Quote:
Originally Posted by Joe
I've heard that return on interest portion of a manager's pay is considered capital gains (not wages) and as such, taxed at the lower capital gains rate.
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yes and no.
to the extent that managers are investing their own money (which they do), they book gains on said investment as capital gains. more often, they are short-term (gains realized less than one year holding period ... most hedge funds are quick flippers), so the gains are taxed as REGULAR INCOME.
the performance fees (3% base and 20% on profits) that are earned by the hedge fund entity, which can be a partnership or corporation, flow through the partnership or corporation and are taxed accordingly at the partner or corporate level (corporations get to deduct expenses, like payroll, rent, etc). remember this inflow gets taxed AGAIN when other employees are paid.
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