BC: MORE ON TAXES
With the permission of the 'sender' here
is a PM I received that clarifies some
ambiguities from the previous post ..
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Tuesday, Mar 28 2000 12:57PM ET
To: Triffin
From: jerry
Hi Triffin,
I like your articles in general, but this one had two significant errors that I thought should be brought to your (and your readers') attention. If you agree with me, feel free to post this on your thread.
The article starts off with an accurate comment, showing that you have a choice, as follows (emphasis added by me) :
" However, IRS spokesman Don Roberts notes the penalty is waived if you covered EITHER: 90 percent of your current year's tax liability through withholdings, OR: you covered 100 percent of your prior year's tax liability. "
Then they give this incorrect example:
"A very successful day trader who owed $50,000 on their 1999 taxes, for example, now needs to make estimated payments of $12,500 every quarter to cover himself for what he owed last year, and avoid the penalty," Whitlock said. "And what happens if he has a terrible year this year?"
This is NOT TRUE. According to their own words in their preceding paragraph above this one, this taxpayer has a CHOICE: if he has a "terrible year" this year, he only needs to make estimated payments based on 90% of his CURRENT year's earnings to date, and if he is actually losing money, he can make an estimated payment of ZERO. If he has a terrible year, he is NOT required to make the same payments as he did the previous year.
Choosing (and you DO have a choice!) to make estimated payments based on last years liability would only be recommended if your current year's earnings were THE SAME AS OR HIGHER than the previous year's. As long as you meet EITHER one of those two choices' conditions given by the IRS above, you get to choose the one that is most beneficial to you.
Next, here is another statement of theirs, which, to be clearer, should have mentioned that the loss limitation refers only to the 1040, not the Schedule D :
" At the same time, day traders, or active investors who fill out Schedule D for capital gains and losses, may be surprised by the relatively low cap on allowable deductions. That's because you can only claim as a loss the total amount you earned, plus an additional $3,000. "
Followed again by an erroneous, or at the very least, quite misleading, comment:
" Here's an example. Say you claimed $10,000 in capital gains this year, but recorded losses worth $60,000. The rules state you can completely offset your $10,000 with your losses, plus an additional $3,000 -- for a grand total of $13,000.
The remaining $57,000 in losses gets carried over to offset any future gains -- at a maximum of $3,000 a year, Whitlock said. "
This is NOT TRUE - the remaining $57000 in losses can be used IN FULL to offset up to $57000 in capital gains the very next year!
The $3000 limit they refer to is only a limit to the offset against your ORDINARY income, as reported on your 1040, and that's assuming that your losses are GREATER than your gains the next year. If your net gains the next year happen to be greater than $57000, you can use the entire $57000 of the previous year's loss to offset those gains.
Whitlock needs to read his IRS pamphlet again.
Although taxpayers are free, if they want, to give the IRS more money than they owe, I prefer to pay only what is legally required. :-))
Wouldn't it be nice if these "experts" would at least give us correct information, so we can accomplish this?
EOM ----------------------------------------------------- |
