What tax law loophole is Buffet referring to?
A Section 1256 contract is any: Non-equity options include debt options, commodity futures options, currency options, and broad-based stock index options. A broad-based stock index is based upon the value of a group of diversified stocks or securities (such as the Standard and Poor's 500 index). 60% of the capital gain or loss from Section 1256 Contracts is deemed to be long-term capital gain or loss and 40% is deemed to be short-term capital gain or loss. What this means is a more favorable tax treatment of 60% of your gains. http://www.tradelogsoftware.com/tax-topics/futures/ It's a really wierd rule (arbitraty 60% designation, so broad, etc), but section 1256 contracts get preferential tax treatment and that's what Buffett's talking about.
"The elephant in the room is the research. From the article it seems to conclude that the majority of the research happened in the US, but Microsoft is claiming it happened overseas.  From what I've seen a lot of *initial* research does happen in Microsoft international offices, all further development to bring it to market might be done in the US but the idea sprung elsewhere.   From a taxation perspective you can argue that the patent was invented offshore and profits should be allocated there, or you can argue that it was the US development investment that made it profitable and so profits should be allocated in the US. Both are right - and this makes the US so interesting to invest in.   If you invest in the US and then license offshore to sell back to a US entity - thats just exploiting a loophole. If it was invented offshore, thats what the laws are trying to protect.   Personally I think Microsoft is doing pretty well here, like the demo of translations from chinese sign language to english - MSR Asia invented it, but it will be US teams transform it to a feature that derives income. Where should it be taxed if it does become a real product? How many other areas of Windows, Visual Studio, Office, Azure were ""invented"" by non-US teams and should also be taxed offshore?" Agreed it isn't fair, but large businesses/multinationals will **always** have the advantage of choosing which legal jurisdiction to do business in.  This creates an incentive for such loopholes in order to attract the businesses to do business there at all.  It needs to be harder for legislators to write such specialized tax laws, as the more complex/specialized the tax law becomes, the more unfair it inevitably turns out. "Yeah, I understand that is a nebulous term, akin to stopping ""pork"" in various bills. However, getting back to that Economist article, this really stood out to me:  &gt; America’s corporate tax has two horrible flaws. The first is the tax rate, which at 35% is the highest among the 34 mostly rich-country members of the OECD. Yet it raises less revenue than the OECD average thanks to myriad loopholes and tax breaks aimed at everything from machinery investment to NASCAR race tracks. Last year these breaks cost $150 billion in forgone revenue, more than half of what America collected in total corporate taxes.  I'm not clear on where they got that number, but assuming it is true, there are certainly plenty of places we could start if we were to lower the tax rate to a sane level.   Also, I still don't see how just lowering the tax rate and removing the repatriation tax on foreign earned profit would truly disincentivize inversion. If there are countries like Bermuda still out there with say, random number here, a 5% corporate tax, wouldn't the incentive still exist?" Laws like this replace tipping income with regular income, taking away the loophole that the IRS can't track cash tips. Most servers are not reporting their cash tips because they think they don't have to pay taxes like everybody else. It's tax fraud. Fuck them. "You're certainly referring to ""Ex Post Facto"" laws, and while the US is constitutionally prohibited from passing criminal laws that are retroactive, the US Supreme Court has upheld many tax laws that apply tax code changes retroactively. You might ask a similar question on Law.SE for a more thorough treatment of the legalities of congress passing those laws, but I will stick to the personal finance portion of the question. What this means is that you can't expect that the current tax laws will be in force in the future, and your investment/retirement plans should be as flexible as possible. You may wish to have some money in both Roth and traditional 401(k) accounts. You might not want to have millions of dollars in Roth accounts, because if congress does act to limit the tax benefits of those accounts, it will probably be targeting the larger balances. If you are valuing tax deductions, you should put slightly more weight on deductions that you can take today than deductions that would apply in the future. If you do find yourself in trouble because of a retroactive change, be sure to consult a tax lawyer that specializes in dealing with the IRS to possibly negotiate a settlement for a lower amount than the full tax bill that results from the changes." Oh it definitely makes sense on a state level and from my experience working taxes I would say it is much more prevalent to the extent I would have to bet every Fortune 1000 company does it.  You can completely eliminate State Income Tax in many states (although states are rapidly closing the loopholes) which at corporate tax rates for most states between 6 and 8% this turns into a lot of money. "I think this is a bit too simplistic, because you need to keep in mind that Buffet was managing the money as his career. Had he paid the 1% fee he could have ""made more money"" doing something else.    People who hire money managers usually do so because it A. saves them time managing their own portfolios and B. because they don't believe they would do a better job managing it themselves." "These types of diagrams appear all throughout Kiyosaki's Rich Dad, Poor Dad book.  The arrows in the diagrams represent cash flow. For example, the first two diagrams of this type in the book are:  The idea being presented here is that an asset generates income, and a liability generates expenses.  According to the book, rich people spend their money buying assets, while middle class people buy liabilities. The diagram you posted above does not appear in the edition of the book I have (Warner Books Edition, printed in 2000).  However, the following similar diagram appears in the chapter titled ""The History of Taxes and the Power of Corporations"":  The idea behind this diagram is to demonstrate what the author considers the tax advantages of a personal corporation: using a corporation to pay for certain expenses with pre-tax dollars.  Here is a quote from this chapter: Employees earn and get taxed and they try to live on what is left.  A corporation earns, spends everything it can, and is taxed on anything that is left.  It's one of the biggest legal tax loopholes that the rich use.  They're easy to set up and are not expensive if you own investments that are producing good cash flow.  For example; by owning your own corporation - vacations are board meetings in Hawaii.  Car payments, insurance, repairs are company expenses.  Health club membership is a company expense.  Most restaurant meals are partial expenses.  And on and on - but do it legally with pre-tax dollars. This piece of advice, like so much of the book, may contain a small amount of truth, but is oversimplified and potentially dangerous if taken a face value.  There are many examples, as JoeTaxpayer mentioned, of people who tried to deduct too many expenses and failed to make a business case for them that would satisfy the IRS."