Retire early to hunt more?

[BigHornRam]

I have a lot of mixed feelings on some of this stuff that are difficult to articulate, probably because I haven't thought them through hard enough. For example, I'm not a fan of taxing unrealized gains. But frankly, I'm not a fan of taxing money made on investments either. For example, I paid income taxes on my money already. If I made a smart (or lucky) investment with that already taxed money, and make more money, it bugs me that I get taxed on that gain too.

But, regardless of that other stuff, the above is something that I've thought about throughout this thread. Most of these opportunities are technically available to the vast majority, not just the very wealthy. If the person and the bank are willing to come to agreeable terms regarding interest rate, repayment timeframe, etc. what do I care? Presumably I could do the same thing if I had the collateral available.

Again, not always well thought out. I appreciate everyone's insights.

Very well said and thought out. You get it more than most.

 

[SAJ-99]

Most of these opportunities are technically available to the vast majority, not just the very wealthy.

No it isn't. I'm not sure where you got that impression. You need to have a new worth of certain amount. Depending on the bank, a person needs $1,000,000 net worth for this type of private banking. The major banks have tiered structures. The general rule for the bank is "Don't call us, we will call you.". If you are not sure, call HSBC and ask to set up a private banking/wealth account (these can be different things, but I lump them together).

 

[BigHornRam]

No it isn't. I'm not sure where you got that impression. You need to have a new worth of certain amount. Depending on the bank, a person needs $1,000,000 net worth for this type of private banking. The major banks have tiered structures. The general rule for the bank is "Don't call us, we will call you.". If you are not sure, call HSBC and ask to set up a private banking/wealth account (these can be different things, but I lump them together).

So now 1 million net worth is "very wealthy"? I thought we were only hating on the ultra wealthy?

 

[LousyResident]

No it isn't. I'm not sure where you got that impression. You need to have a new worth of certain amount. Depending on the bank, a person needs $1,000,000 net worth for this type of private banking. The major banks have tiered structures. The general rule for the bank is "Don't call us, we will call you.". If you are not sure, call HSBC and ask to set up a private banking/wealth account (these can be different things, but I lump them together).

I was referring to the overall theme of avoiding taxes via various loopholes.

But even the above I'm generally OK with. Those are simply underwriting standards, ie "We as a bank will not make a loan of this risk level to a borrower without sufficient net worth to offset the risk." And in that regard, net worth is simply a suitable estimate of leverage. Lending standards like that are applied all the time. If you try getting a HELOC with $0 net worth you'll usually be denied.

 

[westbranch]

So Bill Gates likely used the 1031 exchange laws to sell Microsoft shares in exchange for his recent farm land purchases and was able to defer the taxes. I'm sure he had some good lawyers and accountants make sure it was done properly. Good business move or shirking his "fair share"?

1031 exchange requires "like-kind" property so real estate for real estate. Apartment building for farmland ok, but no options for stock. Pretty sure that has been the 1031 exchange rules for 30+ yrs, no idea about prior to 1986 tax reform.

 

[Irrelevant]

It's interesting to see such ardent defense of the ulta wealthy and the regulations that allow them to avoid the same level of tax burden that you and I have. Is it because we all aspire to be in their shoes and thus feel the need to defend that position?

On a side note have you ever met someone who thinks they are wealthy? Where is your line and do you think if you got there you'd feel wealthy or decide that line is actually a little higher?

 

[Bob-WY]

Wow did this thread go sideways and actually ruin a decent discussion

 

[BigHornRam]

From wllms ProPublica article. They conflate wealth growth (stock appreciation) with the "true tax rate" Bezos paid almost 1 billion in taxes from 2014 to 2018. He earned a little over 4 billion. I don't really like the guy, but I think he paid his "fair share". Also think it is troubling here that people working inside the IRS are weaponizing people's personal tax records for an agenda.

Wealth, income and taxes for four of the richest people in the country from 2014 to 2018.

Wealth Growth Total Income Reported Total Taxes Paid True Tax Rate

Warren Buffett

Berkshire Hathaway Inc.

$24.3B $125M $23.7M 0.10%

Jeff Bezos

Amazon.com Inc.

$99.0B $4.22B $973M 0.98%

Michael Bloomberg

Bloomberg LP

$22.5B $10.0B $292M 1.30%

Elon Musk

Tesla Inc.

$13.9B $1.52B $455M 3.27%

 

[VikingsGuy]

So Bill Gates likely used the 1031 exchange laws to sell Microsoft shares in exchange for his recent farm land purchases and was able to defer the taxes. I'm sure he had some good lawyers and accountants make sure it was done properly. Good business move or shirking his "fair share"?

Nope - can't swap stocks for real estate under 1031. Just swap real estate holdings

 

[VikingsGuy]

Lotta lenders and businesses will go TU if you do that.

Nope again - wouldn't effect 95% of retail lenders or businesses.

 

[SAJ-99]

Wow did this thread go sideways and actually ruin a decent discussion

Every retirement thread evolves to its core element of how to minimize your tax bill. The American sport for eggheads.

 

[BigHornRam]

Nope - can't swap stocks for real estate under 1031. Just swap real estate holdings

You think Bill paid taxes when he sold his stock shares, or used a different mechanism to defer the tax liability?

 

[VikingsGuy]

I have a lot of mixed feelings on some of this stuff that are difficult to articulate, probably because I haven't thought them through hard enough. For example, I'm not a fan of taxing unrealized gains. But frankly, I'm not a fan of taxing money made on investments either. For example, I paid income taxes on my money already. If I made a smart (or lucky) investment with that already taxed money, and make more money, it bugs me that I get taxed on that gain too.

But, regardless of that other stuff, the above is something that I've thought about throughout this thread. Most of these opportunities are technically available to the vast majority, not just the very wealthy. If the person and the bank are willing to come to agreeable terms regarding interest rate, repayment timeframe, etc. what do I care? Presumably I could do the same thing if I had the collateral available.

Again, not always well thought out. I appreciate everyone's insights.

You are mixing double taxing the basis versus never-taxed gains. Your principle/basis as you said has been taxed and it shouldn't be taxed again (taxing tax-deferred income like unrealized gains is completely different than "wealth taxes" or property taxes that repeatedly re-tax the same dollars/asset).

What if I said that because IT is such a crucial industry to America that any salary, bonus or other wages earned working for an IT company would not count as income and would not be taxed - and in order to pay for this program all teachers will have to pay an additional 5% payroll surcharge? Sales Manager at Google ZERO tax, local 5th grade teacher pony up.

Pretty much what's happening here - somebody decided that making money at an hourly job should be taxed but making money investing somehow should not (or at a much lower rate). It is an arbitrary choice that hurts many and helps a few. But because we have grown up with it being the norm we somehow intuitively justify it. But I could come up with dozens of equally arbitrary and unfair tax approaches that everyone would reject as illogical or unfair because they would be new and therefore easily rejected - yet it is super hard to get people to step back and realize what a complete rip-off for 99.99% of Americans the current arbitrary system is.

 

[VikingsGuy]

You think Bill paid taxes when he sold his stock shares, or used a different mechanism to defer the tax liability?

Don't know, don't care - but you said 1031 exchange so that is what I responded to. The random strawmen you seem to endless throw out do get a little old, at least take the effort to make them plausibly correct strawmen.

 

[Deleted member 28227]

I was referring to the overall theme of avoiding taxes via various loopholes.

But even the above I'm generally OK with. Those are simply underwriting standards, ie "We as a bank will not make a loan of this risk level to a borrower without sufficient net worth to offset the risk." And in that regard, net worth is simply a suitable estimate of leverage. Lending standards like that are applied all the time. If you try getting a HELOC with $0 net worth you'll usually be denied.

From wllms ProPublica article. They conflate wealth growth (stock appreciation) with the "true tax rate" Bezos paid almost 1 billion in taxes from 2014 to 2018. He earned a little over 4 billion. I don't really like the guy, but I think he paid his "fair share". Also think it is troubling here that people working inside the IRS are weaponizing people's personal tax records for an agenda.

Wealth, income and taxes for four of the richest people in the country from 2014 to 2018.

Wealth Growth Total Income Reported Total Taxes Paid True Tax Rate

Warren Buffett

Berkshire Hathaway Inc.

$24.3B $125M $23.7M 0.10%

Jeff Bezos

Amazon.com Inc.

$99.0B $4.22B $973M 0.98%

Michael Bloomberg

Bloomberg LP

$22.5B $10.0B $292M 1.30%

Elon Musk

Tesla Inc.

$13.9B $1.52B $455M 3.27%

God I hate it when people make me re-examine my conclusions

 

[VikingsGuy]

Going along with the false narrative works in their advantage as well.

That absolutely makes so sense - they are making money not passing narratives. I expect higher inflation in the next 2 years than some. Many experts agree, many disagree, I make my own choices basis my educated assumptions and the markets will prove me right or wrong. Same for you. But to say that there is a nationwide conspiracy to hide present inflation is ridiculous, baseless and does not at all help the thinking of earnest folks looking for retirement advice.

 

[VikingsGuy]

No it isn't. I'm not sure where you got that impression. You need to have a new worth of certain amount. Depending on the bank, a person needs $1,000,000 net worth for this type of private banking. The major banks have tiered structures. The general rule for the bank is "Don't call us, we will call you.". If you are not sure, call HSBC and ask to set up a private banking/wealth account (these can be different things, but I lump them together).

You aren't going to even sniff at some of these programs with a net worth less than $25million. Below $1 million they won't return your calls. From $1million to $25million you are a great target for them to siphon off wealth but they aren't doing you any real favors. Above $25 million you begin to actually be a customer not the mark.

 

[VikingsGuy]

Wow did this thread go sideways and actually ruin a decent discussion

Every thread on every topic that goes more than 5 pages ceases to answer the OP's question after that point - anything worth saying gets said 3 times within the first 5 pages. Threads go longer than that either because the topic morphed and extended (which this one has) or because it has devolved into Hitler vs communist name-calling (or both). If you are 13 pages in you shouldn't really expect much different.

 

[VikingsGuy]

I guess what I meant was, how else you do you ultimately figure out the "income" if not for figuring growth in net worth year over year? If we starting finding a way to tax unrealized gains then I assume to have to start accounting for unrealized losses as well. That is what got me to the overall net worth calculation.

Good questions. I think we can make progress on the discriminating of income sources problem without going down every technical rabbit hole. There are many legal regimes and many tax approaches that oversimplify things to get a directionally correct outcome.

I do not like wealth taxes and do not like double taxation. Once I have an earned, post-tax, dollar in my mattress it should not be taxed again no matter how long it sits there. (For this reason, all things being equal I would be against property taxes, but without them people could indefinitely sit on real estate that creates all kinds of ridiculous economic and societal outcomes, so I can live with property taxes as a balance against that form of economic inefficiency and stagnation.). But I am not suggesting we retax previously taxed income. I am talking about taxing economic gains that are new, untaxed for an indefinite period, and afford the recipients a lifestyle as if they were income.

There are at least two approaches that can piggyback off longstanding approaches and will not require re-inventing the wheel.

The first could be:

1. You do your 1040 just like always - for 95% of taxpayers this ends the discussion. You have typical income sources, typical income amounts, and typical deductions and credits. You paid your share
2. Do your AMT (alternative minimum tax) just like always - about 5% have to at least look at this section, but under current rules, only 0.1% have to pay anything under it. The AMT is a catch of unusually high deductions or credits to a point society is concerned you not paying your fair share. Again, only 0.1% pay this.
3. That same 5% would (in the future under this theory) go through a few simple steps to see if they need to pay a MGT (minimum gains tax). This would make sure with folks with disproportionately high unrealized gains with little taxable "income" still pay a reasonable and "fair share" of taxes.
   • If your unrealized gains for the year were less than 10 million dollars (excluding retirement accounts) you would be exempt and done. At this point, 99.99% of taxpayers are DONE.
   • But if your unrealized gains over 10 million dollars and that was more than 5 times your AGI you would have some portion of those unrealized gains (say 15%) imputed as present income. Any taxes paid under this regime would then add to your basis for future analysis so there would be no double taxation.

A second alternative would be to apply something similar to the 401k required minimum distribution rule that we all are already subject to - this would require folks with investment portfolios valued over a certain amount (such as $25 million) to realize something like 10% of their yet unrealized gains each year and pay the commensurate capital gains taxes in the normal manner. It works for 401ks it could work here as well. As for unrealized losses, you could just catch those up at the end, where the taxes paid on gains realized for tax purposes would add to the basis when the asset is in fact sold and gains/losses would be covered in the normal course. This doesn't really increase actual taxes, it just limits perpetual tax deferral that creates a pseudo zero tax scenario that is unfair to wage earners.

 

[VikingsGuy]

It's interesting to see such ardent defense of the ulta wealthy and the regulations that allow them to avoid the same level of tax burden that you and I have. Is it because we all aspire to be in their shoes and thus feel the need to defend that position?

On a side note have you ever met someone who thinks they are wealthy? Where is your line and do you think if you got there you'd feel wealthy or decide that line is actually a little higher?

I am just a minion, but do spend time with a number who are ultra wealthy - and they know it and would acknowledge it. In my experience, beyond a net worth of $100 million folks don't try to pretend they are just one bad year from the bread lines. They don't try to point out "how they earned every penny of it". They don't try to pretend their kid's college needs or their future elder care needs justify their accumulaion of such wealth. They don't pretend that just anybody can make money in the market like they can. It seems like it's the $10 million to $25 million folks that spend their time doing that.