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John D. Thomason

 
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  • Seadrill Ltd. Collapses After Suspending Its Dividend [View article]
    Wow. Quite a few comments. If we could get a discussion going about MLPs in IRAs, we maybe could challenge Reel Ken for the comments record on SA!
    Nov 26, 2014. 03:49 PM | Likes Like |Link to Comment
  • Seadrill Ltd. Collapses After Suspending Its Dividend [View article]
    I took a small position in SDRL when it dipped below 25, added a little more below that. Of course, I knew it was high risk, but, like many others, I didn't expect a total suspension of the dividend, only at most 50% or so. The oil price collapse is obviously more serious than initially predicted. While I fault management for saying the dividend was safe for at least the near term, if things are that bad, I can't fault the decision. But why say the div was "safe". Better to have at least added a caveat, such as "pending no further deterioration", or some weasel wording. That's my real complaint.
    Nov 26, 2014. 03:44 PM | 4 Likes Like |Link to Comment
  • Stocks, Options, Taxes: Part IV - Wash Sales, Short Sales, Constructive Sale Rules [View article]
    Hi, Dave,

    Selling calls on a stock are another method of establishing a short position, since both benefit if the stock declines, so it could be construed as re-establishing your short position by selling the calls. You did not say how many shares were shorted and how many call contracts were sold, but to be equivalent, the number of shares originally shorted would have to be 100 times the number of calls sold. Only the equivalent number of shares re-established short would be at risk of being declared a wash sale loss. But how you would use the disallowed loss in figuring the gain / loss on the subsequent call sale position disposition is unclear to me. Whew! But at least you don't have a tax straddle, since both positions are on the same side of the market. Assuming this all occurred in the same account, it will be interesting to see how the brokerage year-end statement (1099 B) handles it. If all in the same account, I would just wait for the 1099B, & if not flagged as a wash loss, then don't worry about it. If it is flagged, then figure out how to use the loss. If the short & calls were in different accounts, you are back to the original dilemma. A safe way to handle it would be to assume the short loss is disallowed for as many shares as were effectively shorted by calls, and use the short loss when figuring gain / loss on the portion of call sales equivalent to the disallowed short loss. Good luck!

    John D. Thomason
    Nov 21, 2014. 08:29 AM | Likes Like |Link to Comment
  • Stocks, Options, Taxes: Part IV - Wash Sales, Short Sales, Constructive Sale Rules [View article]
    I'm not sure what your question is, but to reiterate the basic wash sale rule when you are long stock & you sell at a loss, think in terms of a 30 day "quiet period" that extends in BOTH directions (30 days prior to the sale, and 30 days after the sale) during which you cannot buy (or have bought, in the case of the prior 30 days) that same stock without triggering the wash sale dis-allowance of the loss. The intent of the rule is that since you re-established your position, nothing changed as far as your exposure, and you did not really have a loss, or at least it wasn't permanent. Also, keep in mind the loss adds to the basis of the re-established position, so the loss isn't "wasted" permanently, it will factor in when you disposed of the re-established position. All of this assumes equal numbers of shares in the sold and re-purchased positions, and none of the transactions occurred in retirement accounts, such as IRAs. You avoid all of this if more than 30 days separates the sale and re-purchase. But a lot can happen in 30 days, so re-establishing after 30 days at nearly the same price as the sale may not be possible.

    John D. Thomason
    Oct 23, 2014. 09:04 AM | Likes Like |Link to Comment
  • Stocks, Options, Taxes: Part IV - Wash Sales, Short Sales, Constructive Sale Rules [View article]
    Technically, if the short position closing purchase occurred within 30 days of the original loss, you have a wash sale in that you bought stock within 30 days of selling it at a loss. But in this case, it wasn't to re-establish a your position, but rather to close the short. Don't expect to find the answer in Publication 550. Although the specific scenario wasn't listed, this link below has some discussion of various convoluted situations, asking the same question as yourself:

    http://bit.ly/X0SlEz

    It is possible that the IRS would take the position that the original loss was a disallowed wash sale loss in this case, but also possible that you could make the case that the wash sale intent, at least, doesn't apply.

    One thing I have learned in this and many other areas of tax law, once you move past the basics, things get murkier and murkier, with definitive answers hard to come by.

    John D. Thomason
    Jul 27, 2014. 08:19 PM | 1 Like Like |Link to Comment
  • Stocks, Options, Taxes: Part IV - Wash Sales, Short Sales, Constructive Sale Rules [View article]
    Hi, OldTimr,

    It seems strange for me to address anyone by that salutation! Anyway, thanks for the kind words. I am doggedly pursuing tax knowledge, taking numerous classes and trying to upgrade my capabilities as a tax preparer. I continue to be amazed that these articles from year-end 2012 seem to be pretty much on-target. Frankly, what I was attempting to present was way beyond my pay grade - I just didn't know any better than to attempt the task. I do feel like I can explain things better than most of what I read, if I can just get to the point where I understand it myself. I plan further articles on tax topics when I progress to the point where I'm ready to do so. The US income tax law is just getting more and more complex with each change, unfortunately.

    Thanks again for your encouragement.

    John D. Thomason
    May 31, 2014. 10:37 PM | Likes Like |Link to Comment
  • Stocks, Options, Taxes: Part II - Dividends [View article]
    Update No. 2 - The qualified distinction did not "go away". The resource I had based that comment on was incorrect. All rules on holding period for dividends to be qualified are retained. Also, all rules on the payer, regarding qualified or no, are likewise retained. But the key feature, retention of the reduced rates for qualified dividends, is correct, as detailed above.

    John D. Thomason
    Apr 14, 2014. 08:05 AM | Likes Like |Link to Comment
  • Stocks, Options, Taxes: Part II - Dividends [View article]
    Hello, DavidBaird,

    Sorry about not getting back to you sooner, I have been busy preparing tax returns in my new occupation. None of the firms' websites provides any info, but based on the IRS definition of qualified dividends, I believe you are correct, they should be qualified. The IRS reference states: to be qualified, dividends must be paid by a US Corporation or a qualified foreign corporation, the latter being defined as meeting one of the following conditions:

    1. The corporation is incorporated in a U.S. possession.

    2. The corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the Treasury Department determines is satisfactory for this purpose and that includes an exchange of information program. For a list of those treaties, see Table 8-1.

    3. The corporation does not meet (1) or (2) above, but the stock for which the dividend is paid is readily tradable on an established securities market in the United States. See Readily tradable stock , later.

    Readily tradable stock. Any stock (such as common, ordinary, or preferred) or an American depositary receipt in respect of that stock is considered to satisfy requirement (3) under Qualified foreign corporation , if it is listed on a national securities exchange that is registered under section 6 of the Securities Exchange Act of 1934 or on the Nasdaq Stock Market. For a list of the exchanges that meet these requirements, see http://1.usa.gov/1sYtkoY.

    I think it is safe to say that the NYSE meets the exchange requirements. Plus, these stocks are based in countries (UK and Austrailia) that the US has tax treaties with.

    So, I would have to be shown (by Fidelity) why they reason that the dividends are not qualified. It seems to me they meet the requirement in more ways than one.

    John D. Thomason
    Apr 13, 2014. 11:07 PM | Likes Like |Link to Comment
  • Stocks, Options, Taxes: Part III - Capital Gains And Losses - Basics [View article]
    Attention All Readers: New Information Regarding 2013 Schedule D

    Schedule D has been updated for 2013 to allow an investor to bypass Form 8949 line-by-line reporting if all transactions were reported correctly on Form 1099-B, with basis reported to the IRS. This applies to both Part I (short-term) and Part II (long-term). The totals from the 1099-B are entered directly on Schedule D in this case. If the investor has multiple accounts, and some 1099-Bs are correct, and basis was reported, and some have errors, or transactions with basis not reported to the IRS, I would assume that the 1099-B totals would be entered on Schedule D for the correct 1099-B(s), and Form 8949 would be filled out for the transactions from the 1099-B(s) which had errors, or transactions without basis reported, and the summarized results from Form(s) 8949 would be entered on Schedule D in Parts I and II as in prior years.

    I will post this comment after the 2013 update article VII in the series as well, which focuses on 2013 changes.

    John D. Thomason
    Jan 31, 2014. 08:43 AM | Likes Like |Link to Comment
  • Stocks, Options, Taxes: Part VII - Update 2013 [View article]
    Attention All Readers: New Information Regarding 2013 Schedule D

    Schedule D has been updated for 2013 to allow an investor to bypass Form 8949 line-by-line reporting if all transactions were reported correctly on Form 1099-B, with basis reported to the IRS. This applies to both Part I (short-term) and Part II (long-term). The totals from the 1099-B are entered directly on Schedule D in this case. If the investor has multiple accounts, and some 1099-Bs are correct, and basis was reported, and some have errors, or transactions with basis not reported to the IRS, I would assume that the 1099-B totals would be entered on Schedule D for the correct 1099-B(s), and Form 8949 would be filled out for the transactions from the 1099-B(s) which had errors, or transactions without basis reported, and the summarized results from Form(s) 8949 would be entered on Schedule D in Parts I and II as in prior years.

    I will post this comment after the third article in the series as well, which focuses on Form 8949 and Schedule D.

    John D. Thomason
    Jan 31, 2014. 08:40 AM | Likes Like |Link to Comment
  • Stocks, Options, Taxes: Part VII - Update 2013 [View article]
    Thanks for commenting, nickbirnbaum,

    The tax series of articles was somewhat ambitious for a non-professional, but I did turn up a lot of excellent resources that kept me on track. Links to these are provided in the articles. I am continuing to study the topic, and I may write an article or two on IRAs, focusing on Required Minimum Distributions from traditional IRAs, and rules for inherited IRAs. Keeping investors from making mistakes here can be worth more than a bevy of great stock picks, since errors can lead to severe financial consequences.

    Thanks again.

    John D. Thomason
    Jan 22, 2014. 11:06 PM | Likes Like |Link to Comment
  • Should Investors Hold MLPs In Retirement Accounts? Another Perspective [View article]
    I just did a quick review of Publication 969 and Section 4975, prohibited transactions, and nothing jumps out at me to suggest that a HSA could not invest in units of a publicly traded MLP. Other than the fact that HSAs are much less common than IRAs and would likely be "under the radar", I'm wondering if there is any specific reason that has escaped my admittedly brief review that is driving your choice to invest in an MLP in your HSA?

    John D. Thomason
    Dec 18, 2013. 09:25 AM | Likes Like |Link to Comment
  • Stocks, Options, Taxes: Part VI - Options And Tax Straddles, Covered Calls [View article]
    Hi, wkirk500,

    Thanks for acknowledging the link. I'm probably not as cognizant of tax-advantaged investments as most since at this point most of my funds are in IRAs. Later on, when I start withdrawing & redepositing into taxable accounts, per Required Minimum Distributions (RMD), I will likely start paying more attention.

    John D. Thomason
    Dec 13, 2013. 09:40 AM | Likes Like |Link to Comment
  • Stocks, Options, Taxes: Part VI - Options And Tax Straddles, Covered Calls [View article]
    Update - ROC distributions from CEFs

    Apparently CEF ROC is treated just like a stock ROC. See link to Zack's article, which explains it very succinctly:

    http://bit.ly/18pLgBX

    John D. Thomason
    Dec 13, 2013. 09:03 AM | Likes Like |Link to Comment
  • Stocks, Options, Taxes: Part VII - Update 2013 [View article]
    Thanks for the encouragement. I have believed for some time that taxes are "the elephant in the room" affecting investment returns. Further, it is all too easy for the uninitiated to inadvertently enter into positions which trigger unexpected tax complications. As we have seen with the new form 8949, which was introduced in 2011, the IRS is going to be more, not less, focused on investor tax compliance in future years.

    John D. Thomason

    Dec 12, 2013. 12:32 PM | Likes Like |Link to Comment
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