenters are arguing, then does it matter what you call it? If your position is that the current state of affairs (the co-opting of the government by the ultra-wealthy class) is not the natural consequence of capitalism then you should argue that rather than no-true-scotsman-ing whether or not it is truly capitalism.
Its capitalist if the government handouts are only available to people with a considerable amount of capital, which is the case in the article.
Is it a failure though? I'm amazed I need to say this on HN, but that depends on the KPIs you choose to use to evaluate the capitalist aspect of this particular tax policy. If the goal is that the rich get richer, its a capitalism success. If the goal is that everyone in society gets more leisure time and increased quality of life, it looks like a failure to me.
Is it a failure though? I'm amazed I need to say this on HN, but that depends on the KPIs you choose to use to evaluate the capitalist aspect of this particular tax policy. If the goal is that the rich get richer, its a capitalism success. If the goal is that everyone in society gets more leisure time and increased quality of life, it looks like a failure to me.
Corporations coopting government for their own gain is not socialism, it's the logical progression of capitalism. Socialism is when labor owns the means of production. Capitalists lobbying (bribing) the government to take money from citizens and funnel it to themselves is not that.
It's not what socialists want out of socialism, I'd agree with that. But what else do you call a system of economics centered on government wealth transfers. It certainly isn't capitalism. It certainly closer to how socialism is usually defined.
I guess it would be better to say that this specific practice is "socialistic". I'm not making some binary claim that we are a "socialist country" as opposed to a "capitalist country"
I guess it would be better to say that this specific practice is "socialistic". I'm not making some binary claim that we are a "socialist country" as opposed to a "capitalist country"
> But what else do you call a system of economics centered on government wealth transfers. It certainly isn't capitalism. It certainly closer to how socialism is usually defined.
The way I defined socialism is how socialism is usually defined. Per Wikipedia "Socialism is a political, social, and economic philosophy encompassing a range of economic and social systems characterised by social ownership of the means of production".
The way you are defining socialism as "government giving money to some group" seems to stem from a misunderstanding about exactly what socialism is. But the government collecting money from citizens and giving it to one group or another is just what all governments do. This flow of money isn't happening because of socialism.
The way I defined socialism is how socialism is usually defined. Per Wikipedia "Socialism is a political, social, and economic philosophy encompassing a range of economic and social systems characterised by social ownership of the means of production".
The way you are defining socialism as "government giving money to some group" seems to stem from a misunderstanding about exactly what socialism is. But the government collecting money from citizens and giving it to one group or another is just what all governments do. This flow of money isn't happening because of socialism.
In elementary school we played soccer during recess. The kid who owned the ball wanted to play striker. We wanted him to play defense because he sucked. He played striker because it was his ball. The government treats Ballmer the same way. We don't want Ballmer to take his ball elsewhere.
Let him try to take his ball elsewhere. We're more powerful than we're being led to believe.
I can't stand the notion, "What can we do? We have to let the rich pay little to no taxes!"
I can't stand the notion, "What can we do? We have to let the rich pay little to no taxes!"
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> Ballmer pays such a low rate, in part, because of a provision of the U.S. tax code. When someone buys a business, they’re often able to deduct almost the entire sale price against their income during the ensuing years. That allows them to pay less in taxes. The underlying logic is that the purchase price was composed of assets — buildings, equipment, patents and more — that degrade over time and should be counted as expenses.
There’s the entire story for you. The owners took advantage of depreciation in the tax code.
There’s the entire story for you. The owners took advantage of depreciation in the tax code.
Depreciation only defers taxes. Their cost base declines and on a future sale they have greater capital gains.
Jokes on them if the future tax rate is significantly higher than the rate they were writing off all along.
Jokes on them if the future tax rate is significantly higher than the rate they were writing off all along.
No problem, just bequeath the asset to your heirs and the gains disappear.
...but then you have to pay estate tax.
Not really. If you want the step-up basis, it has to go through your estate. If you do it through some sort of trust you lose that. There's a 11M exemption for estate tax, but for someone like jeff bezos he's probably not saving much using that.
only morons pay the estate tax
How cheating billionaires defer millions in taxes with this one simple trick: spend billions on entirely legitimate business expenses.
Even the angle they worked in there about claimed depreciation not always aligning with eventually realized depreciation is nonsense. If he ever sells those assets for a profit, he’s just going to have to pay all those taxes back anyway.
I really can’t believe that the intention of articles like this is actually to inform the reader. It just seems like a way of getting low-information readers riled up about something they don’t understand.
Even the angle they worked in there about claimed depreciation not always aligning with eventually realized depreciation is nonsense. If he ever sells those assets for a profit, he’s just going to have to pay all those taxes back anyway.
I really can’t believe that the intention of articles like this is actually to inform the reader. It just seems like a way of getting low-information readers riled up about something they don’t understand.
I find it somewhat funny that Propublica articles keep on making the front page, even though they have a clear very left leaning bias. Just look at the last hit piece on Peter Theil[1] and his use of a roth IRA (which is completely legal and just savvy finance).
[1] https://news.ycombinator.com/item?id=27743427
[1] https://news.ycombinator.com/item?id=27743427
Just because it's legal doesn't make it ethical
I concur with this. The point of the article isn’t to say he doing anything illegal. It is to show the rest of the population how screwed up the tax code is to allow such things to occur. It would be trivial to fix. Put an upper limit on what can be held in a tax advantaged account. $5 million. $10 million. Whatever. Not $5 billion. That wasn’t the original intent of the program.
Right, and often it takes journalists describing the legal, unethical, behavior before we decide to make it illegal.
If we aren't supposed to write negatively about anything someone does as long as it is legal, how would we ever come around to deciding to making something illegal?
If we aren't supposed to write negatively about anything someone does as long as it is legal, how would we ever come around to deciding to making something illegal?
They are not arguing that he did something illegal. They are arguing that the system is biased toward billionaires.
"Savvy finance" is only available to those that can afford savvy accountants and tax people.
“Savvy finance” would be something like using standby letters of credit to perform off the books international asset transfers.
Claiming depreciation on your tax return is something I do with all my home office equipment every year.
Claiming depreciation on your tax return is something I do with all my home office equipment every year.
Selling yourself undervalued assets into your IRA is not legal. Thiel sold his roth IRA paypal stock for much less than it was valued by his funders.
At the time that Thiel purchased the shares, PayPal hadn't been funded. The company was worth $0 on paper.
I guarantee you he wouldn’t have transferred it to you for $1 despite the fact that you claim that’s well in excess of its value
Thiel personally considered Paypal to be very valuable, and he turned out to be right. But his personal opinion about how much the firm was (going to be) worth is not the same thing as the actual value of the firm.
Tim Cook might think that AAPL is worth $1000 a share, but it's not against the law for him to fill his IRA with Apple shares.
Tim Cook might think that AAPL is worth $1000 a share, but it's not against the law for him to fill his IRA with Apple shares.
It would, however, be against the law for Cook to claim $20,000 worth of shares were $2,000 so he could stay under the limit.
The same is true for Thiel: a private company doesn’t have such an easy way to document market value but he had insider knowledge suggesting that $0.0001/share was low, as their own SEC filings acknowledged. I would prefer that the fix be to set a tax-free cap (e.g. pay capital gains on returns over $10M) but I suspect that kind of example will get the most attention because it’s pretty clear that he low-balled it and even if that’s perfectly legal it won’t seem fair to the vast majority of the population who never have access to pre-IPO shares, much less the ability to claim their own valuation.
The same is true for Thiel: a private company doesn’t have such an easy way to document market value but he had insider knowledge suggesting that $0.0001/share was low, as their own SEC filings acknowledged. I would prefer that the fix be to set a tax-free cap (e.g. pay capital gains on returns over $10M) but I suspect that kind of example will get the most attention because it’s pretty clear that he low-balled it and even if that’s perfectly legal it won’t seem fair to the vast majority of the population who never have access to pre-IPO shares, much less the ability to claim their own valuation.
> The company was worth $0 on paper.
This is only true if you assume that everything involved (his time, knowledge, planning, etc.) had no value. Even if it would be unreasonable to predict how valuable it’d become, $0 is hard to defend.
This is only true if you assume that everything involved (his time, knowledge, planning, etc.) had no value. Even if it would be unreasonable to predict how valuable it’d become, $0 is hard to defend.
Ok, I have put a lot of my knowledge and planning into my LLC. Wanna buy it for a bargain price of $1000? Sure, it has no assets, but think of all the knowledge and planning I put into it.
Have you already raised funds, as he had? Are you aware of major additional investments pending, as he was? Do you have business deals in progress, as they did? There’s a reason why their own SEC filings described those shares as being issued below fair value.
A simple fix for this would be to prevent private holdings from being placed into a Roth since independent valuations are hard to establish without market data but it’d be even better to simply cap the tax-free gains as suggested - if you accumulate millions in returns, paying taxes on the portion over n million is fine because you’ve still been phenomenally lucky and will retire wealthy.
A simple fix for this would be to prevent private holdings from being placed into a Roth since independent valuations are hard to establish without market data but it’d be even better to simply cap the tax-free gains as suggested - if you accumulate millions in returns, paying taxes on the portion over n million is fine because you’ve still been phenomenally lucky and will retire wealthy.
Sorry, has Thiel already raised funds before adding stock to IRA, and nevertheless didn’t use the 409a value? Where did you get this information from? I see people claim this, but I have not seen any source for it.
The proPublica article says that paypal raised half a million dollars less than a month after he sold himself the shares. It raised millions more that year. Peter absolutely had been given a valuation by the venture capital firms when he sold himself the shares, deals like that don't suddenly materialize in less than a month. We can get into semantics about if paypal was actually worth what the firms were about to pay, but I think it's pretty clear that Peter committed fraud by selling himself shares for far less than he knew them to be worth.
This isn't a "I feel like these are worth a lot" scenario. This is a "we'll give you half a million dollars in a couple weeks" scenario and then Peter undercut that valuation.
This isn't a "I feel like these are worth a lot" scenario. This is a "we'll give you half a million dollars in a couple weeks" scenario and then Peter undercut that valuation.
Where did you get this from? All I have seen is that he put it into IRA when it was worth very little, as all early stage startups are. Do you mean he used price below 409A valuation or something like that?
can you further explain why you find left leaning bias and HN front page connection funny?
Thats the part of your comment I am confused by...
Thats the part of your comment I am confused by...
People sometimes use that phrase to mean “suspicious,” (e.g. “I have a funny feeling”) or to imply black humor.
Because, it is hypocritical. Has a right leaning article ever made the front page of HN? This false narrative of freedom of thought and diversity of ideas on HN is just patently false. A few people with agendas flag and downvote stories they don’t like or align with and oppress valid thoughts.
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to contextualize your response, I think two links might help:
1) the discussion of political detox week from 2016:
https://news.ycombinator.com/item?id=13108404
2) The 2019 new yorker profile on HN/dang/mod team
https://www.newyorker.com/news/letter-from-silicon-valley/th...
Key quote: In an Emacs file, Gackle collects a list of contradictory statements that people have used to describe Hacker News. (“SJW cesspool”; “a haven for alt-right and libertarian people”; “If you don’t support neoliberal fantasies, your comments probably aren’t welcome here”; “The only thing is left is to change Hacker News icon to Che Guevara emblem.”)
1) the discussion of political detox week from 2016:
https://news.ycombinator.com/item?id=13108404
2) The 2019 new yorker profile on HN/dang/mod team
https://www.newyorker.com/news/letter-from-silicon-valley/th...
Key quote: In an Emacs file, Gackle collects a list of contradictory statements that people have used to describe Hacker News. (“SJW cesspool”; “a haven for alt-right and libertarian people”; “If you don’t support neoliberal fantasies, your comments probably aren’t welcome here”; “The only thing is left is to change Hacker News icon to Che Guevara emblem.”)
You can read them as hit pieces, or as investing advice :)
[1] https://www.youtube.com/channel/UCHYeaAH3D-wzQyDiXndSfMA