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View Diary: Anyone Can Become A WhatsApp Style Billionaire, But Not Everyone Can (49 comments)

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  •  Where do you get that number? (1+ / 0-)
    Recommended by:
    murrayewv

    I find it pretty unlikely the taxes will be that high until and unless they sell their Facebook stock.

    We were not ahead of our time, we led the way to our time.

    by i understand on Sun Mar 02, 2014 at 06:18:57 PM PST

    [ Parent ]

    •  You are right that the taxes won't be paid (3+ / 0-)
      Recommended by:
      nextstep, greengemini, FarWestGirl

      until they sell their new Facebook shares. However, assuming that the Facebook shares at least maintain their current value they will have to pay long term capital gains taxes when the shares are sold. I took the current top long term capital gains rate of 23.8%, but I forgot to add the California tax which would be a net of 10.1% for a total of 33.9% or $6.4 billion.

      "let's talk about that"

      by VClib on Sun Mar 02, 2014 at 06:29:27 PM PST

      [ Parent ]

      •  Well, that applies to any sell of FB stock. (1+ / 0-)
        Recommended by:
        Skyye

        Regardless of a WhatsApp deal.

        And I'm fairly certain tax liability will be minimized by very well paid accountants. I wouldn't bank on those funds showing up any time soon, or ever.

        We were not ahead of our time, we led the way to our time.

        by i understand on Sun Mar 02, 2014 at 06:32:49 PM PST

        [ Parent ]

        •  iunderstand - the lowest rate is the long term (4+ / 0-)

          capital gains rate so that will be the minimum tax paid. Some holders of Facebook shares purchased the shares at a much higher basis and would owe less. Except for the founders and very early employees the Facebook employees who received stock options will be paying earned income rates, which when you add the California tax adds up to a marginal rate of 43.4%. Charitable deductions, mortgage interest and a few other items are deductible but it doesn't matter how good your accountant is the tax bite can't change much post the Tax Reform Act of 1986.

          I assumed that the employees and investors in WhatApp have a basis close enough to zero that at a value of $19 billion isn't going to matter much.  

          "let's talk about that"

          by VClib on Sun Mar 02, 2014 at 07:13:18 PM PST

          [ Parent ]

        •  here's how it's done (ps I know) (5+ / 0-)

          When WhatsApp stock converts to FB stock there is no taxable event. So no tax is paid. The cash is likely taxable, depending upon how they structured the deal.

          What few people realize is that one does not need to sell a single share of stock, creating a taxable event, to get the benefit of having a big stock portfolio.

          What one does is obtain a margin loan, literally borrowing against the value of the stock. If you keep your stock with a brokerage account they'll probably give you nearly zero interest on the margin in the hopes of future business.

          So what one does is borrow $1 million, pay zero taxes, buy $1 million in goods or services and pay only the property transfer tax or sales tax on the purchase.

          Someday far, far in the future your heirs will inherit the stock, payoff the margin loan, and thanks to people like the Koch brothers buying a few US Senators the inheritance tax will be quite low.

          Oh, and I'm not even proposing special off-shore tax dodges

          I'm a tech founder and this is what the expensive accountants suggest.  I've had 2 companies acquired with zero taxable events, but unfortunately the dot bomb pretty much wiped us out. So I've done a couple since then.

          •  Margin loans can be dangerous (1+ / 0-)
            Recommended by:
            llywrch

            I knew a Microsoft multimillionaire (on paper) who used margin loans against his MS stock to try and multiply his investments - not a bad strategy if the stock you are taking the margin loan against keeps its value (or grows in value) AND the investments also keep or grow their value.  

            Of course, all the technology stocks he was invested in AND his Microsoft stock took a dive in 2000, margin calls came in, his other investments were tanking too, and he got wiped out.

        •  The stock will be placed into an (1+ / 0-)
          Recommended by:
          i understand

          "accelerated charitable remainder" trust, from which Mr. Koum will be paid a stipend. The stock will be sold, tax-free by the trust, and a (small) portion donated to some charitable cause.

          The most egregious form of "accelerated charitable remainder trust" was nixed by the Treasury department (drain 96% of the fund over 2 years, then fold the fund and donate the remaining 4% to charity), but a modified form, known as "son of accelerated charitable remainder trust" is still going.

          It's worth checking out your local library or bookstore for a copy of "Perfectly Legal, the covert campaign to rig our tax system to benefit the super rich and cheat everyone else."

          There are all sorts of amazing and effective schemes for hoarding wealth, if you have enough of it. Alas, if you're lower on the economic ladder, there isn't even a way to save, anymore.

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