But what your post fails to consider is that Nametag and others were reacting to gazpacho’s post, which seemed to imply that investment was motivated by a desire to create jobs and help the economy rather than by self-interested economics.
And i was under the impression that a portion of company profits went to stockholders in the form of dividends. This is the sort of recoupment that can, to some extent, be said to result from greater productivity and increased efficiency in the business itself. Stock prices on what you call the “secondary market,” on the other hand, often bear very little relation to the actual performance of the company, and even less relation to the “job creation” advanced by gazpacho as a result of investment. As recent events have highlighted only too well, stock prices often reflect beliefs (often based on false or misleading information) rather than a company’s actual performance.
I have no problem with your assessment that greed (or the search for a profit based on no actual personal effort) is at the heart of investing. In fact, i was saying that others should recognize this also. But i do contend that, if companies were run with the concerns of all stakeholders in mind and with long-term viability rather than short-term share prices as a guiding principple, then there might be other reasons to invest than simply the possibility of making a killing selling your shares on the secondary market.
I did not mean to imply that the investor is doing it out of a desire to crate jobs. I mean that it is taxed less because the government wants people to invest in various businesses so that jobs and wealth are created.
So you are saying that the original investors put money into a business for the purpose of realising a gain on the sale of their stock and not for the purpose of sharing in the profits of the business.
Sorry about that, Manhattan, but I thought the question had been fully answered.
However, as was stated in another post, the maximum tax rate is 38.6% of taxable income. The taxable income, of course, depends upon how many deductions you have so there isn’t any pat answer.
There is also an alternative minimum tax that is intended to get at least something out of high income taxpayers who have a lot of deductions. And there used to be an income averaging provision for those who got an unusually large income in one year and much smaller incomes as a general thing. I believe you could average the total income over 5 years and pay an annual tax for those years that was computed on the average. I can’t find that in the tax booklet so maybe with all of the tax code revisions it has disappeared.
I am not a CPA or financial advisor, but the first thing I’d do on coming into any large amount of money is …(drumroll)… contact a CPA or financial advisor. Not for investment advice, per se, but rather to see how big a chunk of it can be funnelled tax-free or tax-deferred into IRAs and the like, right at the outset.
A clever tax-specialist CPA might be able to say all the right words to let me walk with the million (like, lottery winnings) in toto since the taxes aren’t actually due until a quarter into next year. I could invest 38.6% of a million dollars for three-quarters of a year and collect the interest myself; why give it over to the government right away?
Theoretically, the government should be happy that I’d do this, since I’ve be stimulating the economy and I’d be paying them more taxes, on the interest I’m earning.
As logical as that idea sounds, Ambush, unfortunately it does not work that way in practice, as the feds essentially require that you “pay as you go [earn]” throughout the year. Waiting to pay your entire wad until April 15 of the following year would incur you a substantial penalty.
You seem to be correct, as I found this reference:
I’d still have the tax-specialist CPA take a whack at it. Diverting a chunk at the outset to tax-deferred investments or tax-free education funds or the like would still save a lot.
Never, ever, say anything bad about “rich guys”. They are our gods.
You may, though, say anything you like about slack-jawed, double-wide living, NASCAR watching, slobs.
Peace,
mangeorge
This page doesn’t address that specifically, but says that when the annuity option is chosen, it’s funded by interest earned on U.S. Government Treasury Securities. Since the interest isn’t taxable until it’s earned, there you go.
You win a million dollars, payable as a $50k-per-year/20year annuity, or you can have $425,700 in cash, (10%, discount factor 8.514). If you take the annuity, the lottery commission does the thing with the treasury securities, which costs them $425,700 to set up.
IRS will take 27% of $50,000 per year, or 27% of $425,700.
I may have got the math wrong or made some odd assumptions about annuity cost but I think I am explaining things basically right.
The trick is, if you take the cash payment - if you can stick as much as possible into a tax-deferred investment or retirement savings account, the IRS will have to either not take or refund you 27% of that portion.
win: 425,700
withheld: (114939)
net: 310761
IRA/bonds: (100,000)
IRS refunds: 27000
final net: 237761 +100000 invested for retirement
