Warren Buffett downsized his Apple stake for tax reasons. Here's what it means

Published Wed, May 15 202411:52 AM EDTUpdated Wed, May 15 202412:26 PM EDT

Warren Buffett surprised many by selling a significant portion of his gigantic Apple stake, and his reason for the sale was even more surprising. Buffett, who trimmed Berkshire Hathaway's Apple holding by 13% in the first quarter after reaping enormous gains, suggested that the sale was for tax reasons. He implied the sale could be a means of avoiding an even higher tax bill down the road if tax rates rise to help plug a ballooning U.S. fiscal deficit. "It doesn't bother me in the least to write that check, and I would really hope with all that America's done for all of you, it shouldn't bother you that we do it. And if I'm doing it at 21% this year, and we're doing it a little higher percentage later on, I don't think you'll actually mind the fact that we sold a little Apple this year," Buffett said at Berkshire's annual meeting on May 4. As a corporation, any income generated by Berkshire, whether it's from a wholly owned business, such as Dairy Queen, or an equity investment, such as Apple, has been taxed at a flat 21% federal corporate rate since 2018. There's no special tax rate for capital gains in a corporation as they become part of the entity's income. The Oracle of Omaha, who paid over $5 billion in corporate taxes in 2023, believes the corporate tax rate could move higher to fund a burgeoning fiscal deficit. The federal government has so far spent $855 billion more than it has collected in the 2024 fiscal year that ends Sept. 30, according to the Treasury Department . In the 2023 fiscal year, the deficit totaled some $1.7 trillion. "They can change that percentage any year. ... I would say with the president's fiscal policies, I think that something has to give. And I think that higher taxes are quite likely. And the government wants to take a greater share of your income, or mine, or Berkshire's, they can do it," Buffett said. Corporate income tax rate The corporate tax rate in the U.S. averaged 32.1% from 1909 to 2024, with a peak of 52.8% in the late 1960s, according to the Internal Revenue Service. The rate was 35% from 1993 to 2017. "He's taking this position essentially, based on his opinions of the political and economic climate," Kelly Gillette, partner at Armanino LLP in Texas, said in an interview. "He believes that something has to give and that he believes the corporate rates are going to go up." AAPL mountain 2016-01-01 Apple Berkshire began buying Apple stock in 2016, and by mid-2018 the conglomerate accumulated 5% ownership of the iPhone maker, a stake that cost $36 billion. The bet, which now takes up 40% of Berkshire's entire equity portfolio, has earned Berkshire well over $100 billion. Many are already speculating that Buffett could continue to reduce the Apple stake. The 93-year-old investing guru told shareholders that Berkshire's total cash pile could even reach $200 billion by June, up from a record $189 billion in the first quarter.