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> write off on their taxes. Thankfully the poster got it right but the headline from the article itself is very misleading. Deferring taxes != writing off inve

• jjeaff 8y ago
  It looks like there is an opportunity to reduce the taxes owned on the initial capital gain as well as avoid all taxes on the additional capital gain if held long enough.
• Thriptic 8y ago
  Agreed, it's very silly. No one attacks people in the upper middle class for using mortgage deductions, tax advantaged investment vehicles (ie 401Ks), education accounts, tax loss harvesting etc to minimize tax burden; however, whenever a wealthy person tries to minimize their tax burden, they are immediately judged. It is not reasonable to state that one group of people can take advantage of tax code incentives and other groups cannnot.
  • ip26 8y ago
    Middle class folks who are using the mortgage deduction generally use it exactly as intended. They don't have an army of accountants on retainer to figure out how to game the tax code and accomplish things that weren't really intended. The example that always sticks in my head- maybe this isn't true, but I've heard there are strategies of buying failing companies for pennies, shuttering them, and then writing off their losses on your own taxes. You incurred no risk, you lost no money, and now you pay no taxes. Whether it's actually intended to happen that way, it doesn't seem right, and ordinary people can't do it. Anyway, I'm not an accountant, but the upset over the tax exploits of the wealthy revolve around the concern that they are managing to exercise the tax code in a way that was never intended to pay less than they were meant to owe. Middle class folks don't wind up in the crosshairs because they generally file very ordinary returns, following both the letter as well as the spirit.
    • ada1981 8y ago
      Do you have any more info on the “buying failing businesses” strategy? A
      • leetcrew 8y ago
        i'm also curious. unless i'm not understanding something, your tax writeoff could not exceed your cost basis on the purchase of the business, making the maneuver a net loss.
        • charlesdm 8y ago
          Tech startup A is capitalised with $1m. Burns through $1m, left with $0 in the bank, now has a million dollars in carry forward tax losses. That means you can make a million dollars without paying taxes. At a 21% corporate tax rate, that's $210,000 in taxes you'd pay on a $1m profit if you didn't have the carry forward loss. How much are the shares of that shell worth if you can use the tax losses to offset profits of a different, profitable business? Somewhere between $0 and $210,000.
          • leetcrew 8y ago
            sure, but aren't you still out the original $1mm? it looks like in your example you end up with $1mm, since you didn't have to pay tax on the profits of company B. but if you had just kept the original million and paid tax on B's profits, you would have ~1.8mm? or are you implying that you can buy company A for less than the market cap in the first place?
            • charlesdm 8y ago
              Yes, the owners of company A can sell their shares to profitable company B for an amount between $0 and $210,000. Obviously you wouldn't burn a million to create tax losses. Remember: this company has $0 in the bank. It's essentially the same as a newly incorporated company, but with tax losses. There would generally be a discount on the value of the tax loss due to historical liability risks of the previous operating business. The things written above are highly simplified though, and might not give a completely accurate reflection of the situation. There are likely some anti avoidance rules in place to stop this behavior. But this again depends on the country. Billionaire John Malone (who hates taxes) talks a bit about tax in this business talk at a university: https://youtu.be/v5QfCLeloEg?t=2174 https://youtu.be/v5QfCLeloEg?t=2174. Also this: https://www.businessinsider.com/what-liberty-really-loves-about-sirius-tax-losses-2009-2?IR=T https://www.businessinsider.com/what-liberty-really-loves-ab... "There are some catches here. To use the NOLs (net operating losses), Sirius can't undergo a full change in control for three years. So Malone has to bide his time with his 40% for three years before scarfing up the rest of the company." This is one such anti avoidance mechanism. By being smart about taxes, he essentially got that business for free.
  • mcny 8y ago
    > Agreed, it's very silly. No one attacks people in the upper middle class for using mortgage deductions, tax advantaged investment vehicles (ie 401Ks), education accounts, tax loss harvesting etc to minimize tax burden; however, whenever a wealthy person tries to minimize their tax burden, they are immediately jumped on. It can't be ok for one group of people to take advantage of tax incentives and not others. I don't like tax credits and deductions at all. I think all of these things are an additional burden on the lazy and the stupid (like me). Using taxes to encourage the public to do something or not do something doesn't even make sense for the political party that keeps harping about making taxes simpler. Personally, I think all businesses should pay taxes on total revenue. I don't give two ships if you had a revenue of $2B and expenses of $5B. You owe taxes on that $2B. If your business model is low margin, that's your problem. No credits. No deductions. No deferrals. The current policy isn't based on fairness or logic. It is simply based on who can get their way and by how much.
    • ummonk 8y ago
      Do you think all businesses should be vertically integrated?
      • mcny 8y ago
        I have a (horrible) solution for that as well. Make the board criminally liable for the actions of employees, contractors, or other agents where such actions are a condition to the employment or contract. Tax rates will probably need to go down and this is obviously just a thought experiment because no change is possible as we are too comfortable being hypocrites.
        • AnthonyMouse 8y ago
          There is a much simpler solution for the vertical integration problem. If you buy something from another company which has already paid tax on it, you don't have to pay tax on it a second time. The resulting tax is called VAT.
    • greglindahl 8y ago
  • JamesBarney 8y ago
    Those tax breaks all sound like they benefit the middle class, even though they do mostly benefit the upper middle class. But are you surprised that people are more willing to accept tax breaks on the middle class over the rich?
• thaumaturgy 8y ago
  Because nobody got rich by spending on the poor. It's the lie at the heart of every trickle-down scheme and corrupt charity: that all we need to do is give wealthy people a little bit more, and we'll all somehow benefit from it. Absent a vocal minority, wealthy people spend their money in ways that make them more money or get them more political power. They don't build communities, they build dynasties. From an introductory pdf [1]: "A qualified Opportunity Fund is a privately managed investment vehicle organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property (the vehicle must hold at least 90 percent of its assets in such property)". Okay, so here's my prediction: a series of shell corporations will be constructed so that the investors are essentially moving their money around on their own plate. Those funds will then look for the most efficient way to produce a return on that investment, which will probably consist of purchasing real estate, pumping up its value (increasing housing costs in the region), and then dumping it at the end of the 10-year term so that the investors can get out without any tax liability. The affected communities will end up with artificial housing cost inflation followed by a slump that will leave them in just as bad of shape as they are now, at best. It's raw, seething cynicism, yes, but it also closely matches something that's already happening right now. Communities across the country are seeing artificially high commercial rents coupled with empty storefronts in heavily-trafficked areas because real estate owners have discovered that they can make a little extra money by keeping some of the spaces empty and using them as tax deductions, instead of lowering the rent to market rate and putting a small business in there. [2] [1]: https://eig.org/wp-content/uploads/2018/02/Opportunity-Zones-Fact-Sheet.pdf https://eig.org/wp-content/uploads/2018/02/Opportunity-Zones... [2]: https://www.dnainfo.com/chicago/20161006/jefferson-park/vacancy-fraud-allowing-tax-breaks-for-empty-storefronts-under-fire/ https://www.dnainfo.com/chicago/20161006/jefferson-park/vaca..., for one example.
  • charlesdm 8y ago
    The easiest would be to invest in assets that don't (or only moderately) go up in value, but that you can (in the end) liquidate at cost. Then you get the tax benefit without the risk.
    • thaumaturgy 8y ago
• ur-whale 8y ago
  >I swear some of these people will never be satisfied with the way rich spend their money. Some people will never be satisfied with the fact that there are rich people in the first place.
  • marnett 8y ago
    This sentiment is as old as civilization
• null000 8y ago
  The thing that concerns me about this is that there isn't much reason to expect the area's interests are aligned with investors' interests. Investors build something that allows the local economy to bring money into the area - e. g. A factory of something like that with well paying jobs where workers get to keep a good chunk of their value add and a lot of the profits stay in the local economy? Great! Win win. Investors build something that provides a bit of short term benefit but then leeches money out of the area forever after - e. g. An apartment building, low wage retail, toll roads, etc? Well it'll be great for the investor who now has a new tax free passive income steam on top of the hard assets they built (the road, apartment building, or whatever that they can later sell - again tax free - if they want). Sucks for the city though. Sure it might have been necessary, but the local economy was basically just forced to take out a loan that it will never repay - sending money to already wealth investors in perpetuity for housing or transportation or a place to buy shit. In either case, and probably more the latter than the former, the already-hilariously-wealthy investor gets to earn fistfulls of money tax free. But only one of those situations really helps out the local economy itself. And in either case I don't see how removing a 10% or so tax on profits and deferring taxes on investment is going to massively change how or whether projects pencil out. So yeah, in an era where the wealthy already have way too much money and don't need help hiding more of it, and they might not even be helping anyone but themselves, and they're basically doing something they probably would/should have done anyway, and they get to feel good and claim good pr for basically just making gobs of money that they don't need, yeah, I'm not feeling super proud for them or this program. What would make me happy? Well, if they paid their damn taxes, that'd be a start. Even better if the rates actually have them paying their fair share instead of basically nothing, as is the case with capital gains tax rates today. I'd also be happy if they spent their money lobbying for common good things - like climate change prevention, universal health care, free college, etc - instead of looser regulations and tax breaks. Some places and people do this, most don't, and some actively and vociferously work against the public good (kochs, bp, etc). Really though I'll probably only really be happy when we don't have the obscene rates of poverty and semi poverty in the us, and we fix the floundering public infrastructure and services paired with deep government deficits. Obscene wealth is only such if its accrued in the context of millions of people living paycheck to paycheck at best, or being actively in the red month after month more typically. Likewise, it's only really selfish to try and lower your taxes if the common space is currently just ridiculously under funded - the rest of us generally pay our fair share or something like it, but a small minority of people jump through miles hoops and work tirelessly to massage the rules so they get to keep the disgusting level of wealth they accrued on the back of society entirely to themselves. Fix those things, and they can do whatever they want with their mountains of cash - I'll probably stop caring.