Re: Question for investors, traders...and investment types (and for Michael Ross too!)

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.

> One reason you might favour long-term
> investing over trading is the tax treatment
> of the two, an area often overlooked by
> investors.

> As I'm unfamiliar with US Tax, I will
> illustrate with an Australian example. No
> doubt this will need to modified for US
> 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 a trader, you get taxed each year at your marginal tax rate.

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.