Yeah I'm in favor of leverage == taxable event. I think the meaningful difference between leveraged and unleveraged capital gains is that when you take a loan, you access liquidity via your ownership in the asset. If you had gotten a dividend, that would have been taxable. A loan with a stock backing it isn't the same thing, but it does have a somewhat similar effect.
You still need to pay off that loan eventually though.
These asset backed loans are just regular loans with lower interest rates. So instead of getting $50M @ 11% they can get it at 4%. That's the extent of the "hack".
They then keep the ball rolling by refinancing at each expiry and just paying the interest (and hoping their assets maintain or increase in value)
Eventually those loans will need to be repaid and the money will need to come from realizing capital gains.
So if anything its a tax deferral scheme with a low interest rate and elevated liquidation risk. Which all raises the issue of being taxed twice on the same money. Taxes once when you take the loan against it, and taxed again when you realize the profit to pay the loan.
The trick is that the USA steps up the buy price of an asset when you pass away. So if you use cheap loans your whole life, you can defer capital tax until it goes away.
Instead of two certainties in life being death and taxes, it's now death or taxes.
Eventually those loans will need to be repaid and the money will need to come from realizing capital gains.
Uh, yes. But they can be repaid with refinanced loans based on the same assets... So no guarantee that the gains will be realized. And in the possibly long interim between loan issuance and maturity, the owner accesses liquidity via the asset and pays nothing in taxes.
Which all raises the issue of being taxed twice on the same money. Taxes once when you take the loan against it, and taxed again when you realize the profit to pay the loan.
To clarify, I advocate that the loan issuance be a taxable event, where the cost basis of the shares are adjusted to the current price of the asset. So there would be no double taxation.
I think it is useful to point out that the conditions under which those loans make any sense are incredibly narrow. It is far from the norm because it doesn’t pencil out in pure financial math. Wealthy people are not stupid, and the notion that this is being widely used as a tax avoidance measure tacitly makes that assumption. Studies seem to indicate that the prevalence is so low as to round to zero. There are many practical reasons to do it at the margin as a cashflow management exercise but not as a way of generating tax-free income.
The interest on those loans is taxed as income which feeds back into the model.
> Taxes once when you take the loan against it, and taxed again when you realize the profit to pay the loan.
Trivially fixed by simply letting you deduct the taxes paid when you took out the loan against the taxes owed when you actually sell.
While we're at it lets ban stock buybacks since all those are is a tax deferral scheme with utterly no other social purpose. Dividends are the correct way to distribute cash to shareholders. Full stop.
And get rid of stepped up cost basis on death - limit it to the IRS gift limit which is already ridiculously generous. Just to make it politically palatable so there are less sob stories about some "family" farm or company being force-liquidated to pay taxes.
I take a loan secured against 10% of them. I have now taken a tax event against 10% of them.
I now pay taxes on a capital gain of $90 on 10% of them.
I now have an asset split into 2 parts. one with a cost basis of $1 (90% of my assets) and one with a cost basis of $100 (as I paid taxes on a capital gain to $100).
One can perhaps argue that when levaraging unrealized assets for loans, one always uses the lowest cost basis assets for determining taxable event, or perhaps first in first out of taxable events (and therefore paying tax, is an out then an in).
It doesn't require the debtor to pay back the difference between the collateral liquidation value and the loan value.
I don't think any bank though is giving non-recourse loans for risky or depreciating assets (investors do that). It's usually for things that the bank is confident will be a good investment anyway if the loan goes sour - you default on the loan? Fine. But we keep the land.
For late-stage “startups” (e.g. Series D+ companies that have just not IPOd) they have done this in the past, but that was in the pre-COVID tech mania.
Often they act as middleman, finding someone else that wants exposure to the startup when interest is oversubscribed.
I don’t get how loans can help you “evade” taxes. At some point you have to settle your position. They can help you delay but not avoid the taxes. (Unless I am missing something)
You time receiving the money specifically so that you don't hit the next tax bracket, which has a higher tax rate. If you get $1,000,000 in one year and $0 the next, you'd pay more in taxes than two years where you get $500,000 and $500,000 (approximately. don't focus on the exact numbers, but that's the concept).
Why not? I could say the that it is unfair to tax people on income that they haven't spent too. Or property taxes raising for a property they haven't sold. If I wait to pickup my payroll check until after the year rolls over despite earning that money already, should I not pay taxes on it for that previous year?
Because the valuation of equity is notional only. It may not be remotely realizable now or ever. Furthermore, it may not be possible to use it as collateral for a loan for both legal and practical reasons. Some notionally high value assets have no liquid market. It make take a decade to find a real buyer. The large majority of assets held by wealthy people are non-liquid, in the US most studies put it in the 60-70% range.
Your paycheck is denominated in cash money. It can’t go to zero or be non-liquid for years like an investable asset. That’s a rather important distinction.
That seems like a buyer beware situation. Nobody forced them to invest money in it, and if they lose out in the end that is the risk they take, the same with any other investment. You can't buy a piece of commercial property and not pay any taxes, or start a business and then claw back taxes you already paid because it failed later on down the road.
It would probably need a grace period so things don't go crazy, but after that then yes. It would also have the benefit of pumping stocks being lower and more risky, and could help prevent stock bubbles from rising so big and fast.
That is typically the case (depending on the timeline) for all but publicly traded or relatively sought out/well known private firms. Even for many of those, it’s not going to be easy.
You can’t just go out and start selling stock to the public without a huge amount of legal paperwork.
If you're bootstrapped, borrow a bunch of money to pay tax because your company got to $10M val. But then the market shifts and it goes back down to $0 in later years, do you get the money back?
Even if you do, it sounds weird taxing someone for the right to create something, especially when they're still in the middle of creating it.
May I add, if your manager demands you're available anytime outside of business hours and you're not compensated for that time, you should immediately be looking for your next job.
Unemployment has never been lower in 40+ years (in the US). You're likely to get a pay bump moving. Always Be Interviewing. No one is going to look out for your comp and work/life balance except you.
Well, most jobs are salary so there's no notion of compensation per unit of time. I rarely expect overtime but sometimes I need help outside of regular work hours; I also don't make you get HR approval and book off time to go to the dentist or pick up your kid.
It seems like the same people who complain about a lack of employer care & "greedy corporations" are also the same people counseling "always be interviewing" and the only priority is #1. It must be exhausting.
I'm going to split the difference between you and toomuchtodo. I accept that overtime comes sometimes in this business. I accept it as long as it's rare. There's a crisis for two weeks? OK, I'll be there - maybe not every possible second, but quite a bit more than normal.
There's a crisis for six months? That's not a crisis; that's a management failure. Management should have fixed it by then. That's on them, not on me.
They want overtime every week? FORGET. THAT. NOISE.
Why always the jump straight to interviewing? Raise the flag that the team needs resources, propose a solution, negotiate with management (it’s going to take a lot but we can deliver x & y, or z but not x, y, and z). There’s a bunch of things you can do besides jump ship, coincidentally these are all management skills and it’s called managing up.
The jump straight to interviewing comes with the ironclad faith that changing an organisation from the inside is now much harder than changing organisations. In the end, salary and work is something you do to support yourself. If you are going to take time and energy out of your life to improve the company where you work, that's time and energy you're not using to improve yourself (or at least, you're not using it as efficiently).
I don’t get this rebuttal. You don’t need to change the organization. You just need to set expectations with your boss. This is what allows you to go home on time. Instead, technical workers tend to let the deadlines be driven from the top and then they complain about working for slave drivers.
I have worked a job that was salaried, in the sense that I got paid a lump sum for the year and didn't track my hours, but also paid extra when I was on call. This is possible, and it works fine.
Yeah, but that only tends to work in favor of the company. Try telling them you're salary, so you'll only be working 25-35 hours / week. Even if you get your work done and don't have a 'butt needs to be in the seat' type job, they'll laugh at you.
The usual is to get time off in lieu for working weekends.
It's sometimes unavoidable to work on weekends - e.g., a tight deadline. But I would ahead of time get the agreement in writing that the weekend work is going to be given back in time off in lieu after the deadline - otherwise, don't work weekends. there needs to be a feedback loop (via money or capacity) to management. Otherwise they'd just see amazing results, and keep wanting more. That's how you end up in a permanent crunch job.
It was avoidable, just not by you. That's not your problem though - it's your bosses' problem. Letting them make that your problem is a choice for you, but I would posit it is a poor choice.
> It seems like the same people who complain about a lack of employer care & "greedy corporations" are also the same people counseling "always be interviewing" and the only priority is #1.
Did you consider that perhaps the latter is caused by the former? When executives and managers, in the main, are rewarded for "optimizing" at the expense of humans, those humans are eventually going to push back.
I mean, that's how many employers may want you to think, but I suggest you actually look at the laws, both federal and state, surrounding overtime and salaried positions. Just declaring a position is salaried doesn't mean that you don't get overtime.
> most jobs are salary so there's no notion of compensation per unit of time.
Most jobs are wage and it's perfectly normal to be salary and non-exempt. Unless you are a founder or management if an employer is trying to classify you as exempt to avoid paying overtime they are breaking the law.
Exempt status means that you may not be paid for overtime. It doesn't mean you can't be. I haven't tried to push that point in a negotiation but I'd be curious to see how it goes. It could backfire on you, for sure, but who knows the balance until one tries?
And while I haven't negotiated for it, I was paid overtime on a contract gig once. Pulled in ten thousand dollars a week. That was a wild summer.
Would you mind providing a way to contact you in your profile? I'm not sure my questions regarding average cost per case, duration, etc. are appropriate for this thread. Thanks.
For what it's worth, I suspect that many of us would be interested in information about average cost per case and average duration for cases where the defendant is a small company (or small tech company).
I recently saw your other post about raising funding for a hardware startup. Have you tried another attempt at crowdfunding (if your first one failed to reach the target)? csallen's indiehackers group may have more suggestions.
Congratulations on getting as far as you have. There is plenty of actionable feedback from HN.
What are you prioritizing for your next release? I would recommend including the most often repeated UX complaints from this "Show HN". Iterate quickly and get another round of feedback. Keep up the momentum.
