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Thread: The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax

  1. Top | #121
    Veteran Member jonatha's Avatar
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    Quote Originally Posted by Rhea View Post
    Quote Originally Posted by jonatha View Post
    Quote Originally Posted by Rhea View Post
    It’s income if it’s a hedge.
    Is this a reference to "carried interest" or what?

    Yes. I’m open to learning details, but yes, I bring it up because this is something that is in the news about how certain people gain money from year to year without paying income tax on it.
    They do pay tax on it, but they get to treat it as though it's long-term capital gain (20% max rate) instead of earned income (which it arguably should be).

  2. Top | #122
    Veteran Member jonatha's Avatar
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    Quote Originally Posted by Rhea View Post
    Quote Originally Posted by barbos View Post
    Quote Originally Posted by ZiprHead View Post

    The big question is why is a stock given in remuneration not considered income but virtually everything else is?
    Because stock price can go up and down. Are you prepared to give collected taxes back when stock went and stayed down?
    Why is that different than the tax I need to pay if my mother gifts me with artwork worth $25,000?
    I received something, its value is not fixed, and I have to pay a gift tax for receiving something of value. I now have wealth that I didn’t have before - taxes due. Indeed its value may go down as the people who admired her die off, or if a great deal of her art is dumped into the market at once, exceeding the number of true collectors in a buying moment.

    But if my employer gives me stock options, then I get to wait, not pay taxes at the time of acquisition, and see what it’s worth later?

    Can I recoup my losses on the gift (income by altruism) tax later?
    1) Any gift tax due is paid by the giver, not the recipient. And the gift tax exclusion is so large that it's very seldom owed.

    2) Incentive stock options, which is where the big bucks are, are taxed when received, but are usually structured in such a way that the tax is minimal. Then the big payoff when the stock goes up is taxed at the long-term capital gains rate.

  3. Top | #123
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    Quote Originally Posted by Rhea View Post
    Quote Originally Posted by barbos View Post
    Quote Originally Posted by ZiprHead View Post

    The big question is why is a stock given in remuneration not considered income but virtually everything else is?
    Because stock price can go up and down. Are you prepared to give collected taxes back when stock went and stayed down?
    Why is that different than the tax I need to pay if my mother gifts me with artwork worth $25,000?
    I received something, its value is not fixed, and I have to pay a gift tax for receiving something of value. I now have wealth that I didn’t have before - taxes due. Indeed its value may go down as the people who admired her die off, or if a great deal of her art is dumped into the market at once, exceeding the number of true collectors in a buying moment.

    But if my employer gives me stock options, then I get to wait, not pay taxes at the time of acquisition, and see what it’s worth later?

    Can I recoup my losses on the gift (income by altruism) tax later?
    I'm not a cpa, but you wouldn't be taxed on your artwork worth $25,000. Really this debate about timing. The IRS's taxes income yearly. The IRS taxes increases in wealth when it is realized or converted to cash.

  4. Top | #124
    Veteran Member jonatha's Avatar
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    Quote Originally Posted by Harry Bosch View Post
    Quote Originally Posted by Rhea View Post

    Why is that different than the tax I need to pay if my mother gifts me with artwork worth $25,000?
    I received something, its value is not fixed, and I have to pay a gift tax for receiving something of value. I now have wealth that I didn’t have before - taxes due. Indeed its value may go down as the people who admired her die off, or if a great deal of her art is dumped into the market at once, exceeding the number of true collectors in a buying moment.

    But if my employer gives me stock options, then I get to wait, not pay taxes at the time of acquisition, and see what it’s worth later?

    Can I recoup my losses on the gift (income by altruism) tax later?
    I'm not a cpa, but you wouldn't be taxed on your artwork worth $25,000. Really this debate about timing. The IRS's taxes income yearly. The IRS taxes increases in wealth when it is realized or converted to cash.
    Unless it becomes part of the owner's estate, in which case (under present rules) it is never taxed (as income. It may be subject to the estate tax...)

  5. Top | #125
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    Quote Originally Posted by jonatha View Post
    Quote Originally Posted by Harry Bosch View Post
    Quote Originally Posted by Rhea View Post

    Why is that different than the tax I need to pay if my mother gifts me with artwork worth $25,000?
    I received something, its value is not fixed, and I have to pay a gift tax for receiving something of value. I now have wealth that I didn’t have before - taxes due. Indeed its value may go down as the people who admired her die off, or if a great deal of her art is dumped into the market at once, exceeding the number of true collectors in a buying moment.

    But if my employer gives me stock options, then I get to wait, not pay taxes at the time of acquisition, and see what it’s worth later?

    Can I recoup my losses on the gift (income by altruism) tax later?
    I'm not a cpa, but you wouldn't be taxed on your artwork worth $25,000. Really this debate about timing. The IRS's taxes income yearly. The IRS taxes increases in wealth when it is realized or converted to cash.
    Unless it becomes part of the owner's estate, in which case (under present rules) it is never taxed (as income. It may be subject to the estate tax...)
    Sure. The theory is that we should be able to pass along some assets to our heirs untaxed. But above a certain point, it gets taxed. (Again, I'm probably butchering this as I'm not a tax expert).

  6. Top | #126
    Cyborg with a Tiara
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    Quote Originally Posted by jonatha View Post
    Quote Originally Posted by Harry Bosch View Post
    Quote Originally Posted by Rhea View Post

    Why is that different than the tax I need to pay if my mother gifts me with artwork worth $25,000?
    I received something, its value is not fixed, and I have to pay a gift tax for receiving something of value. I now have wealth that I didn’t have before - taxes due. Indeed its value may go down as the people who admired her die off, or if a great deal of her art is dumped into the market at once, exceeding the number of true collectors in a buying moment.

    But if my employer gives me stock options, then I get to wait, not pay taxes at the time of acquisition, and see what it’s worth later?

    Can I recoup my losses on the gift (income by altruism) tax later?
    I'm not a cpa, but you wouldn't be taxed on your artwork worth $25,000. Really this debate about timing. The IRS's taxes income yearly. The IRS taxes increases in wealth when it is realized or converted to cash.
    Unless it becomes part of the owner's estate, in which case (under present rules) it is never taxed (as income. It may be subject to the estate tax...)

    Confused then - the gift tax is on items over $14,000 per person per year. Is it not?

    And regardless of who pays it - the transaction results in a tax payment.

  7. Top | #127
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    Quote Originally Posted by Rhea View Post
    Quote Originally Posted by jonatha View Post

    Unless it becomes part of the owner's estate, in which case (under present rules) it is never taxed (as income. It may be subject to the estate tax...)

    Confused then - the gift tax is on items over $14,000 per person per year. Is it not?

    And regardless of who pays it - the transaction results in a tax payment.
    Here's a good quote: "Two things keep the IRS’ hands out of most people's candy dish: the $15,000 annual exclusion in 2020 and 2021, and the $11.58 million lifetime exclusion in 2020 ($11.7 million in 2021)."

    https://www.nerdwallet.com/article/taxes/gift-tax-rate

  8. Top | #128
    Cyborg with a Tiara
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    Quote Originally Posted by Rhea View Post
    Quote Originally Posted by jonatha View Post

    Unless it becomes part of the owner's estate, in which case (under present rules) it is never taxed (as income. It may be subject to the estate tax...)

    Confused then - the gift tax is on items over $14,000 per person per year. Is it not?

    And regardless of who pays it - the transaction results in a tax payment.
    An example: I pay my kids’ college tuition. This is far more than $15K/year. If I made the mistake of giving them the money and having them pay it, (instead of me paying directly,) that would be seen as a gift of $60K per year. And would trigger the gift tax. They get money that they didn’t have before, the transaction triggers a tax.

  9. Top | #129
    Cyborg with a Tiara
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    Quote Originally Posted by Harry Bosch View Post
    Quote Originally Posted by Rhea View Post
    Quote Originally Posted by jonatha View Post

    Unless it becomes part of the owner's estate, in which case (under present rules) it is never taxed (as income. It may be subject to the estate tax...)

    Confused then - the gift tax is on items over $14,000 per person per year. Is it not?

    And regardless of who pays it - the transaction results in a tax payment.
    Here's a good quote: "Two things keep the IRS’ hands out of most people's candy dish: the $15,000 annual exclusion in 2020 and 2021, and the $11.58 million lifetime exclusion in 2020 ($11.7 million in 2021)."

    https://www.nerdwallet.com/article/taxes/gift-tax-rate

    Yeah, I was reading that. All kinds of triggers for people like me. Which, hoestly, I am not against, as long as it is consistent with other ways income is derived.

    My argument is that if you have something you didn’t have before - it’s income. That’s not the current definition. But I feel like it should be because of how many ways vast amounts of money are transferred from one person to another and claimed, “but that’s not ‘income’ because I didn’t turn a wrench for it.”

    I don’t care what you did to get it; turning a wrench, polishing a chair with your butt, looking cute, or making a phone call. If you have wealth that you didn’t have before - it’s income.

  10. Top | #130
    Veteran Member jonatha's Avatar
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    Quote Originally Posted by Rhea View Post
    Quote Originally Posted by jonatha View Post

    Unless it becomes part of the owner's estate, in which case (under present rules) it is never taxed (as income. It may be subject to the estate tax...)

    Confused then - the gift tax is on items over $14,000 per person per year. Is it not?

    And regardless of who pays it - the transaction results in a tax payment.
    The giver owes gift tax on transfers to any one entity exceeding $15,000 per year. (Gifts to charity, to one's spouse, or directly to an educational institution or a medical provider to pay someone else's bills are exempt.)

    If gift tax is owed, the giver files a gift tax return. The giver has a lifetime exclusion amount of $11.5 million (this is the gross amount given, not the tax due) and any gift tax due is subtracted from the lifetime exclusion amount. Only when (if....) that is used up is any tax payment made.

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