4 ms·

For an extra $30MM in tax write-offs... because clearly she stands to make more taxable income than the $150MM in stock she donated: https://news.ycombinator.co

by Denzel 9y ago

For an extra $30MM in tax write-offs... because clearly she stands to make more taxable income than the $150MM in stock she donated: https://news.ycombinator.com/item?id=10844592 https://news.ycombinator.com/item?id=10844592.

dantiberian 9y ago
I don't quite understand the idea of tax dodging a smaller tax bill by donating a larger amount of money? She had $150mm in stock, and donated it all, avoiding a tax bill of $30mm? If she had paid the tax bill, she would have had net $120mm, but after donating it, she had net $0mm? There must be something I'm missing here. I've seen these kinds of schemes discussed before, but don't understand how they would work.
- Denzel 9y ago
  TL;DR It looks like she donated $150MM when in actuality she only donated $37.5MM Can you imagine the optics of an active board member, of a multi-billion dollar company, profiting from said company -- she's on the board of -- buying the company she runs? Good grief that reeks. She understood she couldn't take that money in good conscience. So, she got out in front of the optics for a small fee by "donating to charity." (I mean look at the comments here applauding her for donating her shares.) When you donate $150MM in stock, not only do you dodge the $30MM capital-gains tax (at a 20% tax rate), you receive a tax write-off for the full market value of the stock when you donated: $150MM in this case. Which means, in any year, she can take $150MM in income taxed at say 55%, and pay $0 in taxes on it. Much better than the $82.5MM she'd originally owe. And it makes tax planning a lot easier -- you don't have to worry about timing. All in all: $120MM net - $82.5MM write-off = $37.5MM total cost to her for shares she didn't even want -- for good reason. Understand that I don't care. But I would've been more impressed if she had donated those shares to her employees...
  - nine_k 9y ago
    Isn't it how tax incentives work? Effectively she donated a bunch of money to a charity instead of the federal tax fund. Hopefully the charity is more efficient!
    - sleepychu 9y ago
      It really ought not to be though. I get that the reality is that it is but it irks me greatly that we don't simply tax more heavily and have a social system which works to solve the types of problems that charities aim to solve. Then if you wanted to do "charity work" you'd just work for the government.
      - nine_k 9y ago
        I think it does not work for the same reason Soviet-style government-planned economy does not work. The incentives of private persons and of government officials are unreconcilably different.
    - saiya-jin 9y ago
      hate to break it to you, but charities generally consume at least 95% of the budget on organizational management and bureaucracy, and actual help to needy is the remaining <5%. there might be some run more efficiently, but that's the industry average. not even going into details of chaos of said charities during some proper disaster, where they all swarm at said place, uncoordinated, ineffective in costs and human rescue efforts. state is a poor manager of given budget, but sincerely doubt it's as ineffective as this (plus it helps mostly locally so taxes affect taxpayers more directly)
  - dragonwriter 9y ago
    > Which means, in any year, she can take $150MM in income taxed at say 55%, and pay $0 in taxes on it. 55% is greater than the maximum combined federal and state marginal income tax rate on normal income, and no one making that much does it as normal (mainly, labor) rather than long-term capital gains (which pays lower rates) income in the first place, because no one pays that kind of money for labor, you only make it by capital returns, so, no, she can't even in principal, and even if the tax rates were such that she could in principal, she still wouldn't be likely to be able to in practice.
    - Denzel 9y ago
      Firstly, 55% is not greater than the maximum tax rate one could pay on income (especially in CA) [1]. Secondly, you understand that RSUs (restricted stock units) are taxed as normal W-2 income at the time of vesting, right! You pay capital-gains tax on any appreciation in value after said vesting -- should you choose to sell the stock. You should probably stop spreading misinformation on topics you don't have experience in. [1]: https://smartasset.com/taxes/california-tax-calculator https://smartasset.com/taxes/california-tax-calculator
      - dragonwriter 9y ago
        > Firstly, 55% is not greater than the maximum tax rate one could pay on income But it is, AFAICT, greater than the maximum marginal income tax rate [0]; since the deduction affects only income taxes and not other taxes on income, it is the maximum marginal income tax rate, not the maximum marginal rate of taxation on income, that is relevant. > Secondly, you understand that RSUs (restricted stock units) are taxed as normal W-2 income at the time of vesting Yes, I do. That doesn't change anything I said. People that are making hundreds of millions of dollars of income in a year aren't making it from RSU vesting, or any other source of income subject to regular income taxes. [0] just barely; the maximum marginal income tax rate in any US jurisdiction seems to be 39.6% federal + 13.3% CA state + 1.5% SF local, or 54.4%.
        Denzel 9y ago
  - dantiberian 9y ago
    Certainly it was better optics for her to donate the stock to charity, but she didn't come out ahead from it AFAICT. A simplified example, assuming one year of income from the shares, and one year of $150mm income from Google. ### Keep the shares: Year1 = $150 - ($150 * 0.2) => $120 Year2 = $150 - ($150 * 0.55) => $67.5 Year1 + Year2 => $187.5 ### Donate the shares: Year1 = $150 - $150 - $0 => $0 Year2 = $150 - $0 => $150 Year1 + Year2 => $150 The first law of tax is that it is always better to have more money than less money. I could be wrong here, but I can't seem to find a way that you come out with more money by giving it away (ignoring donations to your own dodgy charity). I'm a big proponent of charity giving, but I don't see a way to make it turn a profit. - https://www.bloomberg.com/view/articles/2014-12-09/deutsche-bank-had-a-lot-of-ways-to-avoid-paying-taxes#footnote-1 https://www.bloomberg.com/view/articles/2014-12-09/deutsche-... - https://www.bloomberg.com/view/articles/2014-06-27/texas-billionaire-s-heirs-save-some-money-on-taxes https://www.bloomberg.com/view/articles/2014-06-27/texas-bil...
    - Denzel 9y ago
      Did you read my reply? You've arrived at the same number I posted in my TL;DR... $37.5MM. The point was never for her to come out ahead, just less behind. Why does this matter? I was simply pointing out that she achieved exactly what she wanted. Better optics. :) People commending her and commenting how amazing, how selfless, how fantastic it is that she donated all her proceeds to charity. Understand that her primary motivation in donating was the write-off, not charity. Otherwise, if she was feeling so chummy, why didn't she instead divide her almost 50% share among the employees that helped build her company? Hint: there's no write-off for that.
    - deleted 9y ago
      [deleted]
mongmong 9y ago
I don't get this. So you're saying she made more money by donating AND getting a tax refund as opposed to not donating?
- Denzel 9y ago
  No, I'm saying the cost to her was $37.5MM, not $150MM. For shares that she couldn't accept in good conscience anyways. Note: She was an active Google board member when they bought her company. That's not how boards are supposed to work generally.
rdslw 9y ago
So yeah, she got 30m tax reduction and spent 150m. net "loss": 120m. and you consider it bad because she could have chosen paying those 30m taxes and keeping the rest (instead of donating it) ?
- Denzel 9y ago
  I don't think there was any value judgment in my comments at all. The net "loss" to her was $37.5MM for shares she couldn't even use in good conscience in the first place (think team morale, public optics, etc.) She was an active Google board member when they bought her company. That doesn't exactly look good to the public or to the team.
celim307 9y ago
I don't think you know how tax write offs work... https://youtu.be/XEL65gywwHQ https://youtu.be/XEL65gywwHQ
- Denzel 9y ago
  Yup, $150MM tax write-off. My mistake, I was in a rush.

by Denzel 9y ago

dantiberian 9y ago

I don't quite understand the idea of tax dodging a smaller tax bill by donating a larger amount of money? She had $150mm in stock, and donated it all, avoiding a tax bill of $30mm? If she had paid the tax bill, she would have had net $120mm, but after donating it, she had net $0mm? There must be something I'm missing here. I've seen these kinds of schemes discussed before, but don't understand how they would work.

Denzel 9y ago
TL;DR It looks like she donated $150MM when in actuality she only donated $37.5MM Can you imagine the optics of an active board member, of a multi-billion dollar company, profiting from said company -- she's on the board of -- buying the company she runs? Good grief that reeks. She understood she couldn't take that money in good conscience. So, she got out in front of the optics for a small fee by "donating to charity." (I mean look at the comments here applauding her for donating her shares.) When you donate $150MM in stock, not only do you dodge the $30MM capital-gains tax (at a 20% tax rate), you receive a tax write-off for the full market value of the stock when you donated: $150MM in this case. Which means, in any year, she can take $150MM in income taxed at say 55%, and pay $0 in taxes on it. Much better than the $82.5MM she'd originally owe. And it makes tax planning a lot easier -- you don't have to worry about timing. All in all: $120MM net - $82.5MM write-off = $37.5MM total cost to her for shares she didn't even want -- for good reason. Understand that I don't care. But I would've been more impressed if she had donated those shares to her employees...
- nine_k 9y ago
  Isn't it how tax incentives work? Effectively she donated a bunch of money to a charity instead of the federal tax fund. Hopefully the charity is more efficient!
  - sleepychu 9y ago
    It really ought not to be though. I get that the reality is that it is but it irks me greatly that we don't simply tax more heavily and have a social system which works to solve the types of problems that charities aim to solve. Then if you wanted to do "charity work" you'd just work for the government.
    - nine_k 9y ago
      I think it does not work for the same reason Soviet-style government-planned economy does not work. The incentives of private persons and of government officials are unreconcilably different.
  - saiya-jin 9y ago
    hate to break it to you, but charities generally consume at least 95% of the budget on organizational management and bureaucracy, and actual help to needy is the remaining <5%. there might be some run more efficiently, but that's the industry average. not even going into details of chaos of said charities during some proper disaster, where they all swarm at said place, uncoordinated, ineffective in costs and human rescue efforts. state is a poor manager of given budget, but sincerely doubt it's as ineffective as this (plus it helps mostly locally so taxes affect taxpayers more directly)
- dragonwriter 9y ago
  > Which means, in any year, she can take $150MM in income taxed at say 55%, and pay $0 in taxes on it. 55% is greater than the maximum combined federal and state marginal income tax rate on normal income, and no one making that much does it as normal (mainly, labor) rather than long-term capital gains (which pays lower rates) income in the first place, because no one pays that kind of money for labor, you only make it by capital returns, so, no, she can't even in principal, and even if the tax rates were such that she could in principal, she still wouldn't be likely to be able to in practice.
  - Denzel 9y ago
    Firstly, 55% is not greater than the maximum tax rate one could pay on income (especially in CA) [1]. Secondly, you understand that RSUs (restricted stock units) are taxed as normal W-2 income at the time of vesting, right! You pay capital-gains tax on any appreciation in value after said vesting -- should you choose to sell the stock. You should probably stop spreading misinformation on topics you don't have experience in. [1]: https://smartasset.com/taxes/california-tax-calculator https://smartasset.com/taxes/california-tax-calculator
    - dragonwriter 9y ago
      > Firstly, 55% is not greater than the maximum tax rate one could pay on income But it is, AFAICT, greater than the maximum marginal income tax rate [0]; since the deduction affects only income taxes and not other taxes on income, it is the maximum marginal income tax rate, not the maximum marginal rate of taxation on income, that is relevant. > Secondly, you understand that RSUs (restricted stock units) are taxed as normal W-2 income at the time of vesting Yes, I do. That doesn't change anything I said. People that are making hundreds of millions of dollars of income in a year aren't making it from RSU vesting, or any other source of income subject to regular income taxes. [0] just barely; the maximum marginal income tax rate in any US jurisdiction seems to be 39.6% federal + 13.3% CA state + 1.5% SF local, or 54.4%.
      - Denzel 9y ago
- dantiberian 9y ago
  Certainly it was better optics for her to donate the stock to charity, but she didn't come out ahead from it AFAICT. A simplified example, assuming one year of income from the shares, and one year of $150mm income from Google. ### Keep the shares: Year1 = $150 - ($150 * 0.2) => $120 Year2 = $150 - ($150 * 0.55) => $67.5 Year1 + Year2 => $187.5 ### Donate the shares: Year1 = $150 - $150 - $0 => $0 Year2 = $150 - $0 => $150 Year1 + Year2 => $150 The first law of tax is that it is always better to have more money than less money. I could be wrong here, but I can't seem to find a way that you come out with more money by giving it away (ignoring donations to your own dodgy charity). I'm a big proponent of charity giving, but I don't see a way to make it turn a profit. - https://www.bloomberg.com/view/articles/2014-12-09/deutsche-bank-had-a-lot-of-ways-to-avoid-paying-taxes#footnote-1 https://www.bloomberg.com/view/articles/2014-12-09/deutsche-... - https://www.bloomberg.com/view/articles/2014-06-27/texas-billionaire-s-heirs-save-some-money-on-taxes https://www.bloomberg.com/view/articles/2014-06-27/texas-bil...
  - Denzel 9y ago
    Did you read my reply? You've arrived at the same number I posted in my TL;DR... $37.5MM. The point was never for her to come out ahead, just less behind. Why does this matter? I was simply pointing out that she achieved exactly what she wanted. Better optics. :) People commending her and commenting how amazing, how selfless, how fantastic it is that she donated all her proceeds to charity. Understand that her primary motivation in donating was the write-off, not charity. Otherwise, if she was feeling so chummy, why didn't she instead divide her almost 50% share among the employees that helped build her company? Hint: there's no write-off for that.
  - deleted 9y ago
    [deleted]

mongmong 9y ago

I don't get this. So you're saying she made more money by donating AND getting a tax refund as opposed to not donating?

Denzel 9y ago
No, I'm saying the cost to her was $37.5MM, not $150MM. For shares that she couldn't accept in good conscience anyways. Note: She was an active Google board member when they bought her company. That's not how boards are supposed to work generally.

rdslw 9y ago

So yeah, she got 30m tax reduction and spent 150m. net "loss": 120m. and you consider it bad because she could have chosen paying those 30m taxes and keeping the rest (instead of donating it) ?

Denzel 9y ago
I don't think there was any value judgment in my comments at all. The net "loss" to her was $37.5MM for shares she couldn't even use in good conscience in the first place (think team morale, public optics, etc.) She was an active Google board member when they bought her company. That doesn't exactly look good to the public or to the team.

celim307 9y ago

I don't think you know how tax write offs work... https://youtu.be/XEL65gywwHQ https://youtu.be/XEL65gywwHQ

Denzel 9y ago
Yup, $150MM tax write-off. My mistake, I was in a rush.