Question about Taxes when selling 2 2

[wilbil]

the only issue patriotic about taxes is the duty to yourself and the country (and your family) to legally take advantage of every method that reduces any taxes that may have to be paid.

[sfcityduck]

3 hours ago, Bookery said:

Actually, this is a common misconception.  At least part of the reason that capital gains on stocks are lower than income, is that it's already been taxed once before.  Corporations pay income tax, which come off profits before any dividends or share distributions.  As a shareholder, you own part of the company, and therefore have already paid an income tax on your share of it, whether you know it or not.  When you sell the stock at a profit, you are then taxed again (at 28%).  So technically, shareholders pay twice on their income, and working income is only taxed once.  This is a simplified version, of course.  

With all due apologies, but your comment is wholly incorrect.  In fact, it is deceptive.

First, we are talking about comic books.  When a person buys a comic book or other tangible asset subject to a capital gains tax, the comic book or baseball card or art has paid no tax.  Your assertion to the contrary is perplexing to say the least.

Second, in any event, the same thing is true for a share of stock.  When a person buys a share of stock on the open market (meaning not in an IPO), the corporation has no involvement in the transaction.  It neither gets any income from the transaction, nor pays any tax on the transaction.  So when a shareholder makes money by selling stock, the profits they make are only taxed once.  The corporation has paid no taxes in connection with the purchase and sell of its stock in the open markets at all.

Third, the profits the shareholder makes on the transaction are entirely unaffected by tax paid by the corporation. When I buy Tesla on Monday and sell on Friday, the appreciation in the value of the company has not been taxed by anyone.  And it likely never will be, because we do not tax market cap of a corporation, only its taxable revenue (which may be shockingly small or even negative). And market cap moves without any real impact from taxation, except in very rare circumstances.

Fourth, comic books don't pay dividends, but some stocks do.  Even so, very few shareholders care about dividends anymore.  The real money is in share price appreciation, which is largely not impacted by taxes paid by corporations.  So shareholders who sell stocks that declare dividends aren't being taxed twice either.  Especially when dividend amounts usually are based on factors independent of the amount of taxes paid by the corporation. 

No serious person can, with a straight face, not admit that under our system people who make their money through hard work such that they are subject to income tax get taxed at higher rates than people who make their money on passive investments.   

 

 

[sfcityduck]

3 hours ago, wilbil said:

the only issue patriotic about taxes is the duty to yourself and the country (and your family) to legally take advantage of every method that reduces any taxes that may have to be paid.

Yep.  Lots of songs and movies about Patriotic tax avoiders.  Personally, I love all those patriotic WWII comics and posters encouraging tax avoidance!  LoL!

Edited November 19, 2020 by sfcityduck

[Lightning55]

There are many aspects and perspectives concerning earned vs. passive income.  I think the most compelling argument for the lower taxation on passive investments is that the passive investments have a residual effect, beyond the income the investor receives.  It is tax favored to encourage investment.  When passive investments are made, corporations grow, the economy benefits, jobs are created, new ideas can be pursued, buildings are erected, research can be performed.  The tax preference is an incentive to get the money working instead of sitting idly in accounts.  Maybe your earned income wouldn't even exist without someone else's passive investment.

[wilbil]

1 hour ago, sfcityduck said:

Yep.  Lots of songs and movies about Patriotic tax avoiders.  Personally, I love all those patriotic WWII comics and posters encouraging tax avoidance!  LoL!

yea...well....my daddy is bigger than your daddy.

i don't have a sword to fall on while  i am hanging my head in shame after kneeling in front of you begging for forgiveness after your righteous admonishment of me for stating what the irs openly states is the responsibility of every tax payer, and states it in writing every year in that little (not really little) pamphlet everyone gets.

nice humble brag, though.

[sfcityduck]

2 hours ago, Lightning55 said:

 Maybe your earned income wouldn't even exist without someone else's passive investment.

And vice versa.  Without workers, capital cannot be created.  So why tax one at a lower rate than the other? In my book, income is income.

[sfcityduck]

1 hour ago, wilbil said:

yea...well....my daddy is bigger than your daddy.

i don't have a sword to fall on while  i am hanging my head in shame after kneeling in front of you begging for forgiveness after your righteous admonishment of me for stating what the irs openly states is the responsibility of every tax payer, and states it in writing every year in that little (not really little) pamphlet everyone gets.

nice humble brag, though.

Tax avoidance is legal.  But, I don't think it is patriotic. To me, patriotism involves sacrifice for your country.  No need to be sensitive.  We just disagree.

[Lightning55]

8 minutes ago, sfcityduck said:

And vice versa.  Without workers, capital cannot be created.  So why tax one at a lower rate than the other? In my book, income is income.

The passive income is taxed lower to draw it out of stagnant accounts where it can boost the economy.  Workers can earn money, save some up, and put it into passive investments.  No law against that, everyone's invited.

[sfcityduck]

10 minutes ago, Lightning55 said:

The passive income is taxed lower to draw it out of stagnant accounts where it can boost the economy.  Workers can earn money, save some up, and put it into passive investments.  No law against that, everyone's invited.

No reason to believe that there is a need to draw money out of "stagnant accounts."  The days of getting good interest on a savings account are dead.  Everyone can invest today.  Lowering workers' taxes will lead to more money in retirement accounts. And we also want to encourage spending, and working folks spend a lot. So there's no reason to favor passive over active income.  It is all just income.  

[Lightning55]

49 minutes ago, sfcityduck said:

It is all just income.  

Well, you've convinced yourself.  Now you just have to convince the IRS.  I'll wait to see how you do, but won't be holding my breath.

[sfcityduck]

Better watch out - we're not supposed to talk about taxes.  Someone thinks it is too "political."

 

[Lightning55]

Yes, we did wander from the original question.

[wilbil]

14 hours ago, sfcityduck said:

Tax avoidance is legal.  But, I don't think it is patriotic. To me, patriotism involves sacrifice for your country.  No need to be sensitive.  We just disagree.

i am not the being sensitive.

you stated:  "after all, paying taxes is how the vast vast vast majority of us actually patriotically support our country".

a clear statement that it is a patriotic duty.

i stated what is patriotic as defined by the irs: legally take advantage of every method that reduces taxes.

in answer to this, you stated "....."patriotic tax avoiders"..........."poster encouraging tax avoiders", which, at the very least, indicates a snarkiness of sorts if a person legally reduces taxes.

the implication being that it is somehow a society nono to state my position, and my position is tainted.

maybe we both misinterpreted our statements, when in fact there is agreement.

i  would not use the term tax  avoidance, though. it is a subtle indictment of anyone that legally reduces taxes by using legal methods.

better to state "legal tax methods of reduction". that would not be subject to a scrutiny of possible interpretation that the words "tax avoidance", when applied to an individual, indicates a nefarious law skirting  attempt by the individual, and especially these days.

[Bookery]

22 hours ago, sfcityduck said:

With all due apologies, but your comment is wholly incorrect.  In fact, it is deceptive.

First, we are talking about comic books.  When a person buys a comic book or other tangible asset subject to a capital gains tax, the comic book or baseball card or art has paid no tax.  Your assertion to the contrary is perplexing to say the least.

Yes... we WERE talking about comic books.  That is until you stated "In America, we give tax breaks to folks who make money on a passive investment, and tax folks more who earn their money by working hard.  Go figure." 

Now are you to have the Boards believe you were making this bug sweeping statement about "In America" due to a tiny microscopic theoretical group of people paying a lower capital gains on the sale of their comic collections?  Of course you weren't.  You were clearly complaining about financial market investors.  Since I spent years working in that industry (Paine Webber, Merrill Lynch) I passed on some info about what I properly stated was a common misconception.  I also merely stated that was the thinking that went into the laws... I made no statement of whether it is or isn't a good way to do things, or how I might feel about it one way or another.  I also said my answer was a simplification. In years back, the majority of stocks paid dividends.  That isn't the case anymore.  Obviously day-traders aren't affected the same way a long-term investor is.  But in any case, a shareholder is literally part owner in the corporation, so of course he/she pays a share of those taxes one way or another... either in reduced dividends, or in a lower stock price (which is why whenever a tax cut is enacted, the stock market rises, anticipating that more money is left over for investment, expansion, dividends, etc.).  It may be negligible, it may not, but it's a factor nevertheless.  But, as I said above, markets today rely less on dividends then back when I worked in finance, but that was part of the thinking behind the long-term rate, as well as the incentives for investment that lightning55 mentioned.

22 hours ago, sfcityduck said:

No serious person can, with a straight face, not admit that under our system people who make their money through hard work such that they are subject to income tax get taxed at higher rates than people who make their money on passive investments.   

I assume we're still talking about comic books, then?  Well gee... my assertion is indeed perplexing, then.

[sfcityduck]

6 minutes ago, Bookery said:

I assume we're still talking about comic books, then?  Well gee... my assertion is indeed perplexing, then.

We are talking about passive investments generally, and comic book investments specifically.  We were not talking only about stocks.  But, this portion of the conversation has been shut down by the mods as "political," so I cannot respond, other than to note that the difference in a stock price (which is all a  buyer who then seller pays taxes on) is not impacted by taxes at all.  The taxes are baked in when the buyer buys, and the taxes don't increase just because the stock price increases before the buyer sells.

[the blob]

On 11/19/2020 at 11:42 AM, Bookery said:

Actually, this is a common misconception.  At least part of the reason that capital gains on stocks are lower than income, is that it's already been taxed once before.  Corporations pay income tax, which come off profits before any dividends or share distributions.  As a shareholder, you own part of the company, and therefore have already paid an income tax on your share of it, whether you know it or not.  When you sell the stock at a profit, you are then taxed again (at 28%).  So technically, shareholders pay twice on their income, and working income is only taxed once.  This is a simplified version, of course.  

I paid taxes on the funds used to pay for my education, which allows me to make about 3X as much as I would make just as a high school graduate. I am paying taxes on all that income above what I would have made as a high school graduate. Am I paying taxes twice?

And no, corportions are not paying taxes on net income that they are reinvesting into the company that results in increased stock valuations. They pay taxes on income that they are paying out as dividends, true, but frankly, as i understand it, many big corporations are able to pay out dividends while not paying much in the way of taxes at all. asset depreciation, claimed paper losses, etc. they can take a lot of paper deductions that decrease the tax bil while having the cashflow to allow for dividend payments.

[wilbil]

were the funds in the form of a loan with interest?

are you really paying taxes on "all" of the  income? before or after deductions?

[Bookery]

14 minutes ago, sfcityduck said:

But, this portion of the conversation has been shut down by the mods as "political," so I cannot respond, other than to note that the difference in a stock price (which is all a  buyer who then seller pays taxes on) is not impacted by taxes at all.  The taxes are baked in when the buyer buys, and the taxes don't increase just because the stock price increases before the buyer sells.

Of course it's not political, unless one is advocating for a specific change or position.  Simply explaining how something works is not political.  

[Bookery]

10 minutes ago, the blob said:

I paid taxes on the funds used to pay for my education, which allows me to make about 3X as much as I would make just as a high school graduate. I am paying taxes on all that income above what I would have made as a high school graduate. Am I paying taxes twice?

And no, corportions are not paying taxes on net income that they are reinvesting into the company that results in increased stock valuations. They pay taxes on income that they are paying out as dividends, true, but frankly, as i understand it, many big corporations are able to pay out dividends while not paying much in the way of taxes at all. asset depreciation, claimed paper losses, etc. they can take a lot of paper deductions that decrease the tax bil while having the cashflow to allow for dividend payments.

We're getting too far off topic.  I'm not looking to argue this... was merely trying to explain it.  Don't take my word for it.  Here's the official statement from the Tax Foundation, and I'll leave it at that --

"The justification for a lower tax rate on capital gains relative to ordinary income is threefold: it is not indexed for inflation, it is a double tax, and it encourages present consumption over future consumption.

The capital gains tax is merely part of a long line of federal taxation of the same dollar of income. Wages are first taxed by payroll and personal income taxes, then again by the corporate income tax if one chooses to invest in corporate equities, and then again when those investments pay off in the form of dividends and capital gains. This puts corporations at a disadvantage relative to pass through business entities, whose owners pay personal income tax on distributed profits, instead of taxes on corporate income, capital gains, and dividends."

 

[sfcityduck]

7 minutes ago, Bookery said:

Of course it's not political, unless one is advocating for a specific change or position.  Simply explaining how something works is not political.  

I agree, but tell it to the mods who have warned me and others.