[SK in CV]

[quote=Allan from Fallbrook]
CAR: Except that a vote for Obama does nothing to change the status quo ante. You’ll recall that in 2008, Obama received the lion’s share of Wall Street donations (more than any presidential candidate in history, if I recall correctly) and since his election has done virtually nothing to hold those responsible for the financial meltdown accountable, let alone bring them to justice. If anything, things are largely the way they were before, in spite of Frank-Dodd and all of the promises to “clean up Wall Street”.

While Romney was not my cup of tea, he certainly wasn’t the mustache twirling plutocratic villain the Obama campaign made him out to be. If anything, the GOP and the Dems are aligned closely, fiscally-speaking. Yeah, there are differences on social issues, but when it comes to major policies on defense, spending, entitlements, etc, they’re more alike than different.

Wall Street is still pulling their shit, subprime is back (you didn’t think those inflated auto sales had anything to do with well qualified buyers, did you?) and it seems like everyone in power is hoping that the great mass of Americans will simply forget and move on, rather than demand action.

I don’t think this election represented some massive electoral movement from the populace, nor was it a collective call to action. People either don’t give a shit, are too ignorant to give a shit, or are simply looking to get over on Mommy Gubment and keep the gravy train rolling.[/quote]

Done nothing to change the status quo is an exaggeration. (or reverse exaggeration?) I haven’t checked lately, but I’m pretty sure wall street did a complete turn around on who they liked better this election. He hasn’t been near as tough on wall street as many hoped he would be. He’s been pretty much exactly who I thought he was in that regard, even though I had also hoped for more.

Dodd Frank, as minimal as it is, is something Wall Street doesn’t like. Those fuckers will whine about anything. I have little expectations of any improvement. But DF won’t be repealed, which is something Romney wanted.

[SK in CV]

[quote=flu]

Thanks SK for your input. I think the extra medicare tax I end up paying according to some prelim estimates will be about $2000, but I think it’s a wash (no pun intended) because what I could end up reporting as expenses would go more than that.

Also, maybe I’m wrong, but I don’t think I would be subject to self-employment tax, right? I think since I am still full time employed by my W2 employer, they’ve already paid for SS taxes, so I would not need to pay additional self-employment tax on top of that…?[/quote]

Correct, no SS portion of the SE tax if your w-2 is already over the SS wage limit. Just medicare, and bonus medicare when earned income goes over $250K. I think that’s .9%.

Also as a bonus, you get to deduct above the line what would otherwise be investment interest expense below the line if you buy anything on margin.

[SK in CV]

First, with that kind of volume, you meet the requirements, if you jump through the hoops. I think beyond making a timely election, you have to create (or at least act as if you have created) a separate day trading entity. I know some people create LLC’s for the purpose though I don’t think it’s essential. (I could be wrong on that.)

Yes on the retirement plan contributions, though I’m not sure of the current max dollar limits, but you are correct, they are inclusive of other plan contributions from your w-2 employer.

Keep in mind that you will have to pay extra, at very least for medicare tax, and dependent on your income, extra bonus medicare tax on earnings that will in part offset the extra deductions. And you lose the 60/40 LT/ST split for options/futures/forex net gains.

When your 2012 tax return is finished, re-compute as if you had made the election, and see if it works.

[SK in CV]

[quote=flu][quote=SK in CV]Not terribly difficult, and it’s unrelated to having a full time job. Just have to follow the rules. There’s a firm that specializes in setting them up, http://www.tradersaccounting.com. I’ve heard mixed reviews.

Why exactly would you want to?[/quote]

Well, I was talking to 2 cpas this week, and looking at my trading history for the years, they indicated it *might* be possible for me to reclassified as a “trader” for the purpose of 475(f)….

However, they did warn me about the risks too. I was doing some research on it, and trying to figure out if I would meet the litmus test..

I was thinking being otherwise full time employed as a software geek might be an issue.

From the perspective of trading volume, frequency, duration, amount, and percentage of realized income versus everything else of income, I would probably be ok, at least based on what others have written about it…

I don’t have the proper structure setup (obviously not yet).

Basically, I think I would be better off if I could report all my short term flips/etc on a schedule C versus schedule D.[/quote]

It’s not quite as simple as reporting flips on sched C. It also includes marking securities to market. You have some time. The election for 2013 has to be filed by 4/15 next year.

Are most of your trades stocks? Futures/options/forex get some favorable tax treatment as it is. Unless you spend a ton of money on investment expenses, I’m not sure what kind of tax savings you’d have by putting it all on a sched C.

[SK in CV]

Not terribly difficult, and it’s unrelated to having a full time job. Just have to follow the rules. There’s a firm that specializes in setting them up, http://www.tradersaccounting.com. I’ve heard mixed reviews.

Why exactly would you want to?

[SK in CV]

[quote=Veritas]”Nothing terrifies investors or entrepreneurs as much as the concept of expropriation. When governments decide to expropriate legally obtained assets, entrepreneurs who worked tirelessly to build businesses and investors who risked scarce capital end up with little to nothing for their troubles.”

http://allthingsd.com/20121204/what-proposition-30-means-for-californias-entrepreneurs/%5B/quote%5D

That might be the most hyperbolic silliness I have ever read.

[SK in CV]

[quote=no_such_reality]

Individual tax rates changes the investor’s perceived value of the company retaining those earnings on assets.[/quote]

If the higher individual tax rate on dividends occurs, it will be more cost effective to retain the earnings in the future.

[quote=no_such_reality]By accelerating disbursements, management is essentially agreeing with the lower value.[/quote]

I think accelerating the dividends beyond a few quarters acknowledges that these companies have retained more than was needed for operations and current expansion plans. It says nothing about the future. As noted, because the rates at the individual level are anticipated to be higher for dividends than capital gains, in the future retention of the earnings may be the more effective strategy.

[quote=no_such_reality]Management is admitting that their planned growth from the additional asset (cash) investment will be worth less to the investor in year than having the cash today.[/quote]

I dont think any such claim can be made about the future. Dividends may be worth more to the investor today than a year from now, but solely based on the tax considerations, the value of cash availability to the company is unlikely to change. It’s an acknowledgment, at most, of a lack of concern for shareholders in the past.

The acceleration of the dividends is a pure tax play for stockholders.

[SK in CV]

[quote=dumbrenter]
I get what you are saying but you are saying two different things:
1. the company RoA estimate is such that they do not think they can beat the increase in tax rates in dividends, hence figure it is better to return shareholder money.
[/quote]

This is kinda what I thought he meant. Hopefully he didn’t. It makes no sense. Individual tax rates have no bearing on a corporation’s internal rate of return.

[SK in CV]

[quote=no_such_reality]No, I’m saying the companies are choosing to pay out now because they estimate that their investors will get less in the future even after they grow it at their rate of return.

So the companies are saying it’s better to give the money to investors today at 15% dividend rates, than invest it and provide a capital gain which will likely be taxed at 20% next year.

In essence, if they’re just going to hold the money to pay a dividend in the future, that future dividend could be taxed at up to 43.4% plus State Taxes.

Which all just boils down to they can’t productively use their available capital.

For example: Let’s say Oracle has $10,000 in dividends they’re prematurely divesting. If they didn’t divest them, they would managing them as an asset. Oracle’s Return on Assets is 11% (let’s call it 10% for easy math). That $10,000 invested by Oracle at their current return on asset rates would generate $1000 of earnings. At Oracle’s current 16 P/E ratio, the $1000 of earning’s is work $16,000 of market cap gain, which is $16,000 stock value.

So $10000 given to you today at 15% tax means you get $8500 and Oracle says that’s better than paying 20% tax on $16,000 of their current return on asset (which is $12,800) or if distributed as future dividends at max tax rate (43.4%), $9056.

So it’s either a knee jerk reaction by petulant CEOs and boards or those companies doing it basically are saying they can’t maintain their return on assets going forward by investing more.[/quote]

I think you misread it a bit. Since corporate tax rates have not yet changed, nor are are there any serious talks of them changing (at least their not near as imminent as individual rate hikes are), the internal rate of return for the companies won’t be changing. What these dividends tell me is that these companies that are declaring special dividends (Costco for sure, Oracle maybe) have been sitting on way too much cash, without anything good to do with it. We’ve had these low individual tax rates on dividends for 10 years. If they can do it now, they could have been doing it for years.

For those that are simply accelerating 2013 Q1 dividends into 2012, I don’t think it’s indicative of anything other than logical tax planning. Pay out a January dividend a few days early. No tax ramifications for the company, possible ramifications for some of the stockholders. They have to pay the taxes a year sooner, with a possible lower tax rate. No biggie.

[SK in CV]

[quote=bobby]he is saying that the recipients/shareholders are getting less money even though the company is paying out more. This is due to the taxman taking a larger portion of the payout.[/quote]

Ok. That makes sense. Though I have no idea how you got that from what he said.

[SK in CV]

[quote=no_such_reality]
People need to really pay attention, because all the companies doing this are openly admitting that they cannot provide a greater return on that money than marginal tax increase.[/quote]

Huh? I think you’re saying something. I have no idea what it is. This makes no sense.

[SK in CV]

[quote=flu]Wow… 170 total companies and counting….

You know you got some serious policy issue once you start seeing these things..

What’s gonna be really interesting is to see what happens when these fiscal cliff things kick in.

Me thinks we’re gonna have a bigger correction.. Folks in higher income brackets are gonna be pulling out this year…

Meanwhile, so what if these tax cuts are extended to middle class. If they stay invested during this time, me thinks their investments are gonna go south anyway. (And you know, you’re gonna have people that just do nothing all the way until jan 2013)…

And when the markets tank, oh boy that’s definitely gonna put a damper on the economy…

Anyway, that’s my prediction. And I’m putting my money where my mouth is. I’ve never went to a significant short term money market position in retirement and post tax accounts before… I’m about 68% now.[/quote]

I think what the dividend accelerating thing will do is greatly increase government collections. Taxes on these dividends are all gonna be due by 4/15/13. Instead of at least a year later, or in some cases years and years later. (Costco is paying the equiv of 6 years dividends at once.) It could even be big enough to have a material effect on the annual budget.

We’ve been through these changes before, with big claims of how it was going to affect the market. It rarely does. It shouldn’t. Huge changes to tax treatment of real estate investments almost 30 years ago didn’t kill real estate, contrary to pedictions. Taxes on dividends will be higher for a small number of taxpayers. But that doesn’t, by itself, create some alternate investment opportunity that is now better than investing for dividends, when it wasn’t before. It doesn’t make real estate substantially better looking. It doesn’t make bonds suddenly better looking. If the lower taxes were the only reason for buying dividend paying stocks, then the difference between alternative investments was slight at best.

[SK in CV]

Costco is paying a $7 dividend before year end, compared to about $1 over the last 12 months. Around $7 billion. They’re borrowing half of it.

There’s been some talk of Apple doing the same thing. They could pay a $50 billion dividend without flinching. Doubt it will happen. Too much institutional ownership that doesn’t give a shit.

[SK in CV]

[quote=zk]I don’t find this article convincing at all.

While I agree that a young adult might learn more “out in the world” than at college, I’m not convinced that their job and financial prospects aren’t better if they go to college.

For every Gates, Dell, or Zuckerberg there are a thousand Vincent Chus. Never heard of Vincent Chu? Of course not. He and thousands of other “mavericks” dropped out of or never went to college, and never hit it big with an app or anything else. Now they work at The Gap to pay the bills, and they’re hoping to get into management some day.

Plus it’s a great place to meet chicks.[/quote]

I agree with this. College isn’t for everyone, but it’s almost always better to have that degree than not have it.

Back in the old days, when I was in college, I had a friend who started and then dropped out. He had a part time job delivering lost luggage at the airport. Made tips and a little more than min wage. Then the guy who owned the company got busted for stealing shit out of the suitcases and the guy at the airport who was in charge of the operation offered him the contract because he was the 2nd in command. He was pretty rich compared to the rest of us. was 20 years old and making probably $22K a year plus tips. Owned a couple vans, had employees. Paid his own rent, funded his IRA every year, bought a porsche (ok, it was a 914, but it still said porsche on the insignia).

Ten years later, Charlie was still making $22K a year, had 3 van payments to make and was stressed beyond belief. Expenses went up and he had to withdraw his IRA money just to make ends meet. He was working 50+ hours a week and no time to meet any women. He wanted to do something else but didn’t have any experience. and no degree. At 32, he caught some weird virus and died.

Times might be a little different now. But not that different.

[SK in CV]

[quote=ctr70]Another thing for those high income earners who have portable businesses looking to move out of the state of CA to avoid the state income tax, is the cumulative effect of paying a state income tax. If you pay $30k a year in state income taxes, that is $300k over 10 yrs. And you invested that $30k saved every year on a down payment on a cash flow rental or a trust deed, you would have more like $500k+ over 10 yrs. So you are losing $500k over 10 yrs for staying in CA![/quote]

Just to add some perspective to this, for a married couple to pay $30K in taxes, their taxable income would have to be about $365K a year.

[Author]

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