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How a Tax Loophole Is Helping Silicon Valley Workers Save Millions
When Kay Luo joined LinkedIn in 2006, she received a grant of shares with a value of 12 cents each. The company went public in 2011 at $45 a share. By the end of the first day of trading, the price had doubled, and she began the process of selling her stock.
"It was more money than I've ever known," said Ms. Luo, who is in her 40s and has retired from the tech industry. "I felt very unsophisticated to manage the wealth. I thought the right thing to do was hire a fancy accountant."
Her new accountant helped with common techniques to minimize her tax on the windfall, like trusts, gifts and philanthropy. But she said he missed what has become one of the great windfalls in Silicon Valley: a provision in the tax code that allows employees at small companies to receive tens of millions of dollars in stock gains tax-free.
Ms. Luo said she was shocked that her accountant had failed to tell her about this: "It was hundreds of thousands of dollars we overpaid," she said.
The tax code provision addresses what's called qualified small-business stock. It says that people who are invested in a company valued under $50 million are eligible to exclude from their taxes $10 million or 10 times their investment, whichever is higher. It can be used by employees at start-ups who are given stock as part of their compensation plans.
"This is just an incredible way to exclude a large amount of income," said Raymond L. Thornson, managing director at the accounting firm Andersen Tax in San Francisco. "What makes this unique is most of the opportunities to save on taxes are to give money away or deduct your mortgage."
(Score: 2) by linuxrocks123 on Monday July 15 2019, @05:34AM
I read the PDF. It reads like it was written by some sort of crank. It was.
The plan has almost zero details and is highly ambiguous. It assumes that revenue would be collected based on current financial movement patterns and makes no attempt whatsoever to account for actual revenue collected after entities begin engaging in avoidance behavior. It asserts that the tax burden for most people would decrease drastically and simultaneously asserts that tax revenue collected would increase drastically. It makes no attempt whatsoever to determine who, since most people will be paying dramatically less tax, will be paying dramatically more. It makes no attempt to model what distortions in the economy will be created by the avoidance behavior created by the tax, beyond correctly asserting that all forms of short-term trading would be drastically impacted and incorrectly asserting that this would be a positive impact. It makes no attempt to address the extreme contractionary macroeconomic effect that would result from dramatically increasing the amount of tax collected while keeping government spending constant.
It is, in short, a piece of utter garbage.