Stock Market and the IRS: Insult to Injury

March 3, 2007 | By | 2 Replies More

I received a letter from the IRS this week. Apparently last spring (when my father died, my mother had a few operations, and other distractions abounded in my life) I forgot to fill out my Schedule D. This is the form that shows how much money I lose in the stock market each year.

Because I forgot to fill it out, they only had the gross proceeds of my stock sales to go on, so they sent me a bill for about $1,600.00 for the tax due on my losses!

Hello. My name is Dan. (Hi Dan). I invest in the stock market. In a good year, I break even. In 1999, I rolled my IRA into a steadily rising Index fund, based on Nasdaq! Maybe someday it will break even with money under the mattress. I bought into an iconic airline: TWA. They rolled over and played dead within a year. I invested in a major discount chain: K-Mart. Within months they re-organized the stock into wastepaper, and kept on going (with new stock). I recently invested in a mortgage lender with a steady history and good dividends. Their shares dropped to half their value within a week of my purchase. These are typical of stocks that I buy to hold.

Some people shouldn’t gamble, and apparently I’m one of them. I can never spot the sucker at the table.

Meanwhile, I get that letter demanding more money in tax than I’ve made in the stock market since the millennium. The letter gave many options for me pay them the full amount. There was one option way down the list to say that I didn’t completely agree with their charges, and to request an audit. Well, not exactly an audit, but a review. I hope.

So I filled out a Schedule D, worked out a spreadsheet resembling what they sent me detailing how this change propagated through the 1040, and added interest at the rate they were charging for the silly number. As it turned out, I did make money in 2005. I had a total Capital Gain of $38.95. The tax on this with interest was $57.08 or 147%. Unfortunately, my long term losses were offset by short term gains, so the tax actually comes to more than my net gain. Phooey.

If not for my omission, I might never have noticed how well my trading profits really benefit me, after taxes.

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Category: Consumerism, Economy

About the Author ()

A convoluted mind behind a curly face. A regular traveler, a science buff, and first generation American. Graying of hair, yet still verdant of mind. Lives in South St. Louis City. See his personal website for (too much) more.

Comments (2)

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  1. Ben says:

    Diversity is an important part of a portfolio. I am an amateur investor (like yourself apparently), so you may want to take my advice with a grain of salt. As far as I know, it is foolish to put more than 5-10 percent or so of your money into 1 stock OR index fund. This is where you went with the index fund, which is a good idea, but you probably want to make that index fund only about 5 percent of your portfolio at best. Here is what I would put (today)in my portfolio today for each 100 dollars.

    10 US Bank Bond

    5 German Bank Fund

    5 Yahoo.com (launching google-like search soon)

    10 Affiliated Computer Systems (owns ESRI http://www.esri.com )

    5 Microsoft

    10 European Stock Index

    5 Chevron

    5 IBM

    5 NYSE index (in hindsight 🙂 )

    10 General Petroleum Index Fund

    10 Edison (utilities)

    10 Berkshire Hathaway (warren buffet)

    5 General Electric

    5 Electronic Arts (Video Games)

  2. Ben says:

    Just curious to see how some of my picks did since march…

    Yahoo… down 25 percent, more like Yikes!

    ACS down 12 percent

    Microsoft up 25 percent

    Chevron up 35 percent

    IBM up 15 percent

    Petroleum up 15 percent

    Edison down 6 percent

    Berkshire Hathaway up 30 percent

    General Electric up 5 percent

    Electronic Arts up 13 percent

    Not too shabby in all… I guess I should have taken my own advice

    But the real winner was Apple, up 125 percent, which somehow was not on my list…

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