Taxes on Capital Gains

  • metta

    Posts: 39167

    Sep 26, 2013 6:58 PM GMT
    Did you know that people who earn their income from capital gains can owe no federal taxes if they travel for several months internationally?

    I know this guy who has never had to work. His family is very comfortable and has given him enough money that he can live comfortably on the investment income. His income is only from investments. His accountant told him that if he travels overseas a minimum amount of months (I'm not sure how many months it is), he does not need to pay any income taxes.

    So not only are capital gains taxes lower than regular taxes, they do not need to be paid at all if the person does enough traveling internationally.

    That seems unfair to me.
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    Sep 26, 2013 7:10 PM GMT
    Where is the taxpayer's "tax home"?

    I think your blanket statement as your first paragraph is very misleading, but there are RJers that are light years better qualified than me to answer this.

    There are some answers here, but this gets real complicated and real risky.

    http://www.netatty.com/articles/tax.html
  • metta

    Posts: 39167

    Sep 26, 2013 7:20 PM GMT
    His home is in California. But he is leaving the US now to spend the rest of the year overseas so he does not have to pay any federal taxes for 2013. He plans on traveling to other countries and will not be back until around the middle of next year so he wont need to pay anything in 2014 either. He enjoys traveling anyways so it works for him.
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    Sep 26, 2013 11:33 PM GMT
    Capital gains is investment income. This type of income directly impacts labor income. Instead of giving the income to workers, they give it to investors. Then we turn around and tax workers more. I'm stunned.

    I have no idea how travelling abroad could impact anybody's tax burden. Sounds like his accountant knows some arcane loopholes.
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    Sep 26, 2013 11:48 PM GMT
    What about the regular guy who invests his retirement money, should he be taxed higher also?
  • metta

    Posts: 39167

    Sep 27, 2013 12:33 AM GMT
    Well, personally, I think that if the system was designed to be fair, capital gains should be taxed at the same rates as income.

    And people should have to pay taxes even if they spend several months overseas.

    I would even support lowering income taxes to balance it out more.

    The top 1% have a huge portion of the wealth of this country. They are getting away with this stuff.
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    Sep 27, 2013 1:20 AM GMT
    Which is why everyone should aspire to achieve the same. Punishing the rich doesn't achieve anything but satisfying the envious. It's nice to see you express opinions, though.
  • musclmed

    Posts: 3287

    Sep 27, 2013 1:50 AM GMT
    metta8 saidWell, personally, I think that if the system was designed to be fair, capital gains should be taxed at the same rates as income.

    And people should have to pay taxes even if they spend several months overseas.

    I would even support lowering income taxes to balance it out more.

    The top 1% have a huge portion of the wealth of this country. They are getting away with this stuff.


    If you earn money from a paycheck and invest money , it is taxed first from your regular income tax. Then you are suggesting after its taxed it should be then taxed again on interest earned at the same income tax rate?

    When is the money earned yours?

    I think what you are talking about is "fairness". And fairness is whatever you say it is.

    The very rich will always be able to avoid taxes. This has been shown when the UK raised its taxes and there was a wealth drain. This proposed "fairness" will end up hurting people trying to save for retirement. There is so much you can save in tax free investments.
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    Sep 27, 2013 2:46 AM GMT
    Philibuster saidCapital gains is investment income. This type of income directly impacts labor income. Instead of giving the income to workers, they give it to investors. Then we turn around and tax workers more. I'm stunned.

    I have no idea how travelling abroad could impact anybody's tax burden. Sounds like his accountant knows some arcane loopholes.


    Just for the record, Capital Gains income is often subject to layers of taxes.

    When I earn the money it is taxed as income, I pay both a Federal and State income tax on my earnings.
    I then invest the money. I am then taxed on the interest it earns, or the difference in the amount I invested and the amount I sold the asset for at both a Federal and State level once again. The company I invested in paid a corporate tax on those funds before they were sent out to me. The tax on that interest or gain is lower than an Income Tax, because I take the money out of my pocket and invest and that keeps the economy moving, instead of hiding it under my mattress. However I have no problem hiding it under my mattress so people like you can learn a lesson but the only problem with that is that you wouldn't bother to educate yourself enough to understand why there was a problem in the economy. The reality is that the same dollar has already been subjected to layers of taxes. High Capital gains tax rates slow the economy. it's really that simple. I doubt you would feel the same way if your monthly bank balance were subject to being taxed every month, Capital Gains tax is the same thing: It's a tax on savings!
  • musclmed

    Posts: 3287

    Sep 27, 2013 3:20 AM GMT
    shybuffguy said
    Philibuster saidCapital gains is investment income. This type of income directly impacts labor income. Instead of giving the income to workers, they give it to investors. Then we turn around and tax workers more. I'm stunned.

    I have no idea how travelling abroad could impact anybody's tax burden. Sounds like his accountant knows some arcane loopholes.


    Just for the record, Capital Gains income is often subject to layers of taxes.

    When I earn the money it is taxed as income, I pay both a Federal and State income tax on my earnings.
    I then invest the money. I am then taxed on the interest it earns, or the difference in the amount I invested and the amount I sold the asset for at both a Federal and State level once again. The company I invested in paid a corporate tax on those funds before they were sent out to me. The tax on that interest or gain is lower than an Income Tax, because I take the money out of my pocket and invest and that keeps the economy moving, instead of hiding it under my mattress. However I have no problem hiding it under my mattress so people like you can learn a lesson but the only problem with that is that you wouldn't bother to educate yourself enough to understand why there was a problem in the economy. The reality is that the same dollar has already been subjected to layers of taxes. High Capital gains tax rates slow the economy. it's really that simple. I doubt you would feel the same way if your monthly bank balance were subject to being taxed every month, Capital Gains tax is the same thing: It's a tax on savings!


    Correct. I have heard this argument before about why it is fair. And the President lately had been the major trumpeter of the "you didnt build that " statement. Justifying just about any kind of tax to be "fair". Fairness has a frame of reference, its not the same to everyone.

    What metta8 seems upset about is the "guy who has never had to work". Its a emotional reaction and it somehow justifies "punishing" him by trying to take his wealth. The people I know that are trust fund babies are tortured soles with drug addictions and woefully unhappy lives. Life without struggle is not worth living.

    It is almost impossible to have convince someone who is thinking emotionally with arguments based on common law, economics and history. Heck we should be levying taxes based on ability to make things "fair".

    The purpose of the tax system is to fund the necessary functions not to be the social equalizer. Well at least there is nothing in the constitution about "fair"
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    Sep 27, 2013 3:24 AM GMT
    metta8 saidDid you know that people who earn their income from capital gains can owe no federal taxes if they travel for several months internationally?

    I know this guy who has never had to work. His family is very comfortable and has given him enough money that he can live comfortably on the investment income. His income is only from investments. His accountant told him that if he travels overseas a minimum amount of months (I'm not sure how many months it is), he does not need to pay any income taxes.

    So not only are capital gains taxes lower than regular taxes, they do not need to be paid at all if the person does enough traveling internationally.

    That seems unfair to me.


    This doesn't add up. Either something is missing here or this isn't really the story.

    The only ways to avoid the Capital Gains tax is to either transfer the property as un-realized stocks or real estate, but when the stocks or real estate are sold the Capital Gains tax has to be paid. It doesn't really avoid the Capital Gains tax, but rather postpones it. There is simply no legal way to avoid the Capital Gains tax on investments or investment property. If it were as easy as traveling around no one would ever be paying the Capital Gains tax.

    There is a tax provision that allows a single person to exclude up to $250,000 or $500,000 in Capital Gains for joint filers on residential real estate if certain requirements are met.

    There is a tax provision that allows a "like kind exchange on property sold at more than the depreciated value".

    The person owning stocks or property might borrow from an Investment Banker aginst the value of the stocks usint them as collateral. The Borrower would then still have to pay off the loan or surrender the collateral. In any event the Capital Gains tax would be triggered when the stocks are sold.

    There are legal ways to postpone paying the Capital Gains tax on investments, but therer is no legal way to avoid them completely.
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    Sep 27, 2013 4:21 AM GMT
    shybuffguy said
    Philibuster saidCapital gains is investment income. This type of income directly impacts labor income. Instead of giving the income to workers, they give it to investors. Then we turn around and tax workers more. I'm stunned.

    I have no idea how travelling abroad could impact anybody's tax burden. Sounds like his accountant knows some arcane loopholes.


    Just for the record, Capital Gains income is often subject to layers of taxes.

    When I earn the money it is taxed as income, I pay both a Federal and State income tax on my earnings.
    I then invest the money. I am then taxed on the interest it earns, or the difference in the amount I invested and the amount I sold the asset for at both a Federal and State level once again. The company I invested in paid a corporate tax on those funds before they were sent out to me. The tax on that interest or gain is lower than an Income Tax, because I take the money out of my pocket and invest and that keeps the economy moving, instead of hiding it under my mattress. However I have no problem hiding it under my mattress so people like you can learn a lesson but the only problem with that is that you wouldn't bother to educate yourself enough to understand why there was a problem in the economy. The reality is that the same dollar has already been subjected to layers of taxes. High Capital gains tax rates slow the economy. it's really that simple. I doubt you would feel the same way if your monthly bank balance were subject to being taxed every month, Capital Gains tax is the same thing: It's a tax on savings!

    Savings account interest is taxable. Your needless insults are free.

    The reason I'm stunned by this is because capital income is growing while labor income stagnates and productivity continues to rise. This whole scenario seems like a really bad idea. To avoid social upheaval we will need all the surveillance that NSA is putting in place. Then perhaps we can peacefully learn to live with less. I have 20 to 30 years left in me, and I wonder what changes will take place in my lifetime.

    ib330-figureA.png.538

    http://www.epi.org/publication/ib330-productivity-vs-compensation/
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    Sep 27, 2013 7:19 PM GMT
    Metta, I'm no accountant but have never heard anyone discuss what you describe as you tell it. I'd have to see more details to understand this. From your description, it sounds to me that maybe he moved accounts offshore and is staying out of the country (traveling) for long enough each year as to be considered expatriated and then being taxed based on that? Possibly he is now claiming residency elsewhere?

    Maybe he's set up some sort of corporation, paying himself as an officer and then claiming a foreign earned income exclusion as an overseas resident?

    Whatever it is, I assume his accountant knows what he's doing. You do not want to fuck with the feds.

    Philibuster said
    someone said
    something

    Savings account interest is taxable. Your needless insults are free.

    The reason I'm stunned by this is because capital income is growing while labor income stagnates and productivity continues to rise. This whole scenario seems like a really bad idea. To avoid social upheaval we will need all the surveillance that NSA is putting in place. Then perhaps we can peacefully learn to live with less. I have 20 to 30 years left in me, and I wonder what changes will take place in my lifetime.

    ib330-figureA.png.538

    http://www.epi.org/publication/ib330-productivity-vs-compensation/


    Lots of good info at EPI. I've posted income distribution graphs before from them reposted below. It shows, as does your above graph, how the wealth of this country was shifted to be redistributed from the people to the wealthy right at about 1969/1970 and has continued on that trend (a trend which lead to the last Great Depression) since.

    1929-1969.jpg

    1969-2008.jpg

    1917-1929.jpg
  • metta

    Posts: 39167

    Sep 27, 2013 8:28 PM GMT
    I don't know how he does it. That is just what he told us. I'm sure that he has the best accountant. He just told us that he does not have to pay any taxes if he spends enough time overseas. He uses one country as his main place and then travels to other countries while there. He does not work so his only income comes from investments and it is worth it to him to spend that much time overseas in order to not have to pay anything.
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    Sep 27, 2013 9:22 PM GMT
    Warren Buffet, Al Gore and John Kerry derive income from tax free investments. So do I, although I have less than $10,000 invested. They have millions and billions. I still think it's a good idea. Why does everything have to be taxed to death?
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    Sep 27, 2013 9:24 PM GMT
    I think I remember some talk of a new rule kicking in this year or last that made removing money from the USA more accountable and so a number of people were trying to get in (um, out) under that wire. I forget the details of it.

    Here's some info on expatriation and taxes. I haven't reviewed it.

    http://intltax.typepad.com/intltax_blog/number-of-expatriates/
    6a00e54fb13f518834019104aa9447970c-pi
  • metta

    Posts: 39167

    Sep 28, 2013 12:32 AM GMT
    Blakes7 saidWarren Buffet, Al Gore and John Kerry derive income from tax free investments. So do I, although I have less than $10,000 invested. They have millions and billions. I still think it's a good idea. Why does everything have to be taxed to death?


    Why should taxes be left to only working people when you have people with high incomes from passive income? Why should they get a tax break that others are not getting? They use the roads, and services just like everyone else. The government still needs money to run and pay for all those defense costs, etc. They can afford to pay more than many people who are paying a much higher percentage of their income than them.
  • musclmed

    Posts: 3287

    Sep 28, 2013 3:35 AM GMT
    metta8 said
    Blakes7 saidWarren Buffet, Al Gore and John Kerry derive income from tax free investments. So do I, although I have less than $10,000 invested. They have millions and billions. I still think it's a good idea. Why does everything have to be taxed to death?


    Why should taxes be left to only working people when you have people with high incomes from passive income? Why should they get a tax break that others are not getting? They use the roads, and services just like everyone else. The government still needs money to run and pay for all those defense costs, etc. They can afford to pay more than many people who are paying a much higher percentage of their income than them.


    Even though I agree with you, you lost me with the following . They can afford to pay more.........


    The purpose of taxes is to run the government not to equalize inequality.

    For years proponents of flat taxes had tried to make the tax system easier to understand and better for life planning.

    Those proponents have been drummed out for the most part. And I would point out some of the politicians who gave lip service to the so called "two america's " enjoyed tax free S corporations and overseas accounts. --- John Edwards.

    I have a 35-40% effective tax rate between state and federal. I am still paying off student debt. I get the "fairness" argument, but I would be against raising taxes on the class of "trust fund babies" without somehow lower taxes for others. Because history shows that the government will just gobble up the money and may have a net negative effect on the economy. I would be for the "fair tax" which is just a national sales tax that kicks in after necessities.

    In my mind the "fair tax" would be supported by progressives , but it seems politically the opposite.
  • metta

    Posts: 39167

    Sep 28, 2013 3:51 AM GMT
    ^
    Actually, in one of my previous posts above, I suggested the exact same thing in regards to reducing the overall tax rate when increasing the tax rates of passive income (capital gains) to earned income rates. I was did not mean that we should increase the taxes of passive income above earned income rates.
  • musclmed

    Posts: 3287

    Sep 28, 2013 4:55 AM GMT
    metta8 said^
    Actually, in one of my previous posts above, I suggested the exact same thing in regards to reducing the overall tax rate when increasing the tax rates of passive income (capital gains) to earned income rates. I was did not mean that we should increase the taxes of passive income above earned income rates.


    What about the Fairtax? http://www.fairtax.org/site/PageServer
  • metta

    Posts: 39167

    Sep 28, 2013 5:45 AM GMT
    ^
    That is definitely something to consider. Any change that big would need to be done very carefully.

    It would definitely encourage people to save more. I would be concerned with people buying less in the US and more internationally because of the taxes on goods/services. The US is not in a bubble. It would give people more reason to travel and spend more money overseas.

    When buying real estate or stocks, is that taxed? I know people that would freak out at loosing their mortgage interest deduction. I would assume that just affects Federal taxes and that their would still be local/state taxes as well as property taxes, and the annual state income taxes.