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Microcap & Penny Stocks : VLVT (was CSMA) -- Ignore unavailable to you. Want to Upgrade?

To: FTJoe who wrote (3510)	12/13/1997 2:25:00 PM
From: TraderGreg	Read Replies (3) \| Respond to of 11708

Another possible contribution to the decline--the cliche "Tax loss". Sure we throw that term around a lot and with some of the big caps people do it to get a tax benefit today rather than next year--a present value argument. But look at the tax benefits for some CSMA shareholders this year. Example 1--Bought 2000 sh CSMA @$6.00 earlier in the year and you are in the 31 % bracket(remember short term gains/losses are ordinary income/losses). You sold the stock last week for$.80. You did this because you have a slew of gains from other transactions and wish to reduce your gains by this additional loss. Thus, you now have $10,400 less taxable income to report (2000x($6.00-.80)=$10,400). Assume further you live in a state with an average tax rate of say 5 %. Your overall bracket becomes .31 + .05 - (.31)(.05) = .3445(The subtraction is to take into account that state income tax deductions on the Federal return will be reduced by the state tax savings) So, this $10,400 "loss" produces $3583 tax savings. You also have the $1,600 from the sale of the stock. You wait the obligatory 30 days before buying back. Now, get this point, for it is important. Unless the stock shoots up to $2.59 during that period, you can get your shares back and have cash left over. Or, looked at from another point of view, if the stock has risen to $1.50, you can still buy 3,455 shares of the stock and hold thru your anticipation of a rise in 1998. If it rises at all, you're way ahead of the person who didn't sell for the tax loss. Example 2--Bought 2000 shares @$2.00 and sold for $.80 for a tax savings of (.3445)(2000)(2.00-.80) = $827 plus the $1,600 from the sale gives you $2,427. Here, of course, the numbers are not as compelling. You would need to get back in at no more than $1.21 just to break even. The thing to keep in mind is that people who take tax losses in December can repeat can come out way ahead, depending on their tax bracket, loss, and level of appreciation the stock does during those crucial 30 days after the sale. While there were a lot of shares bought above $2, there was a healthy number bought above $5 early in the year also.Those people probably would not have sold a $6 stock at $.20 but as they saw the price rise and then pull back to say the $1 range, they might be cajoled by their tax advisor to take the tax savings, wait the 30 and come back in. Just one other explanation. I hadn't given it a lot of thought prior to today because more tax DEDUCTIONS is the least of my needs right now. TG