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Any qualified tax experts who care to weigh in? I have an issue with taxing unrealized capital gains.



Berkshire Hathaway could face a sizable tax bill if the bull market resumes this year.
Ever since a 15% corporate minimum tax was included in the Inflation Reduction Act in 2022, there has been uncertainty about whether corporations would owe taxes on paper profits, or unrealized capital gains, on stocks starting this year. The treatment has long been that these paper profits created a deferred tax liability that is only paid when the stocks are sold, and the profits realized.
Berkshire Hathaway (ticker: BRKb) probably has the most at stake, and faces the biggest potential tax bill among U.S. corporations since its equity portfolio is so large'more than $300 billion. It has periodically had big unrealized gains in the portfolio, including $58.6 billion in 2021, and $26.8 billion in 2020.

Recent guidance from the Internal Revenue Service, while not definitive, suggests that paper profits on stocks could be subject to a 15% tax this year, according to New York tax expert Robert Willens. The issue involves the tax treatment of applicable financial statement income (AFSI), a measure of earnings.


https://apple.news/AWpG5YgB2RmWYVsiIvOSdSQ

Any qualified tax experts who care to weigh in? I have an issue with taxing unrealized capital gains.


No expert here - I don't even understand my own taxes. but...

I don't think "they" will see it as taxing unrealized gains, but more as pre-paying 3/4 (15% vs 21%) of the future tax bill. Thus removing the "interest-free loan", or float, that Buffett has used so well.

Nice they waited til the end of his career.



A different twist for Berkshire, though, is how this convoluted scheme might impact long-term holdings.

As I read the article, the annual bill will be for the higher of:
. (Profits + realized gains) X 21%
. or
. (Profits + realized gains + unrealized gains) X 15%

So in a year with big unrealized gains, the 'cash' tax rate on profits and real gains will be lowered to 15%. Probably a smart tax team could do even better.

Maybe that would be a good time to take the $20B in Coke gains?

IMHO'This article, by Andrew Barry, is almost like 'clickbait.' I say almost because, while it's actually a Congressional proposal it has very little chance of passing. It's an idea that only a bureaucrat, associated with a 'overspend' Government looking for ways to tax and spend more could like. No rational person would think it is feasible.
For instance, if the Government taxed paper gains wouldn't they then pay/credit or refund for tax losses? What a flippin nightmare.

Andrew Barry likes to write about Cathy Wood also to attract eyeballs.
Just a non tax experts opinion.
GLTA,
Silverlinin

IMHO'This article, by Andrew Barry, is almost like 'clickbait.' I say almost because, while it's actually a Congressional proposal it has very little chance of passing.

I think you will find upon further investigation that the "Inflation Reduction Act" has advanced past the congressional proposal stage and has in fact been passed as law by congress. The specific carve-outs and guidance of its implementation are not yet clarified.

There are many reasons Berkshire might report a year with a sub-15% rate of cash taxes on "book" profits. A lot of them, like Berkshire Hathaway Energy's green energy tax credits, are likely to be specifically carved out since the very same legislation addresses and extends these tax credits specifically.

There are also likely to be carve-outs for securities held inside insurance companies, just as securities held inside insurance companies do not receive the same tax treatment before the act was passed.

Trust that the industry lobbyists are hard at work seeking to participate in all the little detail clarifications yet to be published.

Yes, the devil is in the details! I try not to spend much time anxious about the tax situation as it is what it is, we have had a great benefit from the 2017 21% corporate tax rate vs. 35%. WEB, Greg and Marc have always been masterful in optimizing our tax situation and knowing the code. For instance with the BHE tax credits, our BHE effective tax rate here for 1st 9 months 2022 is minus 49.7% and these credits must be maintained to incentivize our huge investments long-term for the benefit of society.

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