Quote:
Originally Posted by spence
You should have put this line in bold as it's the most important one in the entire piece.
But if not technically a loophole it sure does sound like some hedge fund and private equity managers are able to get out of paying A LOT of taxes on what is really income when they whip out the cash for that new Porsche...all for taking risks with other people's money.
-spence
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it's really income Spence....
these were the important points...do you have to wait typically 5 years for your efforts at work to pay out and hopefully pan out before you can whip out cash for your Porsche...or anything else?
The managers pay the same tax rate on income from the fund as they would pay if they had earned the same income on their own — channeling the income through the partnership doesn’t change the tax rate.
Managers pay 15 percent tax on any carried interest that reflects long-term capital gains or dividends earned by the fund, as they would on any long-term gains or dividends they might earn on their own.
But managers pay ordinary income-tax rates on any carried interest that reflects short-term gains, interest, or non-corporate profits earned by the fund.
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Suppose a venture capital firm raises a $100 million fund from outside investors.
The fund's manager charges an annual fee - typically 2 percent of the fund's assets - to find and monitor investments and cover its overhead.
The manager pays ordinary income tax on this fee.
Once the fund has made enough money to repay investors $100 million plus the annual fees,
the manager keeps 20 percent of additional profits and the outside investors get 80 percent.
This 20 percent is the carried interest. It is considered a long-term capital gain and taxed at 15 percent as long as the fund's investments are held more than a year.
On a typical fund, it takes at least five years before the managers begin to collect carried interest, says Emily Mendell, a spokeswoman for the National Venture Capital Association
The tax rate depends on the kind of income the fund earns — not all carried interest gets the 15 percent rate.
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