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

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  •  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-)
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      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.

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