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.