5 ms·

Couldn't it just be a matter of scale? In order for the tax savings to outweigh the expensive consultant and account fees, you'd likely have to have a large sum

by loufe 5y ago

Couldn't it just be a matter of scale? In order for the tax savings to outweigh the expensive consultant and account fees, you'd likely have to have a large sum of money to hide.

ashtonkem 5y ago
Yes, that is usually the barrier to entry. My go to example is how the Bezos of the world fund their lifestyles by taking out low interest loans backed by their stocks. The loans are rolled forward continually and only paid off once they die. This avoids capital gains, which is higher than the loan interest. This technique is legal for anyone, but good luck convincing Goldman Sachs to loan you money based on 0.001% of Facebook’s outstanding shares. GP’s argument, I believe, is that if these techniques were usable by you and I they’d close the loop holes quickly. The reason why they’re not usable by the plebs is immaterial to the basic point. Tax code is very much a “rules for thee and not for me” area of the law.
- vmception 5y ago
  Anyone can get a loan against securities. That isnt special. Collateralized lending is very common such that its not newsworthy.
- fallingknife 5y ago
  This is correct, but just wanted to point out that 0.001% of FB is worth about $10 million, so you could definitely get a loan on that.
  - ashtonkem 5y ago
    Ah, I knew I’d regret just making up a percentage that felt small enough. Oh well
- e1g 5y ago
  You're directionally correct, but the threshold is lower. In the US, banks will give you a low-interest loan for up to 50% of your holdings with them (public equities, etc.), starting at $300k. Having $600k+ in liquid investments is unquestionably above middle class, but this strategy is well within reach for many tech people.
  - gruez 5y ago
    Depending on what you mean by "low-interest". At IBKR you only need $100k to get 1.06% interest rate. https://www.interactivebrokers.com/en/index.php?f=46376 https://www.interactivebrokers.com/en/index.php?f=46376
    - GDC7 5y ago
      But that's for margin. Meaning you use the funds to trade. It's different than taking a loan against 300k USD in FB shares, because that you can use for everything...ranging from buying a Ferrari to starting a new business. Interest rates will naturally be higher.
      - gruez 5y ago
        > But that's for margin. Meaning you use the funds to trade. nope, you can withdraw it. https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-review/ https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-... Also, there's nothing functionally different between: 1. having 500k in stocks and borrowing $250k from it 2. having 500k in stocks, selling half of that to get $250k, withdrawing $250k, then rebuying $250k worth of the stocks using margin
        GDC7 5y ago
        > nope, you can withdraw it. https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr- https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-... Is that intentional from IKBR? I guess if they knew they'd raise their interest rate. If people start using this method more and more then it will disappear. Seen this pattern over and over again in many fields. > having 500k in stocks, selling half of that to get $250k, withdrawing $250k, then rebuying $250k worth of the stocks using margin Risking money in the financial markets vs. risking them (or again using them) in the real markets are 2 very different things. There is no equivalent for the SP500 in real life, also real life is very illiquid compared to financial markets. Plus unless you are very wealthy financial institutions tend to look down on people who want to spend money or have the arrogance to think they can start a business, they always punish such behaviors with higher interest rates. Also once the money is out of the trading platform and into your checking account you could buy real bitcoin on Coinbase, withdraw to private wallet, flee to South America and never be heard from ever again
- gruez 5y ago
  >The loans are rolled forward continually and only paid off once they die. This avoids capital gains, which is higher than the loan interest. 1. Does this actually work? AFAIK you avoid capital gains, but at the same time you need to pay estate taxes. 2. According to wikipedia bezos is 57 years old. Using the figures from SSA[1], he still has 26 years to live. The 20 year treasury rate (ie. risk free rate) is 1.99% (annualized). Applying that rate over 26 years gets you 66.9%. That doesn't seem like much of a savings over the long term capital gains rate of 20%. The numbers make more sense if you use 3 or 5 year treasuries, but that also exposes you to interest rate risk in the future. [1] https://www.ssa.gov/oact/STATS/table4c6.html https://www.ssa.gov/oact/STATS/table4c6.html >This technique is legal for anyone, but good luck convincing Goldman Sachs to loan you money based on 0.001% of Facebook’s outstanding shares. They'll happily loan you money based on the equity in your home though. https://en.wikipedia.org/wiki/Reverse_mortgage https://en.wikipedia.org/wiki/Reverse_mortgage
  - ashtonkem 5y ago
    Yes, it works. The tldr is that the cash you avoid paying capital gains on remains invested and growing. https://www.bloomberg.com/news/newsletters/2021-07-26/money-stuff-it-s-easy-to-borrow-money-if-you-have-money https://www.bloomberg.com/news/newsletters/2021-07-26/money-...
    - gruez 5y ago
      That's talking about something totally different. The parent poster is talking about the tax implications (the gains aren't taxed), whereas you and the article you linked is talking about the potential upside because you're effectively borrowing money to invest.
      - ashtonkem 5y ago
        I’m the GP… I guarantee you I was talking about the same thing both times.
        5y ago
- gunshai 5y ago
  What is interesting is you can do this really easily in the crypto environment. There are plenty of services that are offering the ability to borrow against your gains to avoid capital gains.
- tejohnso 5y ago
  Wouldn't the estate have to sell shares to cover the loan upon death? Or transfer shares directly, but pay the capital gains as though it were a sell + transfer transaction?

by loufe 5y ago

Couldn't it just be a matter of scale? In order for the tax savings to outweigh the expensive consultant and account fees, you'd likely have to have a large sum of money to hide.

ashtonkem 5y ago

Yes, that is usually the barrier to entry. My go to example is how the Bezos of the world fund their lifestyles by taking out low interest loans backed by their stocks. The loans are rolled forward continually and only paid off once they die. This avoids capital gains, which is higher than the loan interest. This technique is legal for anyone, but good luck convincing Goldman Sachs to loan you money based on 0.001% of Facebook’s outstanding shares. GP’s argument, I believe, is that if these techniques were usable by you and I they’d close the loop holes quickly. The reason why they’re not usable by the plebs is immaterial to the basic point. Tax code is very much a “rules for thee and not for me” area of the law.

vmception 5y ago
Anyone can get a loan against securities. That isnt special. Collateralized lending is very common such that its not newsworthy.
fallingknife 5y ago
This is correct, but just wanted to point out that 0.001% of FB is worth about $10 million, so you could definitely get a loan on that.
- ashtonkem 5y ago
  Ah, I knew I’d regret just making up a percentage that felt small enough. Oh well
e1g 5y ago
You're directionally correct, but the threshold is lower. In the US, banks will give you a low-interest loan for up to 50% of your holdings with them (public equities, etc.), starting at $300k. Having $600k+ in liquid investments is unquestionably above middle class, but this strategy is well within reach for many tech people.
- gruez 5y ago
  Depending on what you mean by "low-interest". At IBKR you only need $100k to get 1.06% interest rate. https://www.interactivebrokers.com/en/index.php?f=46376 https://www.interactivebrokers.com/en/index.php?f=46376
  - GDC7 5y ago
    But that's for margin. Meaning you use the funds to trade. It's different than taking a loan against 300k USD in FB shares, because that you can use for everything...ranging from buying a Ferrari to starting a new business. Interest rates will naturally be higher.
    - gruez 5y ago
      > But that's for margin. Meaning you use the funds to trade. nope, you can withdraw it. https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-review/ https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-... Also, there's nothing functionally different between: 1. having 500k in stocks and borrowing $250k from it 2. having 500k in stocks, selling half of that to get $250k, withdrawing $250k, then rebuying $250k worth of the stocks using margin
      - GDC7 5y ago
        > nope, you can withdraw it. https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr- https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-... Is that intentional from IKBR? I guess if they knew they'd raise their interest rate. If people start using this method more and more then it will disappear. Seen this pattern over and over again in many fields. > having 500k in stocks, selling half of that to get $250k, withdrawing $250k, then rebuying $250k worth of the stocks using margin Risking money in the financial markets vs. risking them (or again using them) in the real markets are 2 very different things. There is no equivalent for the SP500 in real life, also real life is very illiquid compared to financial markets. Plus unless you are very wealthy financial institutions tend to look down on people who want to spend money or have the arrogance to think they can start a business, they always punish such behaviors with higher interest rates. Also once the money is out of the trading platform and into your checking account you could buy real bitcoin on Coinbase, withdraw to private wallet, flee to South America and never be heard from ever again
gruez 5y ago
>The loans are rolled forward continually and only paid off once they die. This avoids capital gains, which is higher than the loan interest. 1. Does this actually work? AFAIK you avoid capital gains, but at the same time you need to pay estate taxes. 2. According to wikipedia bezos is 57 years old. Using the figures from SSA[1], he still has 26 years to live. The 20 year treasury rate (ie. risk free rate) is 1.99% (annualized). Applying that rate over 26 years gets you 66.9%. That doesn't seem like much of a savings over the long term capital gains rate of 20%. The numbers make more sense if you use 3 or 5 year treasuries, but that also exposes you to interest rate risk in the future. [1] https://www.ssa.gov/oact/STATS/table4c6.html https://www.ssa.gov/oact/STATS/table4c6.html >This technique is legal for anyone, but good luck convincing Goldman Sachs to loan you money based on 0.001% of Facebook’s outstanding shares. They'll happily loan you money based on the equity in your home though. https://en.wikipedia.org/wiki/Reverse_mortgage https://en.wikipedia.org/wiki/Reverse_mortgage
- ashtonkem 5y ago
  Yes, it works. The tldr is that the cash you avoid paying capital gains on remains invested and growing. https://www.bloomberg.com/news/newsletters/2021-07-26/money-stuff-it-s-easy-to-borrow-money-if-you-have-money https://www.bloomberg.com/news/newsletters/2021-07-26/money-...
  - gruez 5y ago
    That's talking about something totally different. The parent poster is talking about the tax implications (the gains aren't taxed), whereas you and the article you linked is talking about the potential upside because you're effectively borrowing money to invest.
    - ashtonkem 5y ago
      I’m the GP… I guarantee you I was talking about the same thing both times.
      - 5y ago
gunshai 5y ago
What is interesting is you can do this really easily in the crypto environment. There are plenty of services that are offering the ability to borrow against your gains to avoid capital gains.
tejohnso 5y ago
Wouldn't the estate have to sell shares to cover the loan upon death? Or transfer shares directly, but pay the capital gains as though it were a sell + transfer transaction?