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Strategies & Market Trends : IRS, Tax related strategies--Traders -- Ignore unavailable to you. Want to Upgrade?

To: Tom_ who wrote (747)	3/5/1999 9:55:00 PM
From: Colin Cody	Respond to of 1383

Tom, You said: Thus, as a conclusion: the MTM election can be of value to a successful trader. It can be to his advantage to sell and re-buy his under-the-water stocks at perceived lows. Yes that is true, it "CAN" be so -- for ANY trader, a successful one or even a poor one. ALSO it makes the bookkeeping a lot easier since there are no "wash sales" to identify and account for in your trading portfolio. On the other side -- the MTM election in NOT a gimme that everyone should make without think about. It is IRREVOCABLE. It has MANY TAX EFFECTS and EACH PERSON must look at making this serious election based on his own situation, keeping in mind that he will likely be LOCKED into the decision forevermore! Colin traderstatus.com

To: Tom_ who wrote (747)	3/6/1999 2:56:00 PM
From: Nandu	Read Replies (2) \| Respond to of 1383

Maybe I am a fool, but I have to disagree with you and Colin: Your calculation is faulty. The $1000 gain the first year, and the $1000 gain the second year are both only on paper. They are not real. You save 400 on taxes the first year, but pay it the next. The only way you would gain is if your marginal tax rate declined the second year. You do gain one year's interest on the $400, though. Another thing. If you are a trader who don't hold positions long term, MTM is OK, but if you have long term positions, MTM may force you to pay taxes on your paper gains every year rather than when you finally sell. Not a good thing. An MTM trader is sitting on a $10,000 gain. He has withdrawn it from his trading account and put it in the bank. He's a California resident with a combined federal-state tax rate of 40%. Therefore $4,000 of the money in the bank is earmarked for tax payment. He buys 100 shares of XYZ at 100. It goes down. He sells at 90. He has a paper loss of $1000. But, since the $1000 loss offsets $1000 of his gains, he actually owes $400 less tax and so has a real life net gain of $400 in his bank account. He immediately buys 100 XYZ at 90. The stock goes up. He sells at 100. He has a $1000 gain, from his new 90 basis. He therefore owes $400 tax on it. He has netted another $600. In sum, he has netted $1000 on a stock that hasn't moved.