This is pretty common when someone has a lot of cash that is liable to capitol gains. If you sell the assets to the pat you can pay the taxes over time on the money that is distributed instead of paying the capitol gains all at once and loosing that earning power. You do loose the money in that it you cant use it but you make more money in the long run because you spread the taxes out and make money on the potential tax liability up until it is distributed.
edit:
It is the same as not paying any taxes all year on your payroll and putting the money in the market to make the interest you can, and then paying the tax man in April.
The capitol in the capital on capitol hill, down the parkway past the park. No, the park park, not the car park. English is a fun language. No opinion on the English though.
"Capital" comes from the Latin word for "head"; leading cities that have historically dominated their neighbors became known as capitals because they were the "heads" of their regions.
"Capitol" comes from the name of the Capitoline hill, at the center of Rome.
Careful. Taxes in the US are pay-as-you-go. You can't just "pay the tax man in April." Well, you can, but you also have to pay him the penalty for failing to pay throughout the year. See http://www.irs.gov/taxtopics/tc306.html.
The "penalty", as I understand it, is neither a fine nor a record of wrongdoing, as paying at the end of the year is not illegal. The penalty is the IRS saying that it would like to have the interest back that it otherwise would have earned if you had paid earlier.
As far as I understand, it's perfectly kosher to wait until the end of the year to make payments; you just have to make sure you have the money to actually pay then.
Disclaimer: I am not an accountant nor do I have expertise on this matter.
It's a little more complicated than that, and it is a penalty. You may also owe interest, and they are two separate things (and interest is statutory, so you're really not negotiating there). There are multiple penalties for underpayment and nonpayment of federal taxes. If you're an employee and not withholding enough (because you have other income or AMT for example), you should be making estimated payments to cover the difference. Your employer is also subject to penalties if it fails to withhold and pay the gov't employment taxes (social security and medicare), and it's usually 100%. If you are self-employed, you need to make estimated payments.
tl;dr: the gov't has cashflow problems, too, and doesn't like to issue t-bonds to finance its receivables.
There is an exception as mentioned there. If you pay an amount equal to 100% of the previous year's liability (110% if your AGI is over $150k), it doesn't matter how much more you owe in April.
(I personally ended up with a 2011 tax liability that was something like 160% of my 2010 liability, but I'd paid estimated taxes equal to my 2010 liabilities. So I had to cut the IRS a pretty big check in April, but had no penalties.)
Right, you made estimated payments, and it was exactly the right way. You paid based on a reasonable estimation.
The point is it's pretty hard to just avoid paying taxes all year (either by plain not paying your self-employment taxes or misrepresenting your situation on a W-4), bank it, and come out clean.
It depends. You argument is very narrow. There are LOTS of ways to avoid paying your fair share of taxes, it depends on the situation and where the cash flows are coming from.
As for the Zuckerburg situation, what he did is pretty common. Though I have heard of an alternative to selling those shares, someone in his position could use a portion of his facebook shares as leverage and get a loan to pay the tax man, then said person could pay back the loan with the cash flows generated by the stock. Though in that scenario the interest on the loan and the cash flows of the shares would have to be favorable (i e, a finance question). Additionally, I have heard that getting a loan like that is difficult (something to do with eligibility and/or regulation), but don't quote me on that last part I am not that familiar with it myself.
No, it doesn't depend. And who said anything about fair? I'm talking about obligated and compelled.
> get a loan to pay the tax man
Yeah, so he pays the taxes with somebody else's money. Tax man gets paid, right? Tell me the scenario where a guy pays no taxes and isn't in trouble. This is empirically verifiable, but I don't recommend conducting the research.
Sorry for the tangent folks. I'm not commenting on Zuck's situation. The comment about not paying taxes all year is just plain wrong, and I would hate for someone to try it and get dinged. This is especially important for the newer startup people that don't have the usual single W-2 situation. That's all.
I guess this wasn't made clear by the way I worded my opinion, but I was insinuating that you could legally pay all you are required to as per United States tax law while socially not paying your fair share.
Great example: my fictional grandmother dies. She leaves me her 250 year old colonial home. Lets say that its worth $300,000.00. Lets say that for one reason or another I want to sell the home and prefer to invest that money in more real estate. I find a duplex that costs $300,000.00 (it could cost more or less, but I am keeping it the same to simplify the example) and I am reasonably certain that I can rent it out and generate a net profit per month. I find a 1031 real estate broker and set up a 1031 tax deferred exchange. Upon selling my fictionally grandmother's home for 300k, I will turn around and buy the duplex for $300. Uncle Sam get $0 in taxes. Zero. I pay the 1031 broker their fees. I paid all that I am legally bound to pay as per all the applicable tax laws in the United States. I have paid my fair share, as you called it. When I want to sell that property and most likely trade up I can keep doing the same thing and deferring the taxes indefinitely. There are further ways to minimize taxes on the rent collected, but that is beyond the scope of this simple example. There are a multitude of books on the subject discussed above and you are welcome to look up the 1031 tax code yourself.
The example above is purely to illustrate that there are in fact ways to minimize your tax burden. So as I said before, it depends.
In any case, I simply offered up an alternative which would enable Mark to keep 100% of his shares while still abiding by US tax codes. It appears you missed that point or were so obsessed with flaming me as a result of your personal opinion on tax law in the United States to grasp it. And no he doesn't pay the tax man with some else's money, he gives a creditor future cash flows in exchange for cash today to cover his capital gains that are being realized today (and again as I mentioned early only if the interest rate on the loan and his stock position is favorable for him to do so).
>Sorry for the tangent folks. I'm not commenting on Zuck's situation. The comment about not paying taxes all year is just plain wrong, and I would hate for someone to try it and get dinged. This is especially important for the newer startup people that don't have the usual single W-2 situation. That's all
Its unclear what you are referring to here. I am going to go out on a limb that while failing to grasp my own argument you went ahead and tried to insert words in my mouth as well. I never said he would avoid paying taxes all year, once again, he would be paying his taxes today with the loan, according to the analogy I put forward. I am not sure where you get off flaming someone on HN, this is not how to conduct an intelligent conversation here or anywhere else for that matter.
It didn't change the meaning, because everyone understood what he said. The human mind is amazing at that. If you're going to be pedantic, fine, but own up to it.
Loose means something totally different than lose. Personally, I read each as their (real) meanings and when they don't make sense I have to go back and reread the sentence.
Yes, I can figure it out, but it's no fun to have to work to read comments. May as well let commenters use 113t-speak if we don't care how hard the comment is to read.
If you're going to correct someone, you should make sure you are also correct. In addition, not using a capital letter makes it look a bit like txt speak and generally brings down the level of discource.
I haven't been on HN for as long as most folks here. What is the policy on grammar correction? I know personally I want to be corrected if I make an error, but I don't think everybody feels that way...
For single posts, I'd say resist the impulse; it adds noise to the discussion and rarely helps anything. If the error is repeated, then it may be more helpful to correct.
Some spelling/grammar corrections are irrelevant, abusive, and inflammatory while others are instructive, helpful, and interesting. This community (to me) is more about the "hey, did you know that it's 'capital' except for when you're talking about the building, then it's 'capitol'" than the "STFU stupid, u can't even spell right"
Hey, who else has finances that look like this?