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Yes it is. A stock buyback increases shareholders' wealth with a tax of 0% on the shareholders. The tax code makes a bright line out of the distinction between
by cynicalkane 8y ago
Yes it is. A stock buyback increases shareholders' wealth with a tax of 0% on the shareholders.
The tax code makes a bright line out of the distinction between income and capital that is, economically speaking, quite fuzzy. Depending on your need for liquidity and your means of acquiring it, it might not be really there.
- torstenvl 8y agoWhen the shareholder realizes the gain from the share price, that gain is taxed. And if it is a short-term holding, that income is taxed like regular income. Nobody is getting taxed at 0%.
- mercutio2 8y agoIf you have little or no ordinary income, a decent chunk of qualified dividends and long term capital gains pay 0% federal income tax. $77k for joint filers in 2018. [0] Not a particular trustworthy site, but whatever: [0] https://www.thebalance.com/how-to-use-the-zero-percent-tax-rate-on-capital-gains-2388995 https://www.thebalance.com/how-to-use-the-zero-percent-tax-r...
- fiter 8y agoIn order to realize this tax free wealth gain, the shareholders would have to sell the stocks and pay taxes, right? It sounds like then the most important factor is not the double taxation, but that you get to choose when the "second" taxation occurs.
- hackerdr 8y agoThe investor pays tax when the stock is sold. That tax implication is exactly the reason that many investors prefer buybacks over dividends.