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persfin-digest        Sunday, December 19 1999        Volume 05 : Number 113



In this issue of the Personal Finance Digest:

       AVOID ESTATE TAXES
       Hiding capital gains
       Re: "Hiding" capital gains
       Re: Sell Mutual funds before or after distributions?
       Re: "Hiding" capital gains
       Credit Card Offer
       Dividends and P/E Ratios
       Sale of Mututal Funds
       HIDE CAPITAL GAINS
       Checking out online travel agents

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Date: Sat, 18 Dec 1999 12:08:43 -0500
From: BOB FORD <[e-mail]>
Subject: AVOID ESTATE TAXES

I recently read an article on avoiding
estate taxes.  It suggested creating a
note (IOU)  to your children as a way
to avoid estate taxes.  For example
if your estate was $1,000,000 it said
that you could create a note to your
children that was payable on your
death.  If you had two children the
note could be for $500,000. It is claimed
that would make the value of your
estate Zero.

Anyone know if this will work?

BOB FORD
[e-mail]

- -

------------------------------

Date: Sat, 18 Dec 1999 09:59:49 -0800 (PST)
From: Brian Gordon <[e-mail]>
Subject: Hiding capital gains

> Date: Fri, 17 Dec 1999 15:43:30 -0700
> From: Jeff Salisbury <[e-mail]>
> Subject: Re: "Hiding" capital gains
>
> Brian Gordon wrote:
> >
> > I have a "happiness problem" -- humongous gains from ESO stock after IPO -- but
> > I can't stand the idea of giving up 40% of it to taxes.  A financial advisor
> > has just suggested I bury it in Oil Exploration/Drilling, with an outfit that
> > has a good track record, so that almost all of it it a tax deduction which is
> > never recovered.  Too good to be true?  More complex than I understand?
> >
>
> Brian,
>
> It isn't clear to me what your advisor is recommending -- Is he
> suggesting you sell some other holding you have that is a loser and
> offseting your gain with the loss?  Or, is he suggesting that you buy a
> limited partnership so you can offset the gain you have with the
> operating losses of the limited partnership?
>
> Jeff

The latter -- make the oil drilling investment with profit and have that almost
completely offset by depreciation and expenses in the first year.

- -

------------------------------

Date: Sat, 18 Dec 1999 16:09:01 -0500
From: Rich Carreiro <[e-mail]>
Subject: Re: "Hiding" capital gains

>
>I have a "happiness problem" -- humongous gains from ESO stock after IPO -- but
>I can't stand the idea of giving up 40% of it to taxes.  A financial advisor
>has just suggested I bury it in Oil Exploration/Drilling, with an outfit that
>has a good track record, so that almost all of it it a tax deduction which is
>never recovered.  Too good to be true?  More complex than I understand?

You really need to be careful with these.

First, with the change in tax laws in 1986 and the institution of the
"passive income" and "passive loss" rules, much of the utility of
those types of tax shelters disappeared.

Second, many of these things are just out-and-out scams.

Third, not only are some of them scams, but some of them are so-called
"abusive tax shelters" and may well get you in trouble with the IRS
if you get involved with them.

Fourth, they can be very complicated.

My recommendations are, FWIW:
* Demand that your advisor disclose what sort of commissions that you would
  be paying him to get into this thing and also demand that he tell you what
  (if any) remuneration he is receiving from the tax shelter outfit.

* Consult with a tax professional (preferably an EA or a CPA who primarily
  does taxes (as opposed to one who primarily does bookkeeping/accounting)
  and have them do some research on the specific tax shelter outfit your
  advisor is trying to sell you.

Rich Carreiro                            [e-mail]

- -

------------------------------

Date: Sat, 18 Dec 1999 16:11:29 -0500
From: Rich Carreiro <[e-mail]>
Subject: Re: Sell Mutual funds before or after distributions?

>I've been invested in a mutual fund for about 3 years, making monthly
>contributions.  The performance has been average at best so I decided
>to liquidate the account and invest in something else.  They were
>scheduled to make distributions on 12/16, so I sold everything on
>12/15, since they were going to make significant dividend and short-term
>capital gains distributions.  When I called the company, they were
>very emphatic on stating that I would not receive the coming
>distributions, almost making it sound like I was going to lose out on
>a great windfall.

You did the right thing, IMHO.  Remember that the distribution amount
was built into the NAV of the fund.  Since you were holding the shares
long-term, you got long-term rates on it.  If you had sold after the
distribution, the NAV would have fallen by the amount of the
distribution and you would have received some of that chunk of NAV in
the form of dividends (and the rest in long-term gains).  In other
words, selling after the distribution would have turned some of your
long-term gains into ordinary income.  So your logic was fine and you
were right on the ball.

Rich Carreiro                            [e-mail]


- -

------------------------------

Date: Sat, 18 Dec 1999 09:44:26 -0800 (PST)
From: Brian Gordon <[e-mail]>
Subject: Re: "Hiding" capital gains

> Date: Fri, 17 Dec 1999 15:43:30 -0700
> From: Jeff Salisbury <[e-mail]>
> Subject: Re: "Hiding" capital gains
>
> Brian Gordon wrote:
> >
> > I have a "happiness problem" -- humongous gains from ESO stock after IPO -- but
> > I can't stand the idea of giving up 40% of it to taxes.  A financial advisor
> > has just suggested I bury it in Oil Exploration/Drilling, with an outfit that
> > has a good track record, so that almost all of it it a tax deduction which is
> > never recovered.  Too good to be true?  More complex than I understand?
> >
>
> Brian,
>
> It isn't clear to me what your advisor is recommending -- Is he
> suggesting you sell some other holding you have that is a loser and
> offseting your gain with the loss?  Or, is he suggesting that you buy a
> limited partnership so you can offset the gain you have with the
> operating losses of the limited partnership?
>
> Jeff

The latter -- make the oil drilling investment with profit and have that almost
completely offset by depreciation and expenses in the first year.

- -

------------------------------

Date: Sun, 19 Dec 1999 10:19:43 -0500
From: Ira Krakow <[e-mail]>
Subject: Credit Card Offer

I received a credit card offer for a Platinum VISA card from Capital One =
Bank in Richmond Virginia.  The offer is "exclusively" for those people =
who celebrate their Polish heritage.  (I have no idea how these people =
figured out that I was in this category.)

Anyway, the offer sound intriguing because they would not charge any =
interest until July, 2000 on new purchases, and then go to 9.9% after =
that.  Now, I normally pay my entire credit card balance in full at the =
end of each month because I'm allergic to credit card debt.  The offer =
of no interest also appeared to apply to balance transfers.  So I was =
thinking that maybe I should generate a balance (like maybe writing a =
bunch of checks against another credit card that I have where the =
company always sends me blank checks), depositing it into a money market =
account, and then transferring all of this to this Polish Heritage Visa =
Account.

Anyone see any problems with this strategy?  Or do you think it's too =
much hassle?

Ira


__________________________________________________
Do You Yahoo!?
Thousands of Stores.  Millions of Products.  All in one place.
Yahoo! Shopping: http://shopping.yahoo.com

- -

------------------------------

Date: Sun, 19 Dec 1999 10:14:17 -0500
From: "Peter Diamond" <[e-mail]>
Subject: Dividends and P/E Ratios

Ira,
(I will preface this by saying, most of my individual stock investments are
tech-based.  Also, I am young and these are long-term investments.)
Personally, I do not pay much attention to dividends, P/E and other
fundamentals.
The individual stocks I buy are of companies I believe in.  Companies in
industries I understand that I think have a good long-term growth potential.
I have looked at some more "traditional" companies, and I do think you must
consider fundamentals, but there are some questions you should ask of any
company.  Are sales and profits increasing?  How does the company compare to
its peers?  You ignore these questions at your own risk.
For me, the bottom line is, will this company be worth more in the future?
The answer needs to be yes, either because the company has a solid track
record of growth, or because they are in a growing industry where the
potential for growth is high, even if the stock appears fundamentally
overpriced right now.

Peter


- -

------------------------------

Date: Sun, 19 Dec 1999 10:17:10 -0500
From: "Peter Diamond" <[e-mail]>
Subject: Sale of Mututal Funds

Juan,
You did the right thing.  If you sold right after the distribution, you
would have received the same amount of money since you would just be selling
more shares at a lower price.
The big difference is that now all of your gain is a long term capital gain
taxed at 20%.  If you sold after the distribution, your monetary gain would
be the same, but some of it would become a short term gain taxed at your
ordinary tax rate.
This situation is the inverse of "don't buy the dividend".  You don't want
to buy a fund right before the distribution because you will not get any
monetary gain, but you will get a tax bill for something you only owned for
a few days.

Peter



- -

------------------------------

Date: Sun, 19 Dec 1999 10:56:35 -0500
From: BOB FORD <[e-mail]>
Subject: HIDE CAPITAL GAINS

I am not a tax pro but I don't think it is
possible to hide any Capital Gains.
It is my understanding that if you sell
a capital asset at a profit, it must be
reported on your income tax and
there are no exceptions.  You must
also report capital losses.  =


Someone let me know if that  is
incorrect.

BOB FORD
[e-mail] =


- -

------------------------------

Date: Sun, 19 Dec 1999 20:04:32 -0600
From: Jerry Derfler <[e-mail]>
Subject: Checking out online travel agents

My wife and I plan to travel to Great Britain next September and have
found several on line ticketing agents that can save us several hundred
dollars per ticket. Besides the obvious questions listed below, are
there other ways to protect ourselves before we order these tickets?

How long in business?
Who are the officers of company?
Street address of business?
Date time hours of business where personal contact can be made?
What travel associations do they belong to and for how long?
Non 800 telephone numbers?
Who governs there fair practices - city, county, state attorney or
whom?
Tax payer ID number?

Thanks in advance,

Jerry Derfler
Topeka, KS

- -

------------------------------

End of persfin-digest V5 #113
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