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recharacterizing gain from short-term to long-term increases tax, what to do! removeps-groups@yahoo.com 04-07-2008
Posted by Barry Margolin on April 7, 2008, 10:17 pm
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> "Barry Margolin" wrote:
>
> > I vaguely recall that when I used to do my taxes by hand (about 25 years
> > ago, before Macintax) that you could actually choose whether to use the
> > tax table or calculate the percentage exactly. Am I misremembering? Is
> > this still allowed?
>
> I have the same recollection of back when the earth was cooling. However
> under current law you must use the Tax Tables if taxable income is less than
> $100,000..

Too bad.

Anyway, going back to my earlier point about the fact that it's a crap
shoot, the likelihood that you'll be screwed by the tax table is
inversely proportional to the amount you'll be screwed. If the check
had been $1, there's a 98% chance of staying in the same $50 range, but
the difference between income and capital gain tax on that $1 would only
be about a dime.

--
Barry Margolin, barmar@alum.mit.edu
Arlington, MA
*** PLEASE don't copy me on replies, I'll read them in the group ***

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Posted by removeps-groups@yahoo.com on April 8, 2008, 12:23 pm
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> Anyway, going back to my earlier point about the fact that it's a crap
> shoot, the likelihood that you'll be screwed by the tax table is
> inversely proportional to the amount you'll be screwed. If the check
> had been $1, there's a 98% chance of staying in the same $50 range, but
> the difference between income and capital gain tax on that $1 would only
> be about a dime.

Yes, you make a good point. In any case, the $0.10 would be rounded
down to $0.

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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<< Copyright (2007) - All rights reserved. >>
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Posted by removeps-groups@yahoo.com on April 27, 2008, 8:08 pm
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On Apr 7, 1:17 pm, "removeps-gro...@yahoo.com" <removeps-
gro...@yahoo.com> wrote:

> Then I decided to calculate the exact numbers, hoping it would reduce
> tax. The cost basis was $14 and the purchase date many years ago, so
> the net gain waslong termof 35-14=21. But the tax increased!
>
> It seems the reason for this is the rounding of taxes under 100k.
> Consider by example:

I just remembered, one can elect to treat long term capital gains as
short term. Is this true in general, or only for the purpose of
increasing the investment interest deduction (ie. maximum allowsable
investment interest deduction is the sum of interest, ordinary
dividends, short term gains - hope I wrote the rule right).

http://www.taxalmanac.org/index.php/Sec._163._Interest

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Arthur Kamlet on April 27, 2008, 8:21 pm
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>On Apr 7, 1:17 pm, "removeps-gro...@yahoo.com" <removeps-
>gro...@yahoo.com> wrote:
>
>> Then I decided to calculate the exact numbers, hoping it would reduce
>> tax. The cost basis was $14 and the purchase date many years ago, so
>> the net gain waslong termof 35-14=21. But the tax increased!
>>
>> It seems the reason for this is the rounding of taxes under 100k.
>> Consider by example:
>
>I just remembered, one can elect to treat long term capital gains as
>short term. Is this true in general, or only for the purpose of
>increasing the investment interest deduction (ie. maximum allowsable
>investment interest deduction is the sum of interest, ordinary
>dividends, short term gains - hope I wrote the rule right).
>
>http://www.taxalmanac.org/index.php/Sec._163._Interest


I see no obstacle to foregoing long term rates in favor of
short term rates, but I am not convinced from your example
that it is needed here. See my other message on the
qualified dividend and capital gain workseet lines 18 and 19.
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
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Posted by Arthur Kamlet on April 27, 2008, 8:19 pm
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>I ran into a strange problem. There was a spin off, and about $35 was
>received for cash in lieu. Being lazy to look up the original
>purchase date and calculate the cost basis for the fractional number
>of shares, I just entered the purchase date as the date of the split
>and the cost basis as zero, for a net short term gain of $35.
>
>Then I decided to calculate the exact numbers, hoping it would reduce
>tax. The cost basis was $14 and the purchase date many years ago, so
>the net gain was long term of 35-14=21. But the tax increased!
>
>It seems the reason for this is the rounding of taxes under 100k.
>Consider by example:
>
>- For single filer, 50000 to 50050 has tax of 8930
>- Suppose taxable income is 50050 with the $35 included in short term
>gains
>- Tax is 8930
>- Now remove $35 for short term gain and add $21 to long germ gains
>- Short term tax is still 8930
>- Add long term tax of 21*0.15 = $3 rounded
>
>And to make matters worse, in the lazy approach, the cost basis for
>the shares when you eventually sell them would be X. But in the exact
>approach, the cost basis would be X-14, thereby increasing your tax by
>14*0.15 = $2 rounded.
>
>Is there anything that can be done about this?


See lines 18 & 19 of the Qualified Dividends and Capital Gains
Worksheet on page 35 of the Form 1040 instructions.


Line 18 asks you to figure the tax on your taxable income without
taking into account any special lower rates. Line 19 asks you to
choose the lower of line 18 or your tax calculated with the lower
tax rate applied.
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

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