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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Larry Grzemkowski who wrote (41303)	4/2/2001 10:38:55 AM
From: Mathemagician	Read Replies (2) \| Respond to of 54805

Tax avoidance It has long been recognized in this forum that long-term capital gains rather than short-term capital gains is a major benefit of LTBH. However, we've also recognized that it is often advisable to adjust one's holdings periodically due to its perceived excessive valuation. However, a quandary arises when one wishes to adjust a position that has risen but has been held for under a year, as this incurs a short-term capital gain. This often paralyzing quandary has led to much stomach-churning, consternation and Monday morning quarterbacking, as well as some generally poor investment decisions. Perhaps if there is interest we can begin a discussion about strategies to assist one with this quandary. For example, suppose it's August 2001 and I want to sell a position which I've held since December 2000, due to high current valuation. However, I'm not sure if I should gamble on holding until December in order to take advantage of the favorable LTCG rate. One thing I could do is to sell a deep in-the-money covered call that expires in January 2002 with the intention of letting the position be called away. I receive the large premium immediately (most of the value of the position PLUS the time premium) and the rest in January 2002. There are many benefits to this. First, there is the benefit of adding the time premium to my profits. Second, I have reduced my tax burden by making the sale eligible for the LT rate rather than ST. Third, I receive an interest-free loan from the government. Why? Because second, profits for options sold are not realized for tax purposes until they expire. That means my holding period is now December 2000 to January 2002, and I am eligible for the long term rate. Moreover, even though I received most of the proceeds of the sale in August 2001, the taxes are for CY2002 and are not payable until April 15, 2003! I, for one, would be interested if anyone else has any other strategies for reducing their taxes paid (or comments on this one) without reducing their ability to adjust their positions in a timely fashion. M