5 ms·

An interesting (and probably obvious to most) thing mentioned in the propublica articles is that Bezos used investment losses to offset some of the realized cap

by m_ke 5y ago

An interesting (and probably obvious to most) thing mentioned in the propublica articles is that Bezos used investment losses to offset some of the realized capital gains. As in he was able to make speculative bets on startups with no downside risk because he could either gain spectacular appreciation on the ones that hit or use the failures to offset his expenses (realized gains).

nradov 5y ago
The effective risk is reduced but not zero. If you lose money investing in a failed startup you're still financially worse off even after accounting for the capital gains offset.
nullc 5y ago
Writing off investment losses does not eliminate or even reduce the risk! It avoids you paying taxes on money you didn't actually earn. Our income/gains taxes avoid confiscating your (hopefully productive!) property by only taxing you on the profits you realize, which both enables and encourages you to keep up what you're doing, producing more prosperity for yourself, your community, and tax income for the government. It doesn't reward you for taking risks, but it doesn't punish you for taking them either. If you take a risk, lose money, and still get taxed on that money you're getting punished for taking a risk.
- m_ke 5y ago
  Yes, but when you're filthy rich and sit on a mountain of unrealized gains you get to be selective about how much you pull out. You can invest 100 million in startups knowing that most of it will go to 0, allowing you to later offset anything that you cash out with losses.
  - nullc 5y ago
    Yes and? The losses are no less real! You're still much better not having them.
    - lifeformed 5y ago
      But the losses have a chance of being a big win. It's kind of like getting a big discount on lottery tickets.
      - nullc 5y ago
        And your winning investments had a chance of being a failure, yet you still pay full taxes on their gains. Imagine you believe that a stock will stay at the same price, so you make an investment that loses money if it goes up and gains if it goes down, and another that moves in the opposite direction. So the two largely cancel out and you make a bit of profit if it stays the same as you expect. What should you pay taxes on? The amount you actually made or the 'virtual money' that flowed through only to be canceled out on the other side? Our income and gains taxes are intended to tax you on just what you actually gained, after taking out costs (including the costs of the other investments you made that didn't pan out).
        m_ke 5y ago
        Bezos and other rich people are sitting billions of unrealized gains. 1. Bezos gets lucky and turns $100 of founder shares into $100 billion of unrealized gains. 2. Bezos goes to the bank and gets a loan for $500 million to invest in a diverse portfolio of early stage startups knowing that only a tiny fraction of them will account for majority of his returns. 3. Every year a portion of his portfolio fails, allowing him to sell a portion of his original shares to offset the losses and show a net gain of 0, allowing him to pay no taxes. 4. He hits a Google or Uber and 10xes the original $500mil but gets to continue this scheme of not realizing the gains unless he has losses to match while his control of the universe continues to expand. https://startupflux.com/jeff-bezos-investment-portfolio-owns-lot-amazon-subsidiaries/ https://startupflux.com/jeff-bezos-investment-portfolio-owns... "Jeff Bezos Investment Portfolio is very large and diverse. he owns a stake in several Very Very large companies that you’ll be surprised to hear. Bezos was one of the first shareholders in Google, when he invested $250,000 in 1998. That $250,000 investment resulted in 3.3 million shares of Google stock worth about $3.1 billion today."
  - Talanes 5y ago
    Would you pay $20 bucks now to offset paying tax on a future $20 bucks? There's no way to come out ahead just by failing, that scheme only minimizes risk.
fshbbdssbbgdd 5y ago
The math doesn’t work out here. If you lose $100 on an investment, and your tax rate is 15%, the write-off only saves you $15 in taxes. You are still out $85 compared to not having made that investment.
- m_ke 5y ago
  I'm sitting on billions of capital gains and invest 20mil a pop in a diversified portfolio of startups like uber, theranos, juicero, etc. 4 years later my shares of uber are worth a billion dollars and the rest of my portfolio goes to 0, so as a recently divorced old balding man I sell enough shares to match my losses and buy a $175mil mansion and a yacht for my yacht. My net long term capital gains for the year is 0 so I pay no taxes. The point is, you start from a $100 initial investment that has already turned into 100s of billions of dollars of unrealized gains which you can now selectively live off of without paying a dime in taxes by harvesting losses.
  - fshbbdssbbgdd 5y ago
    True, you avoided paying taxes, but you have less money than you would if you didn’t make the failed investment (you lost more money on that investment than you saved in taxes). Therefore the statement “no downside risk” is incorrect. Your downside risk is discounted by your tax rate, it’s not zero.
    - m_ke 5y ago
      No, you make a ton of risky investments to build a diversified portfolio banking on only a few of them being unicorns. This allows you to cash out previous gains to match all of the losses that you pick up each year on the failed investments, while the successful ones keep appreciating and adding to your unrealized gains. https://startupflux.com/jeff-bezos-investment-portfolio-owns-lot-amazon-subsidiaries/ https://startupflux.com/jeff-bezos-investment-portfolio-owns...
  - Thorrez 5y ago
    >I sell enough shares to match my losses and buy a $175mil mansion If you had $175M to buy a mansion and paid $0 tax, you must have had $175M of losses as well. To have $175M of losses, you had to have paid $175M for those Theranos and Juicero shares. So you already had $175M sitting around in your bank account a few years ago. You could have just left it there and bought your mansion now. Your scheme gained you nothing, in fact you are worse off because you had to sell $175M of your Uber shares, which you wouldn't have had to sell if you had just kept your $175M in your bank account rather than investing in Juicero and Theranos. My point is that the $175M you had in your bank account years ago was already realized and fully taxed because it was cash. So being able to spend it on a mansion is fair because it's already fully taxed. You used it up on your mansion and cannot spend it on anything else. If you want to buy a second mansion you'll have to find some new fully taxed money (such as sell more Uber shares and actually pay capital gains tax on them).
refurb 5y ago
Do tell how he has “no downside risk” when if a company fails he loses that investment and the tax offset doesn’t make him whole? You sound like the people who say “oh! He avoids tax through charitable donations - he donates $1M and gets a $300k write off”
- m_ke 5y ago
  Read my other replies, venture investing model assumes that 80% of your portfolio will go to 0 and that you hit a few unicorns that will account for most of your returns. I'm saying that Bezos can have a diversified portfolio and when he hits an Uber or Google he 1000xes his investment, which increases his net worth but isn't taxed because he gets to hold it for as long as he wants. Each year a % of his investments go to 0 and he gets to use that to cash out some of his gains without paying any taxes on them since his net gain is 0. I'm not saying that he can save money by investing in a bunch of juiceros, just that each year when a few of his investments are duds he has a pool of unrealized gains that he can pull out tax free to match the losses.
  - Chris2048 5y ago
    Are you assuming he deducts the entire loss amount from CG taxes? as in if he invests in (and loses) $100 on a portfolio, he can deducts $100 from his CG taxes - rather than a percentage of $100. Assuming tax rate is lower than 50% He loses more than he writes off in taxes, and so can cannot match his losses, only tax on the loss.

by m_ke 5y ago

nradov 5y ago

The effective risk is reduced but not zero. If you lose money investing in a failed startup you're still financially worse off even after accounting for the capital gains offset.

nullc 5y ago

Writing off investment losses does not eliminate or even reduce the risk! It avoids you paying taxes on money you didn't actually earn. Our income/gains taxes avoid confiscating your (hopefully productive!) property by only taxing you on the profits you realize, which both enables and encourages you to keep up what you're doing, producing more prosperity for yourself, your community, and tax income for the government. It doesn't reward you for taking risks, but it doesn't punish you for taking them either. If you take a risk, lose money, and still get taxed on that money you're getting punished for taking a risk.

m_ke 5y ago
Yes, but when you're filthy rich and sit on a mountain of unrealized gains you get to be selective about how much you pull out. You can invest 100 million in startups knowing that most of it will go to 0, allowing you to later offset anything that you cash out with losses.
- nullc 5y ago
  Yes and? The losses are no less real! You're still much better not having them.
  - lifeformed 5y ago
    But the losses have a chance of being a big win. It's kind of like getting a big discount on lottery tickets.
    - nullc 5y ago
      And your winning investments had a chance of being a failure, yet you still pay full taxes on their gains. Imagine you believe that a stock will stay at the same price, so you make an investment that loses money if it goes up and gains if it goes down, and another that moves in the opposite direction. So the two largely cancel out and you make a bit of profit if it stays the same as you expect. What should you pay taxes on? The amount you actually made or the 'virtual money' that flowed through only to be canceled out on the other side? Our income and gains taxes are intended to tax you on just what you actually gained, after taking out costs (including the costs of the other investments you made that didn't pan out).
      - m_ke 5y ago
        Bezos and other rich people are sitting billions of unrealized gains. 1. Bezos gets lucky and turns $100 of founder shares into $100 billion of unrealized gains. 2. Bezos goes to the bank and gets a loan for $500 million to invest in a diverse portfolio of early stage startups knowing that only a tiny fraction of them will account for majority of his returns. 3. Every year a portion of his portfolio fails, allowing him to sell a portion of his original shares to offset the losses and show a net gain of 0, allowing him to pay no taxes. 4. He hits a Google or Uber and 10xes the original $500mil but gets to continue this scheme of not realizing the gains unless he has losses to match while his control of the universe continues to expand. https://startupflux.com/jeff-bezos-investment-portfolio-owns-lot-amazon-subsidiaries/ https://startupflux.com/jeff-bezos-investment-portfolio-owns... "Jeff Bezos Investment Portfolio is very large and diverse. he owns a stake in several Very Very large companies that you’ll be surprised to hear. Bezos was one of the first shareholders in Google, when he invested $250,000 in 1998. That $250,000 investment resulted in 3.3 million shares of Google stock worth about $3.1 billion today."
- Talanes 5y ago
  Would you pay $20 bucks now to offset paying tax on a future $20 bucks? There's no way to come out ahead just by failing, that scheme only minimizes risk.

fshbbdssbbgdd 5y ago

The math doesn’t work out here. If you lose $100 on an investment, and your tax rate is 15%, the write-off only saves you $15 in taxes. You are still out $85 compared to not having made that investment.

m_ke 5y ago
I'm sitting on billions of capital gains and invest 20mil a pop in a diversified portfolio of startups like uber, theranos, juicero, etc. 4 years later my shares of uber are worth a billion dollars and the rest of my portfolio goes to 0, so as a recently divorced old balding man I sell enough shares to match my losses and buy a $175mil mansion and a yacht for my yacht. My net long term capital gains for the year is 0 so I pay no taxes. The point is, you start from a $100 initial investment that has already turned into 100s of billions of dollars of unrealized gains which you can now selectively live off of without paying a dime in taxes by harvesting losses.
- fshbbdssbbgdd 5y ago
  True, you avoided paying taxes, but you have less money than you would if you didn’t make the failed investment (you lost more money on that investment than you saved in taxes). Therefore the statement “no downside risk” is incorrect. Your downside risk is discounted by your tax rate, it’s not zero.
  - m_ke 5y ago
    No, you make a ton of risky investments to build a diversified portfolio banking on only a few of them being unicorns. This allows you to cash out previous gains to match all of the losses that you pick up each year on the failed investments, while the successful ones keep appreciating and adding to your unrealized gains. https://startupflux.com/jeff-bezos-investment-portfolio-owns-lot-amazon-subsidiaries/ https://startupflux.com/jeff-bezos-investment-portfolio-owns...
- Thorrez 5y ago
  >I sell enough shares to match my losses and buy a $175mil mansion If you had $175M to buy a mansion and paid $0 tax, you must have had $175M of losses as well. To have $175M of losses, you had to have paid $175M for those Theranos and Juicero shares. So you already had $175M sitting around in your bank account a few years ago. You could have just left it there and bought your mansion now. Your scheme gained you nothing, in fact you are worse off because you had to sell $175M of your Uber shares, which you wouldn't have had to sell if you had just kept your $175M in your bank account rather than investing in Juicero and Theranos. My point is that the $175M you had in your bank account years ago was already realized and fully taxed because it was cash. So being able to spend it on a mansion is fair because it's already fully taxed. You used it up on your mansion and cannot spend it on anything else. If you want to buy a second mansion you'll have to find some new fully taxed money (such as sell more Uber shares and actually pay capital gains tax on them).

refurb 5y ago

Do tell how he has “no downside risk” when if a company fails he loses that investment and the tax offset doesn’t make him whole? You sound like the people who say “oh! He avoids tax through charitable donations - he donates $1M and gets a $300k write off”

m_ke 5y ago
Read my other replies, venture investing model assumes that 80% of your portfolio will go to 0 and that you hit a few unicorns that will account for most of your returns. I'm saying that Bezos can have a diversified portfolio and when he hits an Uber or Google he 1000xes his investment, which increases his net worth but isn't taxed because he gets to hold it for as long as he wants. Each year a % of his investments go to 0 and he gets to use that to cash out some of his gains without paying any taxes on them since his net gain is 0. I'm not saying that he can save money by investing in a bunch of juiceros, just that each year when a few of his investments are duds he has a pool of unrealized gains that he can pull out tax free to match the losses.
- Chris2048 5y ago
  Are you assuming he deducts the entire loss amount from CG taxes? as in if he invests in (and loses) $100 on a portfolio, he can deducts $100 from his CG taxes - rather than a percentage of $100. Assuming tax rate is lower than 50% He loses more than he writes off in taxes, and so can cannot match his losses, only tax on the loss.