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Elon Musk Paid No Federal Income Taxes in 2018, ProPublica Reports: The top 25 richest Americans gained $401 billion from 2014 to 2018, but only paid $13.6 billion—3.4 percent of that—in federal income taxes.

Elon Musk Paid No Federal Income Taxes in 2018, ProPublica Reports: The top 25 richest Americans gained $401 billion from 2014 to 2018, but only paid $13.6 billion—3.4 percent of that—in federal income taxes.

majesticjg

We don't tax unrealized capital gains. If your house goes up in value, we don't tax that value as income until or unless you sell the house. The same with a bitcoin. If you buy some BTC and it goes up in value, you don't pay income taxes until or unless you sell it for US dollars. Similarly, Musk's wealth is in stock shares. If he sold them to turn them into cash, that would be a capital gain and he'd pay taxes on it. If he holds the shares, he doesn't. This is the difference between income, which we tax, and wealth, which we don't until it generates income.


JimTheSaint

Is that a problem? I am thinking as long as the company profit is taxed, and as long as the income is taxed when it as actually taken out as capital gains. Doesn't really matter what his shares are worth, they can go up and down every day, as long as he actually is taxes when he sells the stocks, then it is fine by me.


Ares1935

not a problem, just commonly misunderstood (or purposely misunderstood in some cases) also, company profit is taxed, and company profit is taxed again if they distribute them to shareholders, which is why its taxed at a special rate. otherwise it would be super easy to manipulate, and hard to manage. houses are a great example, or art, or jewelry. Imagine if you had to claim the value of your jewelry on taxes every year depending on the spot price of gold.


Such_Difficulty_5570

It is because rich people use those unrealized gains to underwrite loans and shit.


badluckbrians

This. The motherfucker has like 10 Bel Air mansions, private jets, and his own goddamn personal space program. He's burning cash hard, each and every year. It's easy to do. 1. Issue yourself stock/options 2. Take out a loan against your equity 3. Issue yourself more stock/options 4. Take out a bigger loan against the new issuance 5. Pay back the first loan with the new loan Voila! You never realized any gains! But you're living like King Croesus. Middle class people don't seem to intuitively grasp how this works, so let's play a thought experiment. - Imagine you were paid in houses. Instead of a salary, you got one house per year, worth, say $300,000. - But oh no! How will you ever get cash money? - Take out a Home Equity Line of Credit, and live off that - When you get your new annual house, borrow even more off the home equity line of credit, pay off the first loan, and live off the rest - Lather, rinse, repeat Congratulations. You now have zero income. You pay no income tax. And you never have to sell the houses either. So you have no capital gains. But you have access to oodles of cash. More every year.


Yayareasports

Step 1 and 3 is a taxable event (issuing yourself stock/options). Once you’re a public company, they’re taxed as income at the value of the stock when it’s granted. Prior to going public, it’ll be taxed at the most recent 409A price. He also can’t just issue himself options either without board approval. And finally, the loans he’s taking out are still just that, a loan. He still needs to pay it back. If he uses equity to pay it back, he has to cash the equity which is a taxable event. If he keeps taking larger loans to pay it back, then he now owes larger and larger loans. It’s not like he’s beating the system by taking out loans...


PurfectMittens

These are the same financial geniuses who think you can pay off credit cards with other credit cards and come out ahead.


One-eyed-snake

But mah points bruh!


Substantial_Revolt

Steps 1 and 3 are taxable events but this process allows for the appreciated value of the securities to go untaxed and the appreciation is how they generate the bulk of their wealth. This process is to avoid realizing gains and bypassing capital gains tax.


DramDemon

Realistically he never has to be the one to cash out. His estate can do it once he’s gone and no longer cares about taxes. He’s beating the system by outliving the consequences.


ggefvcyhvji

Well, at that point, it will be taxed. Why is it important to you that Bezos is alive when the tax is paid?


Ullallulloo

Steps 1 and 3 both generate taxable income. The only thing saved is the appreciation, and even that's at the expense of paying interest on the loan. You cannot take any form of net compensation while having zero income.


rebflow

You would be taxed when you received the house every year.


HeyZuesMode

But wouldn't your initial payments on the first loan increase to match the amount you've taken out? This making your monthly payments increase until you pay off that first loan? Is this where you would purchase using interest only mortgages so that come tax time you claim all payments as a deduction and you more than likely get money back?


quickclickz

lmao what is this garbage. When you receive those vested stocks/ or exercise your options you get taxed AS INCOME based on the cost basis of your stock the second you fully receive them. In your stupid analogy under (1), (3), or getting paid in houses you would pay taxes based on the cash value of those shares/house on the day you received them. This is no different than being paid in 50k in cash and then making a loan off that cash collateral... since in both cases you're paying taxes on the immediate value. What is this garbage and how is this upvoted


PBK--

This is Reddit and everyone is either 12 physically, 12 mentally, or a bot. Explaining how taxes actually work on Reddit is like pissing into the wind.


ellipses1

Man, i thought I was a solid 6 and here you are saying I’m a 12!


Teamerchant

Musk actually sold all but 1 home I believe. Also it's not easy to do as you need to show your stocks have value. You then take a loan against that asset. However eventually you will need to sell those stocks to pay the loan that you are now paying interest on.


badluckbrians

Dude, it's super easy to do. [Literally just fill out this web form](https://privatebank.jpmorgan.com/gl/en/services/lending/securities-based-lending), and J.P. Morgan will call you or your assistant, any time of day.


WindHero

You have to sell when you die though so yes you do pay the taxes eventually. I'm not an expert but I think the only loophole is to give the stocks to charity which is what the Buffet and Gates types are doing. If you control the charity then you keep control of the shares which ultimately is what these guys want. They can't spend all the money they have it's just not possible so they don't care if the proceeds go to charity. But they want to keep control of their companies because that gives them power and influence.


godelski

That's not exactly right. But also think about your argument. It is "well we'll get the tax in 50 years, so what's the difference?" The difference is 50 years. Then consider the interest on 50 years. That's a lot more money (inflation plays a role too). But also realize that [estate taxes are lower than normal taxes](https://www.investopedia.com/terms/e/estatetax.asp). So even if the money wasn't thrown through shell companies to reduce the tax burden then the government is still getting the short end of the deal. No matter how you put it, they are playing a vastly different game and paying less in proportion than the rest of us.


ClerklyMantis_

I'm stupid and probably wrong, but did you just describe and reccomend a ponzi scheme?


badluckbrians

Nope. You're just floating one loan to the next, while gathering underlying assets. The key is that as long as your wealth keeps increasing, say you get a new $300,000 house every year, the loan size can keep increasing, and there's no problem. You never have to sell. There's nothing wrong with paying one loan down with a new loan. Happens all the time. That's how refinancing your house or debt consolidation works. If you own multiple homes, you can take out a home equity line of credit on each of them. [It's called a "Securities-based line of credit."](https://www.wellsfargoadvisors.com/why-wells-fargo/products-services/lending/securities-based.htm)


ClerklyMantis_

I see, thanks for describing it for me


_Nicktendo_

I don't know, I'm probably just as wrong as the last guy, but I still don't see how what you're discribing does anything more than generate massive amounts of debt. I mean, at some point you'll need to pay down your debt with actual cash. Again, go easy on me, I really have no clue what I'm talking about, but it sounds like digging a hole


clearview5050

they are only paying the interest on the debt. The principal value (the original amount loaned) is payed off by the Next loan.


KefkaZix

His overall wealth is increasing, just not in the form of cash.


jklhasjkfasjdk

You can't receive wealth from a third party and not ever pay taxes on it. Extremely wealthy people differ taxes until they die, then their heirs inherit less because their estate has to pay off all differed taxes. That is the closest thing to not paying taxes as someone can do. Every American with a Caymans account etc, is still paying taxes or doing something illegal. They're definitely not taking out loans with US companies to try to beat the IRS, that would be incredibly stupid since the IRS would have easy access to everything happening. Most wealthy people "defeat" the tax system because they aren't actually trying to build wealth for the sake of greed. They have huge egos akin to Roman emperors and want to fund specific projects that they have a hard on for. Bezos and Musk are perfect examples of this. They're re-investing their profits into their projects and using the expenses of their side-projects to offset their profits. Bezos did this with AWS and Amazon to eat up a huge market share. Now that he's profitable, he has BO to off set some profits. They already live like kings through corporate money, they have no reason to liquidate their shares. As long as theyre actually working, the boards that they control will never complain about them using corporate money to travel between their business projects.


badluckbrians

I mean, at some point in this silly house example (which I will reiterate is just a goofy thought experiment and not meant to be real since some pedants in this thread don't grasp that), you may hit a point where you figure you only need to spend like $100,000 per year. But you keep getting more $300,000 houses every year. So just pay off the old loan with the new one. Ten years later, as long as your wealth is increasing, if you want to splurge and borrow $1,000,000 one day, you can since you have another $3,000,000 in equity. Now you'll have to pay that loan back, and it may take you a while. And if worse comes to worst, maybe you have to sell a few of those houses to pay it off. But as long as you keep getting more houses, you should be fine.


clownpuncher13

You don’t need more houses just appreciation on the existing one(s). When you die the asset is inherited at a stepped up basis so the heir can sell it, pay zero capital gains on it and retire the loan.


FNLN_taken

The crux is that it works as long as you assets appreciate at a higher rate than the loan interest. For normal people, that means that an economic downturn could ruin you if you float more than you can cover in assets. But this guy has billions, he could lose 95% of his stock value and probably still be fine. And at those scales, you dont guarantee business loans with personal assets, unless your name is Donald Trump. So Elons SpaceX adventure is probably very much isolated from his other spending. Hell, if they are smart SpaceX could end up owing him money if it goes tits up.


oh-no-godzilla

Narrator: "They are smart"


sirlost33

It’s closer to check kiting


sugabelly

So are you planning to never repay the loan? Stop being dumb. We don’t tax loans because they have to be paid back.


AuditorTux

They still have to either liquidate or use other funds to pay on those loans. That liquid asset has been taxed.


djb85511

And those loans literally are used to gobble up land, natural resources, infrastructure and factories. It's a problem to let these chief exploiters gain massive amounts of leverage, because at the end of the day the very wealthy fucks only acquire billions by exploiting millions. By turning a blind eye, or even worse encouraging these fucks we literally are putting the screws on our own lives, higher housing costs and lower wages because the rich gobbled up all the land and are controlling the supply of housing, while owning the factories and pushing down our wages.


et27U4Y4qse0AIcyFZg8

>(or purposely misunderstood in some cases) This, definitely. Media outlets have realized that they can get outrage clicks by using vague language like "gained $401 billion."


regoapps

"Jeff Bezos paid almost $1 billion in income taxes between 2014-2018 and will pay tens of billions more when he sells all his stocks, which he hasn't done yet" doesn't have the same ring to it. But that's basically what happened, and the media wants people to get outraged, because getting the masses mad at rich people is more popular and click-worthy. Meanwhile everyone with a 401k or IRA or other retirement fund is essentially doing the same thing. Their retirement grows when stocks rise, and they pay no taxes on it each year. So their income tax on that amount would be 0% each year. But they will have to pay taxes when they retire and take the money out. Yet nobody talks about this.


SippieCup

Houses aren't _that_ great of an example as you are taxed on unrealized gains after each assessment - if the value of your house increases, your taxes do as well.


Dominisi

This is a good point but kinda goes further into the weeds on property taxes than the simple "realized capital gains" example he was giving.


bananastanding

Not sure why you're being downvoted. You are correct that is property tax, not income tax. The tax on your home is based on the current assessed value, not the change in value.


nochinzilch

Not your income taxes.


ResponsibleLimeade

But they're different taxes. Property taxes are often state and local taxes, capital gains are some states and federal tax. It's like complaining about federal income tax and state sales taxes. Fun fact in 2019 Texas voters amended the state constitution to ban state income tax. The State already has among the highest percentage of property taxes and sales taxes, and with the housing market in Texas heating up its going to become very regressive. Larger landowners, 10+ acres can put cows on and claim an agricultural exemption, forcing more of a burden on small owners, like apartments and houses to pay more. Sales taxes meanwhile are inherently regressive. Texans have shot themselves in the foot with a regressive state tax system that further underfunds their local and state governments, increasing the likelihood that police officers shake down locals with fines in order to make a budget. It's a nightmare and it's going to get worse.


lhjmq

It's a problem when they can essentially borrow against their value and use the money without actually having an "income" and the interest they pay adds to the banks profits which are taxed at a much lower rate. So, the money never reaches the communities which have a hand in facilitating the increase in Musk's value.


BoilerPurdude

Except to pay back that loan they would have to realize a gain (sell their stock) or get the income from another means... Either way it is being taxed. It just allows them to get liquidity today and spread out the tax over X years. I can get a loan against the current value of my house right now. Say it has increased in 60K the past 2 years. So I get a 60k loan use the equity in my house as collateral and use that money for whatever I want, maybe buying another house to rent...


__-___---

You do that too. That's the concept of a loan, you get money you didn't earn yet. But you still have to earn it to pay it back, after being taxed.


Saith_Cassus

\>As long as the company profit is taxed Ah, but there are some sleazy loopholes in that. For example-- say my widget is manufactured in China, then goes to the company branch in the Cayman islands. That company branch "sells" the widget to our US partner for $400, and that US partner sells it to the consume for $399.99! Why, look at that-- the US company didn't turn a profit on the widget it just sold! In fact, it *lost* money! Yo, Uncle Sam, we lost money! Give us a tax credit, please, to keep our totes small business afloat! That's just the most blatant model, but there are thousands of them out there. It's damned difficult to find a taxation model that corporations aren't exploiting for loopholes.


quickclickz

.... The company branch would be taxed for the income generated by selling the widget to its US partner for $400 effectively taxing the entire corporation for the actual income is. I'm not sure what you're talking about in your scenario. IF you're saying the company branches are not in any way related on paper then you're describing antitrust violations, money laundering and amongst other things that no company actually does on a large-scale and is heavily investigated and regulated lmao


dantheman91

Nope, it would be a far bigger problem if it happened when your wealth went up. My house went up 100k in the last year, and I'd really not want to be paying another 30k+ or w/e that would cost me in taxes if I recognized that as income. This is just a clickbait article of people who don't understand income vs unrealized gains.


Liquidmurr

Except that many people do. Property tax is reassessed yearly for many places, however in offer states it’s only factored at the time of a sale. Obviously I’m not advocating for anything here, just saying it’s a flawed analogy and a complex situation.


et27U4Y4qse0AIcyFZg8

It's not all a flawed analogy. Property tax has nothing to do with paying capital gains or income tax on an increase in your home's value. If you buy your home for $200k, and next year it goes up to $220k in value, you do not have to pay tax on that $20k because it is **unrealized** capital gains. When you *sell* the property, you may have to pay capital gains tax on it. Stock is no different. Property tax is a completely different thing and has no bearing on this discussion.


the_fickle_pickle

Property tax is a wealth tax for the middle and lower upper class.


FacinatedByMagic

Unless you live in states that charge a property tax for vehicle ownership, as well as plates/registration fees like normal. Then it hits the wealth ladder all the way down to the bottom.


bananastanding

It's a tax on everybody who pays for housing. Even if you rent, property taxes figured into the cost of rent.


Jshan91

Property tax is based on the value of your property is it not?


stacked_shit

Yes it is in most places, but everyone who owns property pays property taxes including Elon musk. It's completely irrelevant to the tax wealth argument. If you're poor, you don't own property, you don't pay property taxes.


et27U4Y4qse0AIcyFZg8

If you're renting, you're still paying property tax. It's just hidden inside the rent.


mdnbcfpr

It would actually create a huge issue if you were taxed based on wealth. Elon is the perfect example - his wealth has fluctuated wildly over the past few years due to how volitile Tesla's stock price is. If he were taxed on his unrealized gains, he'd be at risk of being assessed a tax on a value of 100X, but only being worth X when it was time to pay.


theorizable

No. Which is why articles like this are fucking idiotic to the point of being brain-dead. It'd be like if you painted an art piece... then on valuation of that art piece (not sale, just valuation) you were expected to come up with liquid cash to pay tax. Same shit with companies, if you own 51% of a company, but that's all you own (no cash)... then that company goes way up in value... you're going to be taxed on that? How? With what cash? You'd have to sell your majority holding which is worth WAY more than just the 1% value.


completeturnaround

They don't even need to sell any shares. When you have $10 billion in stock, any bank in the world will be willing to loan you any reasonable amount for a rate possibly a couple of basis points over what they get it at. This will be a zero taxable event. With the right moves and charities, I am sure it is possibly to pay back the loan again without triggering a tax event. I am sure this is available to everyone as a strategy. Only that our income levels don't justify the the ROI or likely preclude the possibility.


matcht

[Musk](https://financialpost.com/personal-finance/high-net-worth/elon-musk-short-on-cash-keeps-borrowing-more-and-more-money-even-as-tesla-stock-surges) has done exactly this several times.


murrdpirate

How do you repay the loans? You can't just have an infinite loop of borrowing money.


DeathsEnvoy

If you're rich enough you can. As long as you have collateral you'll be able to get loans. Sure you'll have to pay interest, but that's a lot cheaper than paying taxes.


InternetUser007

Yes you can when it is such a small prevent of your net worth. Bezos has over $180B in net worth. You think he couldn't have $20B in loans in perpetuity until he dies? Banks will line up to give him money because it is such a sure thing.


Not_Buying

I’m paying a shit load of property tax as my house value goes up. My salary isn’t going up.


Thizzz_face

This is exactly what I was going to say


VagusNC

I was going to say, any property I own that increases in value, that is recognized by the state, the taxes increase. Granted, not much I own increases in value over time but my largest investment, my home, does. When the book value of my car decreases, the taxes go down.


DelphiCapital

To be fair, homeowners get a ton of preferential tax treatment in other areas.


Spoonofdarkness

Honest question: in what ways? I'm really unaware of these things, so I'm genuinely curious.


Discount_Belichick89

Write off property tax and interest paid... Low rates if a primary residence First time homebuyer programs If an investment property, depreciation write-offs If a home office, further write-offs Down payment assistance programs Low down payment loans Edit: forgot. No capital gains tax on first 500k of gains if Married and living in the house 2 of the past 5 years.


Thizzz_face

Honestly most of what you mentioned here isn’t active anymore. The standard deduction is more than what I can deduct. These are GREAT if you have multiple properties, ie already a ton of wealth. For people living in the one house they own, these breaks don’t do shit.


Sineira

The tax write off is gone for many of us with SALT gone.


Spoonofdarkness

That last one (the edit) is ridiculously sweet. Thanks!


InternetUser007

>Write off property tax and interest paid... Very few people do it now that the tax law changed >First time homebuyer programs Very specific criteria to qualify for those. Very few people get them. > >If an investment property, depreciation write-offs > >If a home office, further write-offs Again, more difficult with the new tax law >Down payment assistance programs What percent of people get those? Can't be many.


stidf

Except the issue here is people taking loans out against the value of the unrealized capital gains. This is why all the CEOs are paid $1 salaries. They can just get a loan for x million dollars against the value of their shares. Live off of the loan money. The payments of the loan are now expenses that you can deduct against any income you might have, so your income is actually a net loss ($1 in salary - annual cost of loan). You then carry the losses forward every year till you need to sell some asset to cover the loan. When you finally sell some of the assets that are underwriting your billionaire lifestyle you have x years of huge loses to write off against the income of the sale, or you just keep taking out loans, eventually die and now your kids are inheriting all of your assets with a cost basis of the current market value so no capital gains taxes and a very small amount of estate taxes to pay. This is all a symptom of very silly tax loopholes and the fact that deciding the IRS has been a very popular bipartisan issue for decades. Unrealized gains is only one small piece of the article that I wish they haven't lead with because it's a silly analysis that falls apart when you dig into it at all.


leetteel

Loan payments are not deductible. Only the interest is.


Pzychotix

Personal loans aren't tax deductible, and even if they were, the full payments aren't deductible, only the interest (as in mortgage and student loans). This isn't some one simple trick thing.


_boston21

True unrealized capital gains aren’t taxed but don’t act like that increase in worth isn’t exactly the problem. 99% of people have to rely on income through salary for the majority of their spending value (i.e. cash to pay bills, mortgage, food, etc.) which means we pay taxes on that income and contribute our fair share to society. The 1% are increasing their spending value through this untouchable unrealized capital gains. They are able to take out loans using their assets (stocks, real estate, etc.) as collateral for insanely favorable rates and leave their money in the stock market. So they pay 1% interest on a loan and get cash for whatever they want to buy all while their net worth continues to climb at 10-20%. Basically, the rich get richer and don’t have to contribute shit to society other than their yearly PR stunt charity donation.


murrdpirate

How do they pay off the loan? Eventually, all the money they spend has to be come from taxable income/gains.


Plumb-Entangled

They either roll it over or liquidate assets. That gets taxed at 20% instead of the standard higher income rate. The real kicker is if the loan is at a low interest rate of 1-5% against assets that are returning 8-10% they are making more money by living off of loans. Loans aren’t income so the initial borrowed amount isn’t taxed, only interest gained if placed in an interest bearing account.


tonyp7

You don’t need to pay off the loan. As long as your capital keeps growing faster that the interest rate, your leverage or margin will decrease. Beautiful isn’t it?


maxlonian

RSUs do get taxed when shares are vested; here one haven't even realized capital gain here. Trying to understand how Elon's share grants are different from RSUs.


et27U4Y4qse0AIcyFZg8

>RSUs do get taxed when shares are vested; RSUs are taxed as regular income. A grant is just a promise that they will vest *eventually*. You don't pay taxes on a promise. You pay taxes when the grant vests.


Mikedaddy0531

In your house analogy wouldn’t you pay increased property taxes?


et27U4Y4qse0AIcyFZg8

Property tax is not even remotely the same thing as capital gains tax.


masta

He's well known for taking his compensation in the form of stock options, and also paying his employees that way for bonus incentives, and I believe retirement incentives also... So instead of a 401k program. So that means he would only be taxed upon realizing a capital gain on stock sales.


hot_gril_101101012

401k has some tax advantages, though.


BassmanBiff

And then he would pay the capital gains rate, which is lower than the personal income tax bracket he would be in. *That's* the problem here. He gets to choose when he pays taxes, and when he pays, he pays a rate that's far lower than he would if he were paid like most of the rest of us. Edit: Actually, it's worse than this -- he probably doesn't realize many capital gains either. He can take out loans secured by his stock for very low interest rates basically until he dies, and then his estate can pay them off using his stock. It will then pay some capital gains (after like $11 million isn't taxed at all), but I believe it will do so using the cost basis as received by the estate, not when Musk received them, effectively dodging taxes entirely. Edit edit: Please confirm the last part about cost basis, as I'm not sure exactly how that part works. But transfers to charities and other tricks do exist to dodge even the capital gains tax, which in itself is already a dodge of the (much higher) personal income tax that the rest of us just have to deal with. Edit edit edit: No one is complaining that this is illegal. The fact that it is legal is the entire problem.


ManIJustWantToBBQ

So just FYI loans to corporate officers were banned when Sarbanes-Oxley was passed after the dot-com crash. The amount of essentially outright fraud and tax evasion that was happening was quashed with that act. Taking a below market-rate loan from Tesla would be illegal now. What you're talking about for the second process is a step-up in basis. So if he gives it to his kids they would receive it at the current market rate BUT there are limits to what estates can disburse before estate taxes kick in https://www.dorsey.com/newsresources/publications/2002/08/sarbanesoxleys-new-ban-on-loans-to-directors-and__ https://www.investopedia.com/terms/s/stepupinbasis.asp The IRS will eventually get their money, it's just a matter from who.


DukeOfGeek

And by "He" we mean every super rich CEO.


Alenjramos

Yeah but a lot of business owners with S Corps also do similar things. Since the S Corp is a pass thru entity. Takes a lot to form a business which revolves around huge initial risk and potential losses. Not to mention learning curve to just even get open. Once you make it. The tax code is definitely on your side. However if the tax code wasn’t on your side there would be less incentives for new businesses. Which would result in a static economy and eventually it would retreat. Not defending CEOs, however most wealthy employees even differ their income post retirement and live off their bonuses. Hire a CPA that is legit. Edit: Thanks for the silver


KarmaticArmageddon

Yeah but we don't have to have the tax code be either suffocating to new, small businesses or absurdly rewarding for huge corporations and their CEOs. It could, y'know, consider nuance and allow for incentives that only small and/or new business owners would qualify for that eventually phase out above a certain revenue/profit/income level and time.


Ride901

Omg this. The amount of effort that goes into navigating red tap (income tax, use tax, sales tax, unemployment insurance tax, payroll tax, workers comp, SS/Medicare, business registration) is insane. It's so exceedingly irritating beyond any other part of the experience and it brings no value to your customers. Just wasted effort navigating it and being penalized for making mistakes. Honestly why can't it just be simple. The complexity of the current system is as wasteful as private insurance is in American healthcare. I blame intuit for lobbying to keep it messy.


hot_gril_101101012

No, if you're paid in stock, you pay income tax on its value immediately. Capital gains tax is only on the earnings from holding the stock, same as if they had paid you in USD and you bought company stock with it. If options somehow circumvent that, I'd wonder why any company pays in stock. Maybe the CEOs have figured out a way around that, but I've not seen one. What would the loophole be? Genuine question – it'd not surprise me if there were one.


PreviousFriendship85

It's no coincidence you hardly see "creative accounting" among the poor/middle-class.


probablyuntrue

"what do you mean my H&R block guy can't just write it off?"


GoingforIvey

*They just write it off!*


splat313

You don't even know what a write off is, do you?


Okymyo

Not surprising given the levels of financial literacy to be honest. More than half the people in the US don't understand what a tax refund is despite it literally being in the name, and over 60% of the people in the US still think that receiving a small raise that puts you into the next tax bracket means you're losing out on a lot of money and should turn it down. A very significant portion of people working as freelancers don't even deduct their business expenses.


PreviousFriendship85

Perhaps you should ask the tax preparer lobby why such an archaic & primitive system is still in use?


ManIJustWantToBBQ

I used to work in the industry. It's literally because Intuit paid millions to lobby Congress to keep taxes complicated so their business model wouldn't be impacted. The IRS currently has the capability with their IT systems to get rid of the filing requirements for a good 2/3rds of Americans. If you just work a regular job and have your standard bank account and mortgage they can work out what your taxes are automatically in the system. We could literally just get an email at the end of each year saying "Here is what you paid and what you owe, if you have any additional deductions to take please log into IRSTAX.gov and update your information accordingly." Hundreds of millions of dollars are paid to tax preparers each year and they lobby very hard to keep the current system in place.


AlwaysNowNeverNotMe

So they can sell free software for 40$ with free government advertising while offsetting the additional 60$ they showed a bunch of functionally illiterate legislators they would have charged you with free government money.


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RIPDSJustinRipley

I haven't heard it lately, but I've definitely heard adults proudly claim they turned down a raise because they didn't want to jump into the next bracket. Trying to explain it to them is trying to make them admit a mistake.


LostWoodsInTheField

> I'm so baffled that otherwise very intelligent people don't understand that jumping tax brackets doesn't make you poorer A sad reality though is that making more money can actually cost you money, if you are super poor. Most (maybe all?) states benefits for the poor aren't linked to each other. So if you make $10 more, each program sees this $10 more in income and can move you to the next benefit bracket down. Now if you are losing $3 in benefits in 5 different programs your $10 more is now -$5. Another case of the poor being kept poor.


fdpunchingbag

Forget the term for it but it's real. I would need to have an hourly compensation increase of around $4-$5/hr over what I make now or else I'm net negative. That's $8,320-10,400 gross. It's hard to move up when your required to suffer for 2 or 3 years before you can get back to where you were, not even get ahead.


LostWoodsInTheField

Had a family member get a $.25 an hour raise, it caused them to have to give up a ton of benefits, so their employer dropped it back down. That should never happen imo.


biggles1994

It’s called a “welfare cliff” if you want to use the term.


WolfsLairAbyss

The amount of times I have had to explain how tax brackets work to adults is absurd. I have had multiple coworkers that didn't want raises because they thought they would end up losing money.


mirinfashion

>It's no coincidence you hardly see "creative accounting" among the poor/middle-class. How many assets does a poor/middle class individual have?


point_breeze69

Correct me if I’m wrong but isn’t a large portion of the revenue generated by Tesla in the form of subsidies for electric vehicles? So essentially not only is he getting out of paying his due but the American taxpayer is funding him on top of that.


Sluisifer

> Correct me if I’m wrong You're wrong. https://tesla-cdn.thron.com/static/R3GJMT_TSLA_Q1_2021_Update_5KJWZA.pdf?xseo=&response-content-disposition=inline%3Bfilename%3D%22TSLA-Q1-2021-Update.pdf%22 Credits were **5.8%** of automotive revenue. It's 21.7% of the profit, which would be considered a significant portion, but kind of a stretch to a 'large' portion. And of course profit is a tricky metric when a company is so focused on growth.


thecatgoesmoo

I mean its setup like that. Like that is literally within the law. If you have no salary and just pay long-term capital gains you end up paying 20% on that, rather than 37% on income. Hard to say it is a problem when it is functioning exactly as intended. Could it be modified? Of course.


gruez

>If you have no salary and just pay long-term capital gains you end up paying 20% on that, rather than 37% on income. Not exactly. Only the gains would be paid the capital gains rate. AMZN stock is sitting at around $3000. If he paid himself 1000 shares, then he'd pay regular income tax on $3M, and down the road he pays capital gains tax on whatever appreciation he got.


thecatgoesmoo

Fair point Do the options get taxed as income as they vest? That's how my RSUs work. Income on the actual grant (say 100 shares at $50) and then if I turn around and sell them 1 year later I'd be taxed on the profits another 20%. Like he probably vests X number of shares per year, so I guess that would all be treated as income? RSUs can suck because if you are at a pre-IPO company, they don't technically "vest" until you are public. So if you have been at the company for 4+ years and have been granted a huge amount of stock... it all vests the day you go public so you have this huge income to report for that year and the majority of it gets hit by 37%.


BassmanBiff

Of course, but the complaint isn't that it's illegal, it's that the system needs to change so that he can't circumvent the intent of progressive tax rates (or, if you see my edit, potentially taxes at all).


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zherok

It's just a weird coincidence that all the laws happen to favor people with all the money, surely. Also that the IRS spends most of its time and effort going after comparatively poor people, because it's too costly to go after rich tax cheats, who also coincidentally, happen to do most of the cheating. Also coincidence that the budget for the IRS happens to be so low in the first place.


identicalBadger

And if he needs cash, he can borrow against his holdings rather than sell, allowing him liquidity without a tax impact, so long as he’s ok paying probably 1% or 2% in annual interest.


Leaning_right

He could pay millions in capital gains but the story wouldn't change, as it is intentionally misleading and manipulation. Just due to the federal 'income tax,' delineation.


Luph

Partly, but it speaks to the need to raise capital gains taxes on the rich. Why are these people paying a measly 20% on the majority of their income while the middle class pays more than that? This is why Biden has proposed to tax long term gains over $1mil as ordinary income.


Catsrules

> saw his wealth grow by $13.9 billion between 2014 and 2018 and reported $1.52 billion as income, paying $455 million in taxes Actually it is more around 30% at least what Elon paid


Windex17

He's talking about long-term capital gains tax, which is capped at 20%. The ultra-rich usually take their compensation in stock options, sit on it for a year and then cash it out at a much lower rate than if they had taken it as income.


stormbard

This isn't what they are doing. They are living off a loan with the stock as collateral.


Windex17

Not always, Bezos has been selling millions in Amazon stock consistently for years.


pokoook

You still have to sell off stock to pay off the loan lol. People on reddit think loans are some magic trick to avoid paying taxes forever. The rich person still has to gradually sell stock to pay the loan installments.


NoahApples

I mean if you’re ultra-rich it is basically an infinite magic trick. You don’t pay the loan off with your money, you pay it off with another secured loan.


just_a_bud

It’s capped at 20% for federal. State’s collect capital gains tax, as well. California has the highest rate at 13.3%. So, they’re paying higher than 20% on realized long-term capital gains. This doesn’t even consider AMT, and the TCJA limited the SALT deduction to $10,000 if you itemize deductions.


Slartifartslo

You’re supposed to be taxed on stock awards. It counts as income in the amount of the value at the time of the award or vesting.


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Okichah

Ahh yes tax policy. The perfect content for the technology subreddit.


what-diddy-what-what

Did not gain $400B. That is paper gains not realised until investments are sold. You can't tax possible earnings. This is the same reason we talk about the wealthy having billions of dollars wiped out in a day during a market crash. This is not a real loss until you sell.


MannieOKelly

Click-bait headline. Even if you just use TurboTax, you're taking advantage of every possible tax avoidance (not "evasion"--that's illegal) provision in the tax code. Many of these tax-avoiding things are deliberately in the US Tax Code to incentivize behavior the government favors--like buying State and local bonds, for which the income is (in most cases) free of Federal tax. In effect this is an off-budget (i.e., hard to see) subsidy of States and localities by the Federal taxpayer. I definitely grant you that this particular provision is primarily beneficial to high-income taxpayers, since it's structured as a deduction as opposed to a credit. However, even those taxpayers are giving up some interest in order to get the tax deal: tax-free "municipal" bonds pay a lower interest rate than taxable ones issued by corporations. So the real villain here is the complexity of the tax code and the lack of transparency about how the Government spends taxpayer (our!) resources, including the enormous cost of "tax expenditures." See [https://www.cbpp.org/research/federal-tax/federal-tax-expenditures](https://www.cbpp.org/research/federal-tax/federal-tax-expenditures) "“Tax expenditures” are subsidies delivered through the tax code as deductions, exclusions, and other tax preferences. In fiscal year 2019, **tax expenditures reduced federal income tax revenue by roughly $1.3 trillion**, and they reduced payroll taxes and other revenues by an additional $140 billion."


Kingpanda48

Yes. That’s how taxes work when all of your WEALTH isn’t realized. Until these people sell their stocks/assets it isn’t income.


DavesLab

Imagine if you were taxed on all your investments before you sold them. Pretty sure you wouldn't be OK with that.


saladin0

You mean like property taxes?


hot_gril_101101012

I'm not ok with property taxes at their current rates and with the current weird setup in CA with Prop 13. But I understand that the city has costs associated with maintaining my lot of land, so some kind of property tax is in order. A cheaper one.


theixrs

Government rent by another name


WayneKrane

For sure, my parents own a normal house and pay $700 a month just for property taxes. For that they get shitty schools, crumbling roads, a rec center that is mostly closed, an ancient library, police who don’t respond to any situation, and roads that aren’t plowed. I’m not even sure what exactly the money pays for.


Pacifistering

Administration.


ohwoez

Only $700? Try paying $15k/year in CA with all the same issues.


WayneKrane

I can’t even imagine. My boss lives in a $1.2m house in the SJ area. For that I thought she lived in a mansion (I’m from a rural area where you could buy a fortress for that kind of money). When I finally saw it, it was just some run of the mill 3 bedroom house. I was like $1.2m for that? You need to make well into the six figures to live a comfortable life in California, it’s crazy there.


duggatron

I don't understand people's aversion to local taxes like property taxes, car registration taxes, etc. That money is used directly in your area on roads, schools, fire departments, police departments, and hospitals. There are costs associated with supporting our homes, I have no problem with paying taxes to benefit from those services.


hot_gril_101101012

Local taxes are the best kinds of taxes, but I would complain if I didn't see them being put to use.


AccomplishedMeow

>You mean like property taxes? To be fair, this is the main "funds" used for your local school. So if property taxes were only when buying/selling, there would be a new tax called "school tax" that's the same thing with a new name


tklite

Property as an investment is secondary to property tax. In most cases, property tax is decoupled from actual value and can go up or down independent of FMV.


smurph9876

Everywhere I’ve lived property tax is levied according to the assessed value, which changes on a yearly basis


ujzzz

You’d be taxed on wealth growth, not wealth. Big difference. And it would replace cap gains taxes and potentially income taxes. It’s just a completely diff perspective on how to tax.


getdafuq

This isn’t the same as “being taxed on investments.” He isn’t receiving a paycheck, paying income tax, and then investing in stock. I really hope that his shares are being taxed when they’re delivered.


McFeely_Smackup

> Elon Musk, chief executive of Tesla and SpaceX and one of the richest men in the world, saw his wealth grow by $13.9 billion between 2014 and 2018 and reported $1.52 billion as income, paying $455 million in taxes. According to ProPublica, that means Musk paid a true tax rate of 3.27 percent in that period. they're deliberately confusing the theoretical growth in value of Musk's stock holdings (unrealized capital gains) with 'income'. In reality according to their numbers, Musk paid 30% in income tax. He would also have paid 'capital gains tax' on any investment/stock holdings he sold...something that is rather obviously and suspiciously not mentioned. and as a point of trivia, Short Term Capital gains is taxed at the exact same rate as income. > The taxes Musk paid do not reflect the size of his wealth, according to ProPublica that's not the purpose of taxes. You can't tax money that doesn't exist, and it doesn't until stocks are sold...at which time they are taxed as capital gains, not income tax. this article is either stunningly dishonest, or equally stunningly ignorant.


Greyhuk

\>this article is either stunningly dishonest, or equally stunningly ignorant. a quick read says both: They recycled the Donald trump Tax Propaganda with some minor tweeks


gariant

Why do new journalism when copy paste do trick?


Greyhuk

Make 40k to 50k a year and be a bad fiction writer, and just copy and paste? I'm sure Orwells ministry of truth would be horrified


BoochieShibbs

Financially illiterate articles being posted to a technology sub Reddit… fuck it’s annoying to see this class warfare shit everywhere. I want to see cool tech. Not teach people basic fucking math.


140414

The /r/politics infestation in every sub is real.


DrBiochemistry

can we just rename /r/politics to /r/wehateeverythingexceptBernie?


zoglog

Exactly. This subreddit has turned to total shit these past few months. I swear it didn't used to be this bad. Instead virtually every post in this subreddit that his my FP is garbage like this one


MasterFubar

I reported this article to the moderators, although I don't think they will do anything about that.


sixkorn

They didn’t break any laws. So if we don’t like this result, then the laws need to change.


bankerman

Unrealized gains are not income. Repeat after me folks: Unrealized gains are not income. Once more for the people in the back: Unrealized gains are not income. Comprende?


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So let's see: * his salary is [$0.00](https://finance.yahoo.com/quote/TSLA/profile?p=TSLA), so.. no surprise there if he paid no tax. * He's probably living off his savings from income from prior years in which he paid tax * Actually this is for 2018 I don't see an issue here, only inflammatory and misleading headlines.


CockyBulls

Unless he sells his shares, there’s no capital gains income to tax.


thxpk

Don't earn any income, don't pay income tax. How is this news?


th3An0nyMoose

It isn't news. It's political propaganda.


Dnuts

Are we supposed to force people to sell assets or equities to pay the taxes based on increases to speculative value? Is that what we’re proposing?


Yangoose

They're just idiots that don't understand how taxes or money in general works.


1wiseguy

Can you believe it? A guy who owns part of a big company, but didn't earn any money in 2018, didn't pay any income tax.


jesperbj

Also he didn't receive a salary. Fuck off. No one would ever buy stocks if you had to pay taxes before selling for profit.


ethanwc

Actually, if we taxed assets the poor would be even poorer and the middle class essentially wouldn't exist.


aluminum_lizzard

I thought this was a tech subreddit?


cuteman

It was.... A while back. Before political infestations, ideologues mindlessly upvoting and moderators not doing their job or not caring to do so.


gaberax

I did. I paid my fair share. I'd be happier if I felt it was going toward something useful, helpful, productive. But it probably isnt. So pointing out the rich that don't pay any taxes just make it all seem even more pointless. I'd be angry but what's the point? It is what it is.


Grahaml1980

So much of this wealth though is theoretical. However, there's no question in my mind the wealthy don't get taxed as heavily as they should. There are many ways I'd like to see rich people contribute more but when they wield an unproportionally large amount of influence, doing so is incredibly difficult.


AceOfFades77

But these young hipsters think he is cool because he smoked a joint on Rogans podcast. He didn’t even invent anything involved with Tesla, HE BOUGHT THAT COMPANY


FlailingDave

who wrote the tax laws for him to follow?


falsivitity

401 billion gained in *stock equity* not cash...


CodingMusicPolitics

Omg! Increases in assets aren’t taxable, only income! Who knew?!


HooHooHooisers

Is this a technology subreddit? What the hell does this politicized article have to do with tech other than being about Elon?


caedin8

I’m so sick of this propaganda.


Ban_Assault_Geese

Of course redditors don't understand how income or taxes work and of course the "technology" subreddit would be more focused on seething at successful people than actual technology.


MasterFubar

> The top 25 richest Americans gained $401 billion from 2014 to 2018, but only paid $13.6 billion—3.4 percent of that—in federal income taxes. Misleading. That's what people mean when they say "fake news". They "gained" from market valuation. Do they get a refund from the government when the market goes down? Nope, that "gain" is not a true income.


thoughtcrimeo

This is important technology news.


No_Commission2525

It’s vice so we expect fake news.


Hippomor

He probably owes a lot of money since all his wealth is in stocks he can’t sell. That’s pretty normal


saladin0

Musk can and has sold stock to cover taxes before. https://www.wsj.com/articles/elon-musk-can-pocket-another-32-billion-of-tesla-shares-11619826814


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jcgam

No he doesn't sell stock because that would be taxable. He takes out loans instead to completely avoid paying tax.


BassmanBiff

He pays *different* taxes in that case. Capital gains taxes are lower than personal income, especially compared to the tax bracket he would be in.