Kbg wrote: ↑Thu Jun 17, 2021 10:09 am
Speaking of praise be...a thread worthy of participating in.
+1
I often find Mark's posts to be a breath of fresh air.
WiseOne wrote: ↑Thu Jun 17, 2021 7:56 am
A couple of questions though. First, what do you do when interest rates go up? Over a long enough time horizon that's something you have to consider. Second, what happens when you start incurring lots of expenses (like home health care or a nursing home) and need to cash in some of those assets?
In my spreadsheet, the interest payments get deducted from the growth. So if you are just withdrawing a set % of the actual growth it should be accounted for. I think, with a plan like this, you need to decide if you want a steady stream of withdrawals (which increase the risk of whip-sawing LVRs) or whipsawing withdrawals (which decrease the risk of whip-sawing LVRs). This ties in with your second question...
To go "all-in" on this plan is probably only "safe" for someone with an extremely high wealth/living expenses ratio. For example, taking your annual expenses and multiply that number by 50 to 80 (depending on how "safe" you need to be to feel "safe").
To live like someone in the upper-middle class, you would need 8 figures in net worth.
Kbg wrote: ↑Thu Jun 17, 2021 10:09 am
Speaking of praise be...a thread worthy of participating in.
As a side note, in IB you can specify what to sell first...so you have some control of what but not when or if
This brings up another point. In other forums I have read that IB will be quick to change their margin requirements with practically no notice. This is why it would be extremely important to only be borrowing an insanely low percentage of the total growth of the assets.
Xan wrote: ↑Thu Jun 17, 2021 8:06 am
As I understand the Biden plan, the new cap gains rates only apply to income above $1 million in a year. So it isn't really a slam dunk for everybody to sell and re-buy everything.
The people who really get punished are small business owners when they go to sell. I don't know of a way to sell and re-buy a sole proprietorship... Maybe in a partnership the partners could swap their equity and pre-pay their taxes? Sounds like the kind of thing that wouldn't pass the smell test.
+1
There is a lot of activity right now for people selling their businesses just for this reason. Cashing out for 20% is a sweetheart deal. It also doesn't get hit with the Obama 3.8% investment tax.
I am no CPA (so take with a grain of salt), but as long as you have a valid business reason... perhaps you could sell it to an irrevocable trust (non-grantor) and then have the irrevocable trust sell it back at a later time. In fact, you don't need to actually sell your business; you could just sell the assets (tangible and/or intangible). As with all things in taxation, the complexity needed to make it a legitimate transaction in the eyes of the IRS needs to justify the tax savings.
I would think that what usually passes the smell test is probably heavily influences by the length of the activity and what activity occurred during that time. Or in other words, let's say you and I start a business today. We split the business 50/50.
I am going to contribute 100% of the money needed and you are going to contribute 100% of the brains. I suspect if we closed out the business too soon and it was a passive business, it would raise some eyebrows that the structure could be some type of abusive tax structure. However, if the business had "active' income for 10 years, the balance of intangible/tangible capital contributions would become less of an issue if it was an active business. But how muddy does the water get when that "active" income was created by "intangible" assets? How about an untraceable intangible asset like crypto-currency? The hurdles that are before the IRS in the electronic age are enormous. For those that are unaware, the IRS still uses those reel-to-reel tape computers from 50 years ago for their audits. By modern standards of technology, their kung-fu is weak.
Unfortunately/fortunately, taxation is black and white for most people. For those with substantial assets that aren't afraid of complex structures (or an expensive battle in tax court), taxation is all just one big grey area.
Case in point, want to know legal tax strategies? Just download the annual Analytical Perspectives directly from the White House. They pretty much list all the things they would like to change in regards to taxation for the year. However, the list doesn't really change that much annually because proposing changes and actually getting the votes are 2 very different thing in Washington:
https://www.whitehouse.gov/wp-content/u ... c_fy22.pdf.
Looking for something more exotic? Look at PLRs. Poor people hide from the IRS, rich people run towards the IRS.
For those that are unaware, a PLR (Private Letter Ruling) is when rich people pay their tax attorney to draft their tax strategy (along with a sizeable check) and give it to the IRS. The IRS then makes a ruling as to whether the strategy (or loophole) is legit or it is not. Once the IRS says it is legit, they have now entered into a binding agreement with that entity and they can't be nailed for it later. It is my understanding that people (or entities) only file for a PLR when they are already 99.9% sure that they have the IRS by the nuts. Anyways, the PLRs are all public record. Nothing to stop anyone from gleaming insight from teams of $1,000+/hr tax attorneys. You can search through the PLRs on the IRS website (
https://apps.irs.gov/app/picklist/list/ ... tions.html), but be warned, it is crazy boring. Also note that you can't use someone else's PLR for your own protection.
Disclaimer: This was not intended as tax, legal, and/or investment advice. Consult an attorney, tax advisor, and/or investment advisor.
P.S. Sorry if this seemed like a rant and veered a little off-topic.