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It's a way to dodge dividend taxes. It can be also be used to do some light price manipulation to boost executive compensation tied to share price. I don't thin
by im3w1l 3y ago
It's a way to dodge dividend taxes. It can be also be used to do some light price manipulation to boost executive compensation tied to share price. I don't think it's a huge evil or anything, but that would be the case for it being wrong.
- WalterBright 3y agoYou'll pay the taxes when you sell the stock. There's no dodging going on.
- epolanski 3y agoYes and no. The result of buybacks is that the number of shares drops. E.g. Berkshire's stake in Apple raised from 5.2 to 5.5 % merely as a result of Apple's buybacks. Obviously shareholders benefit from having a larger piece of the cake while not requiring to pay any tax on this operations.
- WalterBright 3y agoThey pay the tax when they sell the appreciated stock.
- dghlsakjg 3y agoTax rates on some dividends is higher. It is absolutely a tax dodge. It depends entirely on whether it is an ordinary or a qualified dividend. This is true in the US, other jurisdictions vary
- WalterBright 3y agoThe tax difference between ordinary or qualified dividends is the same as the tax difference between short and long term gains. It's simply not a tax dodge.
- dghlsakjg 3y agoSo there is a tax difference, we both agree. If I bought a stock yesterday and they issued a dividend today, there is no way for me to avoid the higher tax rate. If I bought it yesterday and they decide to do a buyback today, I can hold it until the lower capital gains rate kicks in, thereby avoiding the higher tax rate. See how I can avoid paying the higher tax rate? Play some more games with tax loss harvesting, and the buyback option gives you a lot more ability to pay lower taxes. With the dividend there is a limit to the amount of loss you can offSet with short term losses. Simply put, in any given situation capital gains is likely to give you a better option to pay lower taxes.