4 ms·

Regular mortals maximize their 401k contributions, use Backdoor Roth IRA, FSA, optimize for long-term capital gains, etc. Is this all legal? Absolutely. The poi

Regular mortals maximize their 401k contributions, use Backdoor Roth IRA, FSA, optimize for long-term capital gains, etc. Is this all legal? Absolutely. The point is - nobody likes paying taxes - people try to minimize whatever it takes. Billionaires do the same. Instead of opening Flexible Spending Account, they start a charity. Instead of using Roth IRA loophole, they start off-shore corporations. Basically, they do pretty much the same what you do, but on a different scale.

anderber 4y ago
They seem pretty good at getting their taxes down to zero, while us mere mortals have to be happy with deductions.
- maerF0x0 4y ago
  Mere mortals are often paying 0 tax on their investments(ie deferred). Same as the ultra wealthy do. The issue is being a W2 wage slave, err i mean employee
  - aisengard 4y ago
    Actually, mere mortals pay tax eventually when they cash out their investments to pay for the things they want. The wealthy get to take low-interest loans against their investments to pay for the things that they want, without ever having to cash out. They never have to pay those taxes, and their inheritors don't either due to the truly insane cost basis step-up benefit you get when assets are transferred to next of kin upon death.
    - sokoloff 4y ago
      The cost basis step-up is not insane, IMO. It's partly practical ("how am I going to find out the date purchase and basis of some shares my grandfather bought in an account that was doing dividend reinvesting?!"), and partly to avoid unexpected outcomes ("grandpa gave the house to Alice and the rest of his estate to Bob"; if capital gains were due on the house, would Alice have to pay them or would Bob?). IMO, the basis should be as of the date of death, with any taxes due owed from the estate, not the heirs. (It's also fairly difficult to repeatedly exploit this as a loophole, as you have to die to take advantage of it. If we're looking to close loopholes, ones that can be repeatedly applied might be more fruitful places to start.)
      - mindslight 4y ago
        Stepped up basis came out of the idea that one was already paying estate tax. Now that estate tax has disappeared for many, it seems ridiculous. The IRS has no problem requiring you to maintain paperwork across generations. For example I've got some series EE savings bonds I inherited from my grandmother, where income taxes were partially paid (you can effectively switch just your savings bonds to an "accrual" accounting method with a specific election). I've got to keep track of this aspect until they mature, so I can subtract the already-taxed income on my own taxes. Same thing. The answer to your hypothetical is that Alice would have to pay the capital gains, but only when she sold the house. Which is the same thing that would happen currently if grandpa gave away his stuff to Alice/Bob in his lifetime.
        sokoloff 4y ago
        For an unsophisticated Grandpa George, he may have intended a roughly even split based on the notional value of the paid off house being the same as the rest of the estate, while the net result would be different after paying CG. I guess I’m just not too fussed about the government not getting a lick when someone dies and would rather the family and other heirs receive whatever they’re able at what amounts to a sad time.
        maerF0x0 4y ago
        not trying to say blockchain is the answer to everything, but an asset ownership chain (keyed by the asset, so a tree if you think of it as all assets) . Would be a fantastic system of record for keeping cost basis of assets history. Eg my home has a linked list of ownership w/ cost basis details back to it's inception/root.
      - HDThoreaun 4y ago
        Couldn't disagree more. Buy, borrow, die, is an insidious loophole that is costing the government billions in lost taxes. > grandpa gave the house to Alice and the rest of his estate to Bob"; if capital gains were due on the house, would Alice have to pay them or would Bob? Capital gains taxes are paid when the asset is sold. When the house is sold the owner should have to pay the full capital gain tax, not the amount that has accrued since grandpa's death. If alice doesn't want to sell the house that's up to her.
    - c22 4y ago
      No they don't. Mere mortals don't receive enough income from their tax-deferred investments (lol), social security, and elderly side-hustle (part time cashier at Ross?) to incur a tax liability. Even taking full advantage of the senior discount at Denny's they won't leave behind much to their kin.
      - maerF0x0 4y ago
        +1 the tricky part is realizing that if someone isnt earning enough to pay taxes, they're often net recipients of "stuff" (ie, money, services, etc) . This means a lot of society has a net negative tax rate in the sense that they consume more than they give.
onion2k 4y ago
A quarter of Americans don't have a 401k, and most of those who do aren't maxing it out. If you're doing all of the things you've listed you're not really a "regular" anything any more. You're rich. Which is fine, but you should really recognize the fact.
- yamtaddle 4y ago
  Yeah it's basically impossible to max out 401k contributions unless you're rich or at least nibbling at the bottom edge of rich. For one thing, you probably need to own the company that pays you in order to make it happen. Like, sure, I expect some very successful general contractors and such manage to do that, it's not just the stereotypical richie-rich sorts who can, but even a fairly high-paid W2 worker drone cannot, even if they have the money to, because of how the rules work. The bare minimum level of success to play that game is to have a business income—not W2 income from a company someone else owns—that's, oh, IDK, let's say about 3x household median in the US, and you'll likely need more than that unless you're also quite frugal. Which means not many can do it.
  - eadmund 4y ago
    > Yeah it's basically impossible to max out 401k contributions unless you're rich or at least nibbling at the bottom edge of rich. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits https://www.irs.gov/retirement-plans/plan-participant-employ...: ‘The limit on employee elective deferrals (for traditional and safe harbor plans) is: $22,500 in 2023 ($20,500 in 2022, $19,500 in 2021 and 2020; and $19,000 in 2019).’ The median wage in the U.S. is under $55,000; anyone making $80,000 or more can max out his 401(k) contributions and still live an above-median lifestyle.
pastor_bob 4y ago
>Regular mortals maximize their 401k contributions, use Backdoor Roth IRA, FSA, optimize for long-term capital gains, etc. The only thing I would consider to be 'tax avoidance' in there is the Backdoor Roth, which is only used by a small subset of Americans because the majority don't make enough to need it. And even then the Backdoor Roth is a loophole/oversight that Congress is too cowardly to close. The rest all serve different purposes, primarily to make necessary aspects of life (Retirement, Healthcare, etc) more affordable in our unaffordable country.
93po 4y ago
There is no world in which a billionaire can donate billions of dollars and come ahead financially. The only reason to do this is the legitimate intention to use that money for reasons that aren't self serving. Conversations about "hiring his kids" and treating it like a slush fund are ridiculous. If he had a dozen kids each getting the maximum allowed salary (~$300k) for 30 years, that's still only 1.8% of the total contribution.

anderber 4y ago

They seem pretty good at getting their taxes down to zero, while us mere mortals have to be happy with deductions.

maerF0x0 4y ago
Mere mortals are often paying 0 tax on their investments(ie deferred). Same as the ultra wealthy do. The issue is being a W2 wage slave, err i mean employee
- aisengard 4y ago
  Actually, mere mortals pay tax eventually when they cash out their investments to pay for the things they want. The wealthy get to take low-interest loans against their investments to pay for the things that they want, without ever having to cash out. They never have to pay those taxes, and their inheritors don't either due to the truly insane cost basis step-up benefit you get when assets are transferred to next of kin upon death.
  - sokoloff 4y ago
    The cost basis step-up is not insane, IMO. It's partly practical ("how am I going to find out the date purchase and basis of some shares my grandfather bought in an account that was doing dividend reinvesting?!"), and partly to avoid unexpected outcomes ("grandpa gave the house to Alice and the rest of his estate to Bob"; if capital gains were due on the house, would Alice have to pay them or would Bob?). IMO, the basis should be as of the date of death, with any taxes due owed from the estate, not the heirs. (It's also fairly difficult to repeatedly exploit this as a loophole, as you have to die to take advantage of it. If we're looking to close loopholes, ones that can be repeatedly applied might be more fruitful places to start.)
    - mindslight 4y ago
      Stepped up basis came out of the idea that one was already paying estate tax. Now that estate tax has disappeared for many, it seems ridiculous. The IRS has no problem requiring you to maintain paperwork across generations. For example I've got some series EE savings bonds I inherited from my grandmother, where income taxes were partially paid (you can effectively switch just your savings bonds to an "accrual" accounting method with a specific election). I've got to keep track of this aspect until they mature, so I can subtract the already-taxed income on my own taxes. Same thing. The answer to your hypothetical is that Alice would have to pay the capital gains, but only when she sold the house. Which is the same thing that would happen currently if grandpa gave away his stuff to Alice/Bob in his lifetime.
      - sokoloff 4y ago
        For an unsophisticated Grandpa George, he may have intended a roughly even split based on the notional value of the paid off house being the same as the rest of the estate, while the net result would be different after paying CG. I guess I’m just not too fussed about the government not getting a lick when someone dies and would rather the family and other heirs receive whatever they’re able at what amounts to a sad time.
      - maerF0x0 4y ago
        not trying to say blockchain is the answer to everything, but an asset ownership chain (keyed by the asset, so a tree if you think of it as all assets) . Would be a fantastic system of record for keeping cost basis of assets history. Eg my home has a linked list of ownership w/ cost basis details back to it's inception/root.
    - HDThoreaun 4y ago
      Couldn't disagree more. Buy, borrow, die, is an insidious loophole that is costing the government billions in lost taxes. > grandpa gave the house to Alice and the rest of his estate to Bob"; if capital gains were due on the house, would Alice have to pay them or would Bob? Capital gains taxes are paid when the asset is sold. When the house is sold the owner should have to pay the full capital gain tax, not the amount that has accrued since grandpa's death. If alice doesn't want to sell the house that's up to her.
  - c22 4y ago
    No they don't. Mere mortals don't receive enough income from their tax-deferred investments (lol), social security, and elderly side-hustle (part time cashier at Ross?) to incur a tax liability. Even taking full advantage of the senior discount at Denny's they won't leave behind much to their kin.
    - maerF0x0 4y ago
      +1 the tricky part is realizing that if someone isnt earning enough to pay taxes, they're often net recipients of "stuff" (ie, money, services, etc) . This means a lot of society has a net negative tax rate in the sense that they consume more than they give.

onion2k 4y ago

A quarter of Americans don't have a 401k, and most of those who do aren't maxing it out. If you're doing all of the things you've listed you're not really a "regular" anything any more. You're rich. Which is fine, but you should really recognize the fact.

yamtaddle 4y ago
Yeah it's basically impossible to max out 401k contributions unless you're rich or at least nibbling at the bottom edge of rich. For one thing, you probably need to own the company that pays you in order to make it happen. Like, sure, I expect some very successful general contractors and such manage to do that, it's not just the stereotypical richie-rich sorts who can, but even a fairly high-paid W2 worker drone cannot, even if they have the money to, because of how the rules work. The bare minimum level of success to play that game is to have a business income—not W2 income from a company someone else owns—that's, oh, IDK, let's say about 3x household median in the US, and you'll likely need more than that unless you're also quite frugal. Which means not many can do it.
- eadmund 4y ago
  > Yeah it's basically impossible to max out 401k contributions unless you're rich or at least nibbling at the bottom edge of rich. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits https://www.irs.gov/retirement-plans/plan-participant-employ...: ‘The limit on employee elective deferrals (for traditional and safe harbor plans) is: $22,500 in 2023 ($20,500 in 2022, $19,500 in 2021 and 2020; and $19,000 in 2019).’ The median wage in the U.S. is under $55,000; anyone making $80,000 or more can max out his 401(k) contributions and still live an above-median lifestyle.

pastor_bob 4y ago

>Regular mortals maximize their 401k contributions, use Backdoor Roth IRA, FSA, optimize for long-term capital gains, etc. The only thing I would consider to be 'tax avoidance' in there is the Backdoor Roth, which is only used by a small subset of Americans because the majority don't make enough to need it. And even then the Backdoor Roth is a loophole/oversight that Congress is too cowardly to close. The rest all serve different purposes, primarily to make necessary aspects of life (Retirement, Healthcare, etc) more affordable in our unaffordable country.

93po 4y ago

There is no world in which a billionaire can donate billions of dollars and come ahead financially. The only reason to do this is the legitimate intention to use that money for reasons that aren't self serving. Conversations about "hiring his kids" and treating it like a slush fund are ridiculous. If he had a dozen kids each getting the maximum allowed salary (~$300k) for 30 years, that's still only 1.8% of the total contribution.