Elizabeth,

You are quite correct, there are many other ways you can structure your trading so it is more tax effective.

As part of my studies in Australia, I'm doing a minor in Taxation.

As part of of my everyday life, I invest through three structures, all with differing tax treatments:

- Under my own name, on my personal account
- Through my company, at the company tax rate
- Through my self-managed superannuation fund, at the superannuation fund rate (also similar to a 401k)

I also think that Australia have some of the highest tax rates in the world. For example, with superannuation (401k, retirement benefits, etc), I think it's one of the only countries in the world that taxes contributions, income during the life of the fund, AND benefits that are paid out on retirement (although at a lower rate than the lowest personal tax rate).

So yes, you are quite right in pointing out that you can adopt more tax effective structures for your trading and investing. :)

Regards,

Thomas.

> Hi Thomas, very good reasons you give for
> long term investing. But, here are some of
> my arguments which might not apply to the
> majority of
> investors.

> I too am unfamiliar with US tax. I know a
> bit about Canada, although I should be more
> knowledgeable.

> In Canada, I know many 'home' traders don't
> do this. But I'm sure the heavy hitters do,
> which we only recently discovered. We can
> trade both stocks or options (no puts or
> shorts) within
> our RRSP (Registered Retirement Savings
> Plan), equivalent to the 401K in the US. So,
> as long as we don't withdraw any of our
> profits, and just
> keep reinvesting them, we won't be taxed
> until we retire or withdraw funds. And
> hopefully, when we retire, we'll need a lot
> less to live on
> and will just be taxed in the lowest tax
> bracket at that stage. So, this is one
> downside to our gains. In our case, it would
> be a shame to just let the money sit there
> for 25 years and do nothing.

> We also have another account for trading,
> which we use for our operating/living
> expenses. But, if you're operating as a
> Corporation, and depending on the kind of
> 'other' income streams you have, we end up
> paying very little tax on our gains, as we
> offset this by all the deductions and tax
> advantages we get by operating as a
> corporation. So, this scenario that you're
> describing, while it might be applicable for
> some, does not apply across the board, as
> you so rightly mention.

> If you're set up as a corporation, and this
> is your only income, you can choose to leave
> a large chunk of your profits in the
> company, pay the
> directors dividends, etc. etc. We have a CA
> who does our taxes and I really don't pay
> attention to this end of things. Enough
> other things to worry about. But I know a
> lot of traders who pay very little tax on
> their capital gains. But you can only
> achieve this by being set up as a corp.
> Perhaps they also use some creative
> accounting?? I don't know.

> I have a friend who is an IT contractor, set
> up as a corp. She has 3 kids, and several
> nieces and nephews. Through her corporation
> she is able to pay herself and hire her
> family to do several jobs to run her
> business. Last year she earned $150K, plus
> $10K in capital gains. She 'told me' that
> she paid $8,000 in taxes. I believe her
> because she is a good friend. Oh, I forgot
> to mention. In Canada, if we max out on our
> RRSP contributions, this further reduces our
> taxable income. So, with all these combined
> tax deductions, some of us can significantly
> reduce our taxes. But the tax system does
> appear to favour the middle income to
> wealthy.

> Regards,

> Eliz.