4 ms·

Here's an interesting observation I made. You can instantly become both the world's richest and generous person. Take a friend that you trust, and sell him a p

Here's an interesting observation I made. You can instantly become both the world's richest and generous person. Take a friend that you trust, and sell him a piece of paper for $10000000000000 billion dollars. Suppose he agrees (even if he doesn't have that money right now, he/his descendants can pay it off over their lifetimes). Now you have $10000000000000 billion dollars of wealth. But, you decide to be generous and give $10000000000000 billion dollars to your friend, for free (which in turn allows him to pay off his debt to you). Basically, two things happened simoultaneously: nothing, and a two-way exchange of $10000000000000 billion dollars. Which, if you report to the government, you both owe a lot of taxes now because you've had a lot of income.

johndevor 13y ago
I think that's where the IRS' definition of "fair market" value comes into play. They'd only tax you on the market value of that piece of paper... which is $0.
- shurcooL 13y ago
  Good point. But what if it's some weird personalized product/service that is worth a lot to one person but worthless to everyone else (like personal memories, photos, etc.).
- nathan_long 13y ago
  How large does a market have to be to "legitimately" place a value on something? If there exists one person who will pay you $10 for your used tissues, are they worth $10? What if there are 10 such people, or 100? I'd say the market has to be 1 person, but I suppose the IRS has a different definition.
Houshalter 13y ago
You've also massively increased GDP, good job! Another interesting observation on subjective value; if you put your money into another currency, say bitcoin, and the exchange rates change, you have to pay taxes on that. You haven't actually produced anything or gained any income or even sold your bitcoins yet, just changes in exchange rates. Because someone somewhere decided it was more valuable to them. It also depends how long the tax period is. For example bitcoins can increase in value one month and decrease the next. Over the year you will have gained nothing, but if you had to pay taxes every month then you lose a lot. If we had a super-efficient government that could tax in real time, you would lose some money every time bitcoins (or whatever) increased slightly. If only taxes could go negative for assets decreasing in value.
- gibybo 13y ago
  Taxes do go negative for assets decreasing in value. You may deduct any (realized) losses in value from your other (realized) gains. You may also deduct up to $3k/year of those losses from your income. If you have losses exceeding this amount, you may carry them over into the following year and deduct again. *This is the US tax code, but I suspect many countries operate similarly.

johndevor 13y ago

I think that's where the IRS' definition of "fair market" value comes into play. They'd only tax you on the market value of that piece of paper... which is $0.

shurcooL 13y ago
Good point. But what if it's some weird personalized product/service that is worth a lot to one person but worthless to everyone else (like personal memories, photos, etc.).
nathan_long 13y ago
How large does a market have to be to "legitimately" place a value on something? If there exists one person who will pay you $10 for your used tissues, are they worth $10? What if there are 10 such people, or 100? I'd say the market has to be 1 person, but I suppose the IRS has a different definition.

Houshalter 13y ago

You've also massively increased GDP, good job! Another interesting observation on subjective value; if you put your money into another currency, say bitcoin, and the exchange rates change, you have to pay taxes on that. You haven't actually produced anything or gained any income or even sold your bitcoins yet, just changes in exchange rates. Because someone somewhere decided it was more valuable to them. It also depends how long the tax period is. For example bitcoins can increase in value one month and decrease the next. Over the year you will have gained nothing, but if you had to pay taxes every month then you lose a lot. If we had a super-efficient government that could tax in real time, you would lose some money every time bitcoins (or whatever) increased slightly. If only taxes could go negative for assets decreasing in value.

gibybo 13y ago
Taxes do go negative for assets decreasing in value. You may deduct any (realized) losses in value from your other (realized) gains. You may also deduct up to $3k/year of those losses from your income. If you have losses exceeding this amount, you may carry them over into the following year and deduct again. *This is the US tax code, but I suspect many countries operate similarly.