Subject: IC941219: Merry Xmas and Happy New Year

From: Gray Zhu <[email-masked]>

***** MERRY CHRISTMAS AND HAPPY NEW YEAR *****

==================    IC941219: Investment Club  ======================

1. More about TAXES .......................................... Gray Zhu
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   (be sure to read the Disclaimer in the end if you have not read)

TAXES:

There are two ways you can make money from investing in securities.
The first is dividend (stocks) and interest (bonds and preferred
stocks) received from investments owned. The second is profit on the
sale of investments owned. The first is called INVESTMENT INCOME, the
second is called CAPITAL GAINS.

Investment income is always taxes as if it is your additional salary.

There are two kinds of capital gains depending on the holding period.
The rule states that if securities are sold which have been held for a
period of twelve months or less, the profit realized is deemed
short-term capital gain an is taxable as ordinary income at either
15%, 28%, or 31% depending upon what bracket the investor winds up in.
If securities sold at a profit were held one day and twelve months, or
longer, that profit is deemed long-term capital gain and is also
taxable as ordinary income (like salary) with a maximum tax rate,
however, of 28%, even if the investor's bracket is over 31%.

DEDUCTIBILITY OF CAPITAL LOSSES: Capital losses that are realized
(sold long positions or covered short positions) may be deducted from
capital gains in the year in which those losses are realized. Net
short-term and long-term capital losses (capital gains minus capital
losses) are fully deductible from taxable income in the year in which
realized, with a maximum permitted annual of $3000. If the losses are
over $3000, Those losses may be carried over and used to off-set gains
in the next year and, if there are no gains, also be written of
against ordinary income at a rate of $3000 per year until they are
used up.

Interest income from investment in U.S. government bonds is tax
deductable in the state and local tax level, and interest income from
municipal bonds is exempt (mostly cases) from federal tax, and also
exempt from local tax if your own the local government issued bonds.

WASH SALE and TAX SWAP: Wash sale is a rule which says if a investor
sell a security to realize a loss for tax purpose and buy the same
security or derivatives of the security back in 30 days, the loss is
not tax deductable. However, if making a deduction can possibly lower
tax by one bracket and the investor likes to hold the stock of at
least a similar company, a TAX SWAP may be a good choice. A tax swap
differs from wash sale is not buying back the same security but a
similar one in the same catagory and they behave similarly. For
instance, sell CRYSLER to realize a loss, and buy GM.

TAX SHELTERS: You have probably seen the statistics somewhere that out
of 100 Americans reaching retirement age, 97% of them are not
financially self sufficient. The U.S. government realizes this is a
important social problem, and offered incentives for people to invest
for their future.

* IRA Plan: Invest $2000/year and the investment is tax deductible.
* KEOGH Plan: 25% of "self-employment earned income" or $30,000, 
  whichever is less.

There are other investments which can be used as tax shelters. One of
them is to invest in real estate, where you can take advantage of the
tax deduction on the depreciation and make money through the actual
appreciation of the property. If you have no plan to buy house by
yourself, buying real estate limited partnership unit, such as the
so-called REIT (Real Estate Investment Trust), may be a choice.
However, there is sometimes substantial risk involved in the real
estate limited partnership investments.

==========================================================================
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     ALL INVESTMENTS INVOLVE RISK, STUDY CAREFULLY BEFORE INVESTING.
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