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Hedge funds are more a tax vehicle than a true investment. The first scam is the managers can take 15, 20, 25 or 30% of all profits monthly and then carry that

Hedge funds are more a tax vehicle than a true investment. The first scam is the managers can take 15, 20, 25 or 30% of all profits monthly and then carry that part that is then the managers forward tax free even multiple trades or move from options to farmland etc. The other scam is they can do short term trades, which if you do is taxed like income w the marginal rates and combined w your other income. The hedge investors get their short term trading gains as if they were long term gains. This is all done w she'll companies and an accountant's "hand wave". So the manager is still ahead as she keeps whatever is left of those carry forwards.

forum_ghost 4y ago
So how does this help with taxes for hedge investors anyway? Lose money in the markets to save on taxes? Makes zero sense.
- hackernewds 4y ago
  You make money while you make money. you would have made bank with ARKK but just not in hindsight
- salawat 4y ago
  Tax loss harvesting is a thing. I'm more interested in this phenomena with hedge funds treating short term cap gains as long term.
  - cuteboy19 4y ago
    Purposefully taking a loss never makes sense tax wise. Harvesting or no harvesting
    - sgjohnson 4y ago
      It absolutely does, if you can overvalue something and get away with it, and then sell it for an actually fair market price. This way you get to post a net loss.
      - refurb 4y ago
        God I love HN. Tax are due on capital gains which is basically <sale price> minus <purchase price>. You can't claim a capital loss unless you paid the overvalued price. And then you just lost money anyways.
        salawat 4y ago
        It's not so much just HN. https://www.investopedia.com/terms/t/taxgainlossharvesting.asp https://www.investopedia.com/terms/t/taxgainlossharvesting.a... It is literally a thing. I cannot for the life of me make sense of how to make it work that doesn't strike me as off, but enough people get utility out of the moniker that it's got a page. So...
        refurb 4y ago
        That’s not the same thing. Tax loss harvesting is real, you just time when you take a loss to offset a gain. Then immediately reinvest. You haven’t lost any money in total, you can just claim the loss on your taxes (but will pay higher capital gains in the future).
        dikaio 4y ago
        Exactly correct, legal, and done by every trader I know.
        sgjohnson 4y ago
        There are ways to do that. The simplest one is to overvalue inherited assets. You don’t pay taxes on inheritance.
      - Ntrails 4y ago
        Manufacturing a fake loss with a false valuation is not the same thing at all - you've just said that "if you can do fraud, then sure there's money to be made from losses". Fraud makes money? Sure! Losses do not.
  - dmurray 4y ago
    > I'm more interested in this phenomena with hedge funds treating short term cap gains as long term. I think what GP means is, your fund has some trading profits, which if an individual did the same trades would be taxed as earned income or short term gains, but the fund actually doesn't have profits or pay taxes at all - it's a pass through entity. You, as an individual investor in the fund, pay taxes (long term or short term cap gains as appropriate) when you exit your investment in the fund. This is a pretty reasonable way for capital gains taxes to work. The secret sauce successful hedge funds have is not access to this tax optimization, but some way to actually generate those trading profits in the first place.
qeternity 4y ago
Career hedge fund trader here: this is nonsense. Of course HFs are tax optimized but saying they are not investment vehicles doesn’t even align with your view. If they aren’t true investment vehicles which generate profits, then there is nothing to protect from taxes… Your premise is based on funds making a lot of money, which they want to shield from taxes. How do you think they make money? (Caveat: most HFs underperform, but that’s a different issue entirely)

forum_ghost 4y ago

So how does this help with taxes for hedge investors anyway? Lose money in the markets to save on taxes? Makes zero sense.

hackernewds 4y ago
You make money while you make money. you would have made bank with ARKK but just not in hindsight
salawat 4y ago
Tax loss harvesting is a thing. I'm more interested in this phenomena with hedge funds treating short term cap gains as long term.
- cuteboy19 4y ago
  Purposefully taking a loss never makes sense tax wise. Harvesting or no harvesting
  - sgjohnson 4y ago
    It absolutely does, if you can overvalue something and get away with it, and then sell it for an actually fair market price. This way you get to post a net loss.
    - refurb 4y ago
      God I love HN. Tax are due on capital gains which is basically <sale price> minus <purchase price>. You can't claim a capital loss unless you paid the overvalued price. And then you just lost money anyways.
      - salawat 4y ago
        It's not so much just HN. https://www.investopedia.com/terms/t/taxgainlossharvesting.asp https://www.investopedia.com/terms/t/taxgainlossharvesting.a... It is literally a thing. I cannot for the life of me make sense of how to make it work that doesn't strike me as off, but enough people get utility out of the moniker that it's got a page. So...
        refurb 4y ago
        That’s not the same thing. Tax loss harvesting is real, you just time when you take a loss to offset a gain. Then immediately reinvest. You haven’t lost any money in total, you can just claim the loss on your taxes (but will pay higher capital gains in the future).
        dikaio 4y ago
        Exactly correct, legal, and done by every trader I know.
      - sgjohnson 4y ago
        There are ways to do that. The simplest one is to overvalue inherited assets. You don’t pay taxes on inheritance.
    - Ntrails 4y ago
      Manufacturing a fake loss with a false valuation is not the same thing at all - you've just said that "if you can do fraud, then sure there's money to be made from losses". Fraud makes money? Sure! Losses do not.
- dmurray 4y ago
  > I'm more interested in this phenomena with hedge funds treating short term cap gains as long term. I think what GP means is, your fund has some trading profits, which if an individual did the same trades would be taxed as earned income or short term gains, but the fund actually doesn't have profits or pay taxes at all - it's a pass through entity. You, as an individual investor in the fund, pay taxes (long term or short term cap gains as appropriate) when you exit your investment in the fund. This is a pretty reasonable way for capital gains taxes to work. The secret sauce successful hedge funds have is not access to this tax optimization, but some way to actually generate those trading profits in the first place.

qeternity 4y ago

Career hedge fund trader here: this is nonsense. Of course HFs are tax optimized but saying they are not investment vehicles doesn’t even align with your view. If they aren’t true investment vehicles which generate profits, then there is nothing to protect from taxes… Your premise is based on funds making a lot of money, which they want to shield from taxes. How do you think they make money? (Caveat: most HFs underperform, but that’s a different issue entirely)