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

[ZiprHead]

I have taxes taken out of my paycheck every two weeks. You square things up at the end of the year

As for your last sentence, that just about only applies to stocks. And again I ask the question why are stocks given in remuneration exempt from taxation until they are cashed out? Virtually everything else is subject to taxation. It's a clear and legal tax dodge. It shouldn't be. That's the whole entire point.

I'm not a fan of the wealth tax. I agree with Ruth's post 101. The reason why all but three European companies have given up on the wealth tax. And even those three countries have greatly reduced their wealth taxes (far below the rate that Warren is recommending.) A wealth tax is inefficient, hard to measure, difficult to collect, creates incentives to cheat. Secondly, a lot of private companies would just never go public. For various reasons, it's better for society when a private company goes public (probably should be a separate thread.)

So you make cheating legal?

 

[ZiprHead]

I have taxes taken out of my paycheck every two weeks. You square things up at the end of the year

As for your last sentence, that just about only applies to stocks. And again I ask the question why are stocks given in remuneration exempt from taxation until they are cashed out? Virtually everything else is subject to taxation. It's a clear and legal tax dodge. It shouldn't be. That's the whole entire point.

Nope. Harry Bosch's last sentence applies to ANY type of item sold. Stocks, sure - but also gold, silver, real estate, artwork, even personal items (like a boat or jewelry) that are sold for a profit. And don't forget our individual cryptocurrency holder; if they sell for a profit it is treated the same as the millionaires stock sale. My son was given renumeration for software reviews in cryptocurrency. It was not taxed until he sold it. That is precisely the same transaction that you say should be taxed annually since it was "a clear and legal tax dodge". I disagree completely.

Ruth

It's simply a matter of semantics. No matter how you make your wealth, it should be taxed. Why do you think the choice was made to pay in crypto in the first place?

 

[Loren Pechtel]

I feel that we coud go a long way if we were more honest and standard about income.

If you have a value this year, and you didn’t have it last year, and it came from somewhere else - it’s income.

It’s income if you get a gift (over $10K currently)
It’s income if you inherit it
It’s income if it’s wages
It’s income if it’s gold coins, a valuable painting, a free plane ride, or a house that you didn’t pay for.
It’s income if it’s a hedge.
If you use it as collateral, it’s income as if you sold it.


If you gained something - it’s income. And it is taxed progressively.

We've already shown the problems here. You must really love homelessness because that's what you're causing here--you've basically killed the entire real estate market. Where are people going to live?

 

[Loren Pechtel]

If it makes sense for him to borrow against his stock because it's going up faster than the interest it makes sense for any other investor with enough means to borrow in order to buy Amazon stock. He's not in a special position in this regard.

But you said banks don't take stock as collateral. So what is Mr. Bezos have that induces lenders to lend him funds?

I suggest you go back and reread.

I said banks don't take stock as collateral, but brokers do.

 

[Harry Bosch]

I feel that we coud go a long way if we were more honest and standard about income.

If you have a value this year, and you didn’t have it last year, and it came from somewhere else - it’s income.

It’s income if you get a gift (over $10K currently)
It’s income if you inherit it
It’s income if it’s wages
It’s income if it’s gold coins, a valuable painting, a free plane ride, or a house that you didn’t pay for.
It’s income if it’s a hedge.
If you use it as collateral, it’s income as if you sold it.


If you gained something - it’s income. And it is taxed progressively.

We've already shown the problems here. You must really love homelessness because that's what you're causing here--you've basically killed the entire real estate market. Where are people going to live?

I agree that it would severely tank consumer spending and probably put us in a short term recession. However, it might not be the worse thing in the world. I don't think that people using a long term asset (home equity) to finance short term purchases (cars, furniture, vacations, and etc.) is the most wisest long term investment. Yes, I include a car as a short term investment (way shorter than a house!). People would be in a much better position to retire in the future if they could retire debt free.

 

[Loren Pechtel]

Do you also agree with me on the following?

Most of the European countries that had wealth taxes abandoned them after discovering they didn’t raise enough money to justify the administrative headache of assessing a bunch of hard-to-value assets, such as private companies and art. Or the economic distortions that resulted when wealthy people started trying to avoid the tax, for example, by investing elsewhere, or keeping their companies private.

The unintended consequences of what you propose are what worries me.

Charging a tax on the borrowings is unnatural; and taxing wealth has disadvantages. But, if the wealth has the form of shares in a profitable corporation, then there is a simple approach which achieves a similar end without these problems. Simply place a 12% surcharge on the corporate income tax already in place. If the company is being taxed 8%, increase that to 8+12 = 20%. This VERY ROUGHLY may act like a one-time (NOT annual) 12% tax on wealth.

We need not cover the details. Obviously the exact net tax (including the effect from the surcharge on market-appraised wealth) would not generally equal the total tax paid in other schemes. But that doesn't necessarily make this scheme wrong; and it may be a good starting-point.

I dislike corporate income tax, period. In the end it just gets passed on to the consumer and thus it's a regressive tax.

 

[laughing dog]

If it makes sense for him to borrow against his stock because it's going up faster than the interest it makes sense for any other investor with enough means to borrow in order to buy Amazon stock. He's not in a special position in this regard.

But you said banks don't take stock as collateral. So what is Mr. Bezos have that induces lenders to lend him funds?

I suggest you go back and reread.

I said banks don't take stock as collateral, but brokers do.

I suggest you think before you respond. Ordinary folks do not have brokers nor do they have sufficient stock as collateral.

The point of this is that Bezos and others can borrow against their assets and end up with consumption and more wealth without paying taxes until they convert their wealth. That is the issue here, no matter how many false claims and smokescreens you hoist up.

 

[Loren Pechtel]

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.

I do think it's $14k/yr at present. Gifts below that are simply not taxed. Gifts above that, other than for certain specific purposes (for example, paying someone's tuition) are "taxable" and must be reported--but it's treated as if it's part of your estate. It comes off the amount you are allowed to pass on tax free, only when that amount is gone do you actually have to pay.

 

[laughing dog]

Do you also agree with me on the following?

The unintended consequences of what you propose are what worries me.

Charging a tax on the borrowings is unnatural; and taxing wealth has disadvantages. But, if the wealth has the form of shares in a profitable corporation, then there is a simple approach which achieves a similar end without these problems. Simply place a 12% surcharge on the corporate income tax already in place. If the company is being taxed 8%, increase that to 8+12 = 20%. This VERY ROUGHLY may act like a one-time (NOT annual) 12% tax on wealth.

We need not cover the details. Obviously the exact net tax (including the effect from the surcharge on market-appraised wealth) would not generally equal the total tax paid in other schemes. But that doesn't necessarily make this scheme wrong; and it may be a good starting-point.

I dislike corporate income tax, period. In the end it just gets passed on to the consumer and thus it's a regressive tax.

There is no consensus that a corporate income tax is passed on to consumers. None. While you are entitled to your opinion, your belief in something does not make it true.

 

[ZiprHead]

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.

I do think it's $14k/yr at present. Gifts below that are simply not taxed. Gifts above that, other than for certain specific purposes (for example, paying someone's tuition) are "taxable" and must be reported--but it's treated as if it's part of your estate. It comes off the amount you are allowed to pass on tax free, only when that amount is gone do you actually have to pay.

What is the gift tax?

Gift tax is a federal tax on transfers of money or property to other people while getting nothing (or less than full value) in return. Few people owe gift tax; the IRS generally isn’t involved unless a gift exceeds $15,000. Even then, it might only trigger extra paperwork.

Do you pay taxes when you receive a gift?

In most cases, no. Assets you receive as a gift or inheritance typically aren’t taxable income at the federal level. However, if the assets later produce income (perhaps they earn interest or dividends, or you collect rent), that income is likely taxable. IRS Publication 525 has the details. Also, some states have inheritance taxes.

How do I avoid gift tax?

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). Stay below those and you can be generous under the radar. Go above, and you'll have to fill out a gift tax form when filing returns — but you still might avoid having to pay any gift tax.

How gift tax is calculated and how the annual gift tax exclusion works

In 2020 and 2021, you can give up to $15,000 to someone in a year and generally not have to deal with the IRS about it.

If you give more than $15,000 in cash or assets (for example, stocks, land, a new car) in a year to any one person, you need to file a gift tax return. That doesn’t mean you have to pay a gift tax. It just means you need to file IRS Form 709 to disclose the gift.

The annual exclusion is per recipient; it isn’t the sum total of all your gifts. That means, for example, that you can give $15,000 to your cousin, another $15,000 to a friend, another $15,000 to the neighbor, and so on all in the same year without having to file a gift tax return.

The annual exclusion also is per person, which means that if you’re married, you and your spouse could give away a combined $30,000 a year to whomever without having to file a gift tax return.

Gifts between spouses are unlimited and generally don’t trigger a gift tax return. Gifts to nonprofits are charitable donations, not gifts.

The person receiving the gift usually doesn't need to report the gift.

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

 

[ZiprHead]

Do you also agree with me on the following?

Charging a tax on the borrowings is unnatural; and taxing wealth has disadvantages. But, if the wealth has the form of shares in a profitable corporation, then there is a simple approach which achieves a similar end without these problems. Simply place a 12% surcharge on the corporate income tax already in place. If the company is being taxed 8%, increase that to 8+12 = 20%. This VERY ROUGHLY may act like a one-time (NOT annual) 12% tax on wealth.

We need not cover the details. Obviously the exact net tax (including the effect from the surcharge on market-appraised wealth) would not generally equal the total tax paid in other schemes. But that doesn't necessarily make this scheme wrong; and it may be a good starting-point.

I dislike corporate income tax, period. In the end it just gets passed on to the consumer and thus it's a regressive tax.

There is no consensus that a corporate income tax is passed on to consumers. None. While you are entitled to your opinion, your belief in something does not make it true.

So you want corporations to not pay taxes and the CEOs to not pay taxes?

 

[Derec]

So you want corporations to not pay taxes and the CEOs to not pay taxes?

Who said anything about CEOs not paying taxes?

 

[Ruth Harris]

I have taxes taken out of my paycheck every two weeks. You square things up at the end of the year

As for your last sentence, that just about only applies to stocks. And again I ask the question why are stocks given in remuneration exempt from taxation until they are cashed out? Virtually everything else is subject to taxation. It's a clear and legal tax dodge. It shouldn't be. That's the whole entire point.

Nope. Harry Bosch's last sentence applies to ANY type of item sold. Stocks, sure - but also gold, silver, real estate, artwork, even personal items (like a boat or jewelry) that are sold for a profit. And don't forget our individual cryptocurrency holder; if they sell for a profit it is treated the same as the millionaires stock sale. My son was given renumeration for software reviews in cryptocurrency. It was not taxed until he sold it. That is precisely the same transaction that you say should be taxed annually since it was "a clear and legal tax dodge". I disagree completely.

Ruth

It's simply a matter of semantics. No matter how you make your wealth, it should be taxed. Why do you think the choice was made to pay in crypto in the first place?

I have no idea. Maybe they like to promote cryptocurrency. Maybe they thought it would garner more reviews than something else. Maybe it was the cheapest way for them to entice reviews. Who knows.

But unless they paid in cold hard cash, my son had no income from this transaction until he actually sold the cryptocurrency. And it wasn't useful to him until he converted it into a cash equivalent. Maybe you consider borrowing against an asset "converting" it to cash, but I disagree. In that case, you are still on the hook for paying the money back so you don't actually "own" the money. There are certain times that non cash items are taxed as income, such as sweepstakes prizes. But those prizes are typically items that are purchased and used by an individual, such as automobiles or appliances. Since the individual did not have to spend their own earnings to get them, the IRS considers that a taxable transaction to the recipient.

There is another type of income that is not taxed that has not been mentioned. That is credit card rewards, and they are widely received by everyday people. I get them myself. Every year, I cash in the equivalent points for several hundred dollars of rewards for real money. Last year I earned almost $600 in credit card rewards. I am able to do this because I use cash back credit cards for everything possible, and take advantage of special cash back promotions. For instance, one of my cards offered 5% cash back for all purchases during a 4 month period. I made out like a bandit on that one as I charged my auto and homeowners insurance annual payments, my real estate and personal property taxes, and everything else I could. That one promotion alone made me almost half of my rewards last year and cost less than $5 in fees on the property tax payments. I have another card that pays 5% on utilities. I make a single payment as needed to max out the quarter limit of $2,000 on purchases for those rewards, and it only costs me a $1.75 fee from the utility for using a credit card. All it takes is a little research on my part to figure out which card will pay back the highest amount on a purchase. So do you think I should have to pay taxes on this? The IRS stance is that these rewards are a rebate on purchases and not taxable, but should be taken into account if any item purchased is later sold as they reduce the basis you have in it.

I don't think we will ever agree on this. You have your viewpoint and I have mine - and never the twain shall meet

Ruth

 

[Ruth Harris]

There is no consensus that a corporate income tax is passed on to consumers. None. While you are entitled to your opinion, your belief in something does not make it true.

What? How on earth do you come up with that? Taxes are an expense to a company. They are going to charge enough for their products to cover their expenses and make a certain percentage of profit. If they don't, they will be out of business pretty promptly.

Now, I am not saying that I necessarily think corporations should pay no taxes. But what I am saying is that the more taxes they pay, the more they are going to charge for their products as their expenses are higher. It is simple economics.

Ruth

 

[ZiprHead]

So you want corporations to not pay taxes and the CEOs to not pay taxes?

Who said anything about CEOs not paying taxes?

Did you not see the open and all the defenses of the thievery on the American people that have been posted?

 

[ZiprHead]

It's simply a matter of semantics. No matter how you make your wealth, it should be taxed. Why do you think the choice was made to pay in crypto in the first place?

I have no idea. Maybe they like to promote cryptocurrency. Maybe they thought it would garner more reviews than something else. Maybe it was the cheapest way for them to entice reviews. Who knows.

But unless they paid in cold hard cash, my son had no income from this transaction until he actually sold the cryptocurrency. And it wasn't useful to him until he converted it into a cash equivalent. Maybe you consider borrowing against an asset "converting" it to cash, but I disagree. In that case, you are still on the hook for paying the money back so you don't actually "own" the money. There are certain times that non cash items are taxed as income, such as sweepstakes prizes. But those prizes are typically items that are purchased and used by an individual, such as automobiles or appliances. Since the individual did not have to spend their own earnings to get them, the IRS considers that a taxable transaction to the recipient.

And that is exactly the point of the OP. Yes, I know that's the way it is. I and many others are saying that it should not be the way it is.

 

[jonatha]

My son was given renumeration for software reviews in cryptocurrency. It was not taxed until he sold it.
Ruth

Legally it should have been.

Tax should have been paid on its fair market value at the time of receipt. At the time of sale any gain or loss would have been realized and taxed.

 

[jonatha]

I suggest you go back and reread.

I said banks don't take stock as collateral, but brokers do.

I suggest you think before you respond. Ordinary folks do not have brokers nor do they have sufficient stock as collateral.

The point of this is that Bezos and others can borrow against their assets and end up with consumption and more wealth without paying taxes until they convert their wealth. That is the issue here, no matter how many false claims and smokescreens you hoist up.

And as I tried to mention earlier, Loren is wrong. Banks do take stock as collateral, if you've got enough of it. Wiki Archegos...

 

[Harry Bosch]

I suggest you go back and reread.

I said banks don't take stock as collateral, but brokers do.

I suggest you think before you respond. Ordinary folks do not have brokers nor do they have sufficient stock as collateral.

The point of this is that Bezos and others can borrow against their assets and end up with consumption and more wealth without paying taxes until they convert their wealth. That is the issue here, no matter how many false claims and smokescreens you hoist up.

And as I tried to mention earlier, Loren is wrong. Banks do take stock as collateral, if you've got enough of it. Wiki Archegos...

I worked at a bank a few years ago that did not take stock as collateral. But you're right, many banks do take direct assignments of company stock (publicly traded of course).

 

[Ruth Harris]

My son was given renumeration for software reviews in cryptocurrency. It was not taxed until he sold it.
Ruth

Legally it should have been.

Tax should have been paid on its fair market value at the time of receipt. At the time of sale any gain or loss would have been realized and taxed.

In most cases, you would have been right. But the cryptocurrency he was given was considered valueless at the time of receipt. Each share was worth only thousandths of a cent. They did anticipate that the value would grow exponentially, which it did.

What ZiprHead is proposing would have caused my son to owe taxes at the end of the year for the increase in value of the cryptocurrency since his acquisition even though he had realized no actual useful cash income. That is where my objection lies.

Ruth