Elon Musk and taxes

[GnarlyDudeLive]

Depending on where you get your data, 40%-47% of adult households pay *ZERO* in federal taxes.

Folks can hate on the rich for not paying "their fair share" of taxes but can somehow neglect how many people pay none.

I have no opinion on either item as individually its rather complex, *but* if its the 40-47% not paying that are the ones complaining/protesting, then I find that rather disturbing.

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[CyberGus]

Even Warren Buffet thinks his taxes are unfairly low

https://www.cnbc.com/2019/02/25/warren-buffett-and-bill-gates-the-rich-should-pay-higher-taxes.html

 

[ajdelange]

"There's a reason you don't tax people on unrealized gains, it's because they don't have the money" - my wife

Maybe you don't tax people on unrealized gains but the IRS does. Ever hear of AMT?

 

[Tinker71]

I am not aware of lavish spending by Elon. He sold most of his homes if not mistaken. Unless he sells his stock his income is not so much. I would guess he doesn't personally spend more than $10 million a year.

What irks me about the mega rich , is that they claim poverty on one side yet live lavishly by mixing personal expenses with their business. That is what the IRS needs to crack down on. For example if you have a couple meetings a year at your beach mansion then write off 95% of it as a business expense or provide living quarters for your Cronies for pennies on the dollar so they don't have to pay taxes on the income that they would have ordinarily paid on housing. I hope you know who goes to jail for that.

 

[ajdelange]

If there is anything the IRS does crack down on it is mixing business and personal expenses. There are still abuses though, of course. The one example I have had first hand experience with is a scuba diving cruise through the Sundas (Indonesian archipelago). The diving was great but one day they loaded us all into Zodiaks and took us to a leprosarium. Why would they do that? There was a group of doctors on board. There are no active leprosaria in the USA. Therefore, if you want to visit a leprosarium you must travel to someplace like Indonesia. And the trip is tax deductible as a business expense. Note that the docs also had "seminars" in the lounge after dinner.

The thing many people don't understand is that it is true that the super rich pay taxes at overall rates that are effectively much lower but the majority of them are doing it quite legally. So if you really want to point the finger of blame for tax inequity don't point it at the rich folks. Point it at your elected representatives who passed the laws the rich folks are using to shield themselves. Can't blame 'em IMO.

 

[John K]

Maybe you don't tax people on unrealized gains but the IRS does. Ever hear of AMT?

that is not how any of this works. AMT is still based upon income and adds back tax preference items to determine a minimum tax amount to be paid.

 

[GnarlyDudeLive]

Even Warren Buffet thinks his taxes are unfairly low

https://www.cnbc.com/2019/02/25/warren-buffett-and-bill-gates-the-rich-should-pay-higher-taxes.html

I could see that. But the caveat is that as a heavy philanthropist by nature your going to offset a lot of taxable income.

 

[ajdelange]

that is not how any of this works. AMT is still based upon income and adds back tax preference items to determine a minimum tax amount to be paid.

'Fraid it is. "Bargain element" of an exercised warrant to purchase stock is a preference item. If you excercize a $10 warrant when the stock is trading at $110 the bargain element is $100 and you must pay AMT on that.

The real tragedy associated with this is people (middle managers) who exercized Enron warrants thus incurring large AMT bills. What people ordinarily do is sell some of the stock to cover the AMT but when these guys went to do that the stock had become worthless. The IRS did not relent, however.

 

[John K]

'Fraid it is. "Bargain element" of an excercised warrant to purchase stock is a preference item. If you excercize a $10 warrant when the stock is trading at $110 the bargain element is $100 and you must pay AMT on that.

The real tragedy associated with this is people (middle managers) who excercized Enron warrants this incurring large AMT bills. What people ordinarily do is sell some of the stock to cover the AMT but when these guys went to do that the stock had become worthless. The IRS did not relent, however.

you are comparing apples to lemons. Warrants have a unique set of taxation rules. the delta in the warrant is taxable. Selling the stock to cover AMT should be done the day of to play it safe. Otherwise, untaxed taxable income is kept as an investment risk By the individual.

Describing this as pure unrealized gains Is not appropriate.

 

[anionic1]

Why do we spend so much time as a society focused on what the billionaires make and pay in taxes. I get that if they paid more taxes maybe we could pay less, but really the fact is that they control the government. That’s why their income has has continued to grow and the rest of the population has stagnated. The laws are written to help them make more money obviously or how else would they get away with such low tax rates. Meanwhile we pay 20% to 30% and the buying power seems to get worse and worse for every generation now. Granted each new generation has cooler tech. Really I think society needs to find a way to hold government more accountable and force them to spend less and cut our taxes. I don’t believe we will ever win in trying to get the rich guys to pay more taxes but we probably could fight to get a better deal for ourselves.

 

[BillyGee]

Even Warren Buffet thinks his taxes are unfairly low

https://www.cnbc.com/2019/02/25/warren-buffett-and-bill-gates-the-rich-should-pay-higher-taxes.html

I always think that's a mixed sentiment because he could always just par the IRS more if he really wanted. They'll cash any check you send them.

 

[ajdelange]

you are comparing apples to lemons. Warrants have a unique set of taxation rules.

And so do a whole lot of things in the tax code.

...the delta in the warrant is taxable.

It sure is whether you sell or retain the shares.

Selling the stock to cover AMT should be done the day of to play it safe. Otherwise, untaxed taxable income...

This is not untaxed taxable income. It is TAXED phantom income. The tax is owed whether you sell some of the shares or not. The risk is that if you rely on the shares to cover your tax bill and the shares plummet before you can sell them you will not be able to pay the bill.

Describing this as pure unrealized gains Is not appropriate.

A)You buy a share of stock for $10. It goes up to $1000. If you don't sell the stock there is no gain.
B)You are given a $10 warrant. The stock goes up to $1000. You excercise the warrant. If you don't sell the stock there is no gain.

In case A you pay no tax. In case B you do. Looks like the guy in situation B is paying tax on a gain he didn't realize. Or at least it surely feels like that's the case when he writes the check. And I don't think which form or schedule the transactions are reported on makes much difference. In this case the IRS taxes when there is no income. Period.

 

[John K]

A)You buy a share of stock for $10. It goes up to $1000. If you don't sell the stock there is no gain.
B)You are given a $10 warrant. The stock goes up to $1000. You excercise the warrant. If you don't sell the stock there is no gain.

In case A you pay no tax. In case B you do. Looks like the guy in situation B is paying tax on a gain he didn't realize. Or at least it surely feels like that's the case when he writes the check. And I don't think which form or schedule the transactions are reported on makes much difference. The IRS taxes when no income has been realized. Period.

The delta in the warrant on the close of day issued is taxable income because it is an amount not had before. The amount contributed to purchase the warrant is not taxable. The delta is income received, even though immediately invested, and is taxable. Else, I could use warrants to transfer or pay large amount of taxable wealth as a loophole.

You are missing the why this is taxable.

Gains from the close of day the warrant was excised onward is unrealized wealth and not taxable until sold.

 

[Crissa]

Depending on where you get your data, 40%-47% of adult households pay *ZERO* in federal taxes.

Federal. Everyone pays some other taxes - be it sales, state income, property, registrations, licensing, court fees, etc.

Many states have regressive tax schemes - that is, those who earn the least, pay the most taxes.

One of those states is Texas, of course.

-Crissa

 

[Crissa]

The delta in the warrant on the close of day issued is taxable income because it is an amount not had before. The amount contributed to purchase the warrant is not taxable. The delta is income received, even though immediately invested, and is taxable. Else, I could use warrants to transfer or pay large amount of taxable wealth as a loophole.

This is why Romney had a huge amount of cash value in his IRA. It's a massive loophole.

But... I do think we should be taxing the sale, not the option. Taxing the options as we do now pretty much only screws the little guys, as it doesn't impact those with lots of cash, like Musk.

I don't really look forward to my 2021 taxes because a quarter of our income will be realized options (spouse's company sold last year and they cashed out all the shares in the transfer).

-Crissa

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