Subject: IC941201: TAX QUESTIONS

From: Gray Zhu <[email-masked]>
Date: Thu, 1 Dec 1994 01:03:35 -0600

==================    IC941201: Investment Club  ======================

A. Tax questions
B. What if a security does not co-vary with the S&P? one more tax Q.
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A. Tax questions

> From: zheng@*****.edu>

Hi! Gray, This is the very 1st year I got into investing. And it's
going to be a bad year. My Japan and Asia mutual fund and some OTC
funds have all suffered. I would like to ask you,

1. If I do not sell them, can I claim capital loss in my tax return?
2. If I do sell some of them, is Nov.29 the last day to avoid wash sale?
3. Do I have to itemize my tax deductions to claim capital gain's loss?
4. My loss this years is already much more than the tax I need to pay,
   I estimate my tax to be $1,100. If I deduct my capital gain's loss to
   the $3,000 maximum, my tax would be like
   $1,100 - $3,000 = - $1,900
   do you think the government is to reimburse me the $1,900 on my tax
   return? 

=> Gray: 

1. no, the loss must be realized loss, i.e. closed positions.
2. no, my understanding is that it is a wash sale as long as you buy back 
   in 30 days. has no much to do with the end of the year. I believe the 
   rule applies to mutual funds also. Of course, if you close your position
   next year, I cannot claim capital loss this year.
3. probably, read the instruction for 1040??
4. you can deduct loss from gross income, not the tax. if your deduction is 
   over your gross income, you can roll $2000 loss over to next year.

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B. What if a security does not co-vary with the S&P?

From: stacc0@quantum
Subject: Re: IC941121: Lecture Series(5) - Risk and Return 

Two questions:
1. What if a security does not co-vary with the S&P? Will that
result a low beta but still the security has a high market risk?
2. I heard that short term capital loss is tax deductible, how
short is to be considered short?

Thanks to the experts in advance.

=> Gray:

1. I am not sure I understand what the question is. All stocks should be
   correlated to S&P 500 to some extend. Big stocks (large number of shares
   outstanding, higher priced) stocks seem to have higher correlation with
   S&P 500 than small stocks.

   If a stock has low beta, it has low market risk. However, risk is not
   limited to MARKET RISK, there are other risks as well, such as business
   risk, related to the company.

2. short term is less than a year, but both short term and long term capital
   loss are tax-deductable (reduce the gross income), up to $3000/year (?).
   However, long term capital gain have an upper limit tax rate (28%?) for 
   people whose tax bracket is above 28%. The newly elected Republicans 
   are heard to look to lower the 28%.

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