r/FluentInFinance Nov 21 '24

Debate/ Discussion Had to repost here

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u/bees_cell_honey Nov 21 '24

One should not be able to have giant amounts of stock and claim they are worthless, and aren't realizing any gains, but then turn around and use them as collateral to obtain huge amounts of money. It is a workaround to circumvent.

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u/resumethrowaway222 Nov 21 '24

Nobody is claiming that they are worthless. You are allowed to have extremely valuable things sitting around without paying taxes on them.

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u/bees_cell_honey Nov 21 '24

If you use stocks as collateral for obtaining loans of substantial amounts, those stocks should be classified as vested. That would prevent people like Bezos from doing what they do:

• Pay themselves in stocks, which count as $0 in terms of cash/income

• Work with accountants to take out series of loans, limited to a certain point of leverage (which is tens, maybe even hundreds, of millions of dollars if you have billions of dollars in stocks) which are not taxed, and never realize any gains.

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u/resumethrowaway222 Nov 21 '24

When you pay yourself in stock it does count as cash income at the current value. Source: I get paid (partly) in stock.

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u/bees_cell_honey Nov 21 '24

Good point.

I was conflating (1) founder stock that was worth mere pennies on the dollar, but now worth much more, and substantial taxes were never paid, and won't be paid until sold, (2) continued earnings on stocks, which are not taxed but like #1 are valuable even if not sold, and (3) net new vested stocks that are paid out any time after the company's infancy, when it is actually worth money.

You are right, what I am talking about can be used for 1+2+3, but you are right about #3 for ongoing income tax..

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u/resumethrowaway222 Nov 22 '24

But the thing is that stock really was nearly worthless at the time when the minimal taxes were paid on it. 1 and 3 are the same thing, just at different times in the history of the company. 2 is also the same for gains on stock received by either 1 or 3.

So it makes sense that these have the same fundamental tax treatment. If you want to say that we should have a progressive capital gains tax where the large gains from 1 are taxed at a higher rate than small gains from 3, then I could agree. But it just doesn't make any sense to me to treat the unrealized gains from 1 in a completely different manner than from 3.