Billionaire and ESL Partners hedge fund manager Edward Lampert may avoid paying millions of dollars in proposed new taxes by taking direct ownership of $829 million of stock holdings, thereby avoiding the 39.6 percent ordinary income tax rate scheduled to go into effect for hedge-fund earners next year.
The move means that Lampert will now be taxed at the capital-gains rate of 15 percent when the stock is sold.
“It’s totally an astute thing to do,” tax analyst Robert Willens tod Bloomberg Business Week.
“It doesn’t take a fortune teller to predict that we are going to see a lot of this activity between now and the end of the year.”
The legislation is aimed at reducing a tax break for buyout firms, which typically hold investments for less than a year.
However, Lampert’s hedge fund often holds investments for more than a year, making it eligible for the lower rate applied to private equity under the current law.
The fund is scheduled to transfer more shares by the end of July to Lampert, who has already put $10.3 million of his holdings in a grantor retained annuity trust that allows him to give large sums to family members without paying a gift tax.
The pending tax rate changes may not affect some well-off people much at all, says Carlo Panaccione, CFP(r), co-founder of Navigation Group.
“I have several clients who have structured their finances to be in a low tax bracket, but they’re still worried about this,” Panaccione tells Newsmax.
“They’re quite surprised when I tell them their taxes won’t change.”
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