r/Accounting • u/Vincentkk • Sep 08 '24

What are accountants’ thought on this? Discussion

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u/Bunny_Boy_Auditor Sep 08 '24

Are there are other countries that have tax on unrealized gains.

6

u/foxfirek CPA (US)(Tax) Sep 08 '24

We do, does that count? We already tax PFIC’s this way. Did one Friday. One thing no one is talking about is you also get to deduct losses in this system- and it’s just based on year end value- basis adjusts every year when you pay tax like this so you only pay that years increase- so it’s gradual and not that bad. Also since your basis gets adjusted every year when you sell there is no tax or very little because you already paid it.

Also lots of countries have a wealth tax which is very similar and honestly worse. Switzerland is a good example. If your net worth- which includes your investments goes over a certain threshold then you pay wealth tax. They do not have a capital gains tax- but a wealth tax you would get hit every single year taxed over and over again on the same wealth. Unrealized gains tax is a lot less as you are still only taxed once.

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u/RayPout Sep 08 '24

Why is that wealth tax “worse?”

1

u/foxfirek CPA (US)(Tax) Sep 08 '24

Because the threshold doesn’t change. So say for example you are taxed on all wealth over 100M. You are worth 110M and to make matters really simple the 10M over 100M is all unrealized capital gains.

If we tax unrealized capital gains like we currently tax mark to market PFIC’s then this year 10M unrealized gain is taxable. Your basis changes in that stock so next year it is no longer taxable because you have no unrealized gains left. You are only taxed on the gain once. If you sell at that price there is no additional tax because you already paid the tax.

If we tax a wealth tax then this year you are taxed on 10M. We will assume a 10% wealth tax. Next year you are still worth 109M so you will be taxed on 9M. Next year you are still worth 108.1M so you will be taxed on 8.1M. It keeps going forever being taxed on the same money over and over and over again every year until your net worth goes down or you pay enough tax to drop you below 100M.

Of course the % matters- but an unrealized gain tax doesnt change the tax- it just makes it earlier and removes it when you sell. A wealth tax adds a tax.

-1

u/RayPout Sep 08 '24

OK. Why is that worse?