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Rgreen@greencompany.com greencompany.com I believe that communications companies are great long term investments and they are leading the way into the new paradigm, the "Internet Age", which is replacing the "Industrial Age." As all communications investors know well, these stocks have mostly gone up in share price, but share prices are subject to volatility, earnings surprises and quick sell-offs. Asian flu could just be a symptom for worldwide restructuring needed to complete the convergence to the "Internet Age." Communications stocks will do well in the new paradigm, but they could be sold-off during a painful restructuring of world markets. Many "investors" have transformed into "traders", because they have been forced to buy and sell the same or similar securities on a frequent basis due to volatile market conditions. We have established this thread to discuss tax issues for traders, because we feel most traders don't know that they are entitled to significant tax benefits for tax losses. I have noticed from reading many individual communications stock threads that many users appear to be "traders." Some of these traders have incurred "unrealized" tax losses at the end of calendar year 1997 from either being long or short stocks. Some messages have discussed tax treatment, but most messages state incomplete and incorrect information. Do you know that "Traders" can take unlimited losses, not just the $3,000 limit on capital losses and with the new tax act in 1997 they can even deduct "unrealized" tax losses at year-end. A "Trader", as opposed to an "Investor", is not limited to deducting $3,000 per year on their tax return and instead can deduct an unlimited amount of "realized" and "unrealized" trading losses against their ordinary income. As an example, if you have trading losses of $50,000 and other ordinary income of $150,000 (e.g. from full time employment wages or self-employment income), your net gross income is $100,000 as a trader, but it's $147,000 as an investor. As a trader, your taxable income is more than $47,000 less than as an investor (considering other haircuts on itemized deductions based on adjusted gross income). If your margin tax rates are 40% for federal and state, then your tax savings is approximately $19,000. Consider that you may have been holding stocks at December 31, 1997 with "unrealized" losses and you are holding those stocks looking for come back in their stock prices. You might be able to deduct those "unrealized" losses as a trader on your 1997 tax return. As Barron's wrote (in their December 8, 1997 article, "Who's a Trader"), "Securities traders, who get a better deal from Uncle Sam than mere investors (traders, unlike investors, get unlimited deductions for investment interest and other trading expenses) have just been awarded a world-class bonanza: From out of left field, and with remarkably little fanfare, the 1997 Taxpayer Relief Act gave traders the option of reporting on a mark-to-market basis-essentially to recognize gains and losses on securities held at the end of year as if they were sold on that day-an opportunity for major cuts in their tax bills." How to qualify as a "Trader", document that tax position and report it on your tax returns are the key questions and concerns. We are tax specialists and are experts in this area. If you are interested in learning more about the rules of being a trader send us an email to rgreen@greencompany.com Here is an example of a new client we just helped from these stock message boards. We helped them qualify as a trader in order to get the above-mentioned trader tax benefits. John Doe (real name is confidential) is a communications engineer working full-time at a communications company. John closely follows trends and developments in the communications markets. John has a self-directed Internet trading account with no involvement from a broker. John traded mostly communications stocks 40 times during the year, with each trade averaging $15,000 of proceeds. John's sale proceeds that were reported on his calendar year 1997 Form 1099 were $600,000. John exploited his knowledge of the communications industry as a communications professional to actively trade communications stocks. He had all the tools of a trading professional at home and at work using the Internet. John trades for the short-term, looking for quick price swings rather than long-term price appreciation. In prior years it was not as easy as it is now to qualify as a trader. Advances in the Internet, PC hardware and software, and on-line stock brokerage firms have made it easier to qualify. Please join in the thread to discuss tax benefits and rules for traders and investors. | ||||||||||||
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