A.I.M. Users Bulletin Board

[OldAIMGuy]

U.S. taxpayers,

As we sit and wait for the market to start to look better I was
contemplating taxes here in the U.S. Have any of you ever looked
at the tax cost penalty of Short Term Trading because of the
elevated taxes? We attempt to do everything we can to get our
trade costs down to a minimum - such as reduced commissions,
etc. but one side benefit of long term investing (and with AIM
trading) is that we reduce our tax burden on gains tremendously.

If we were to invest $10,000 in the market and trade it out in
less than 12 months (an eternity for a ST Trader) here's what
we'd be paying.......

 
 Short Term Event 
 $10,000 invested with purchase 
      15 Commission 
 $10,015 Total Cost 
 ------------------ 
 $13,000 received upon sale 
      15 Commission 
 $12,985 net receipt  
 ------------------ 
 $12,985 
 (10,015) 
 ________ 
 $ 2,970 Gross Profit 
 $   891 Cap. Gain Tax at 30% (short term estimate) 
 _______ 
 $ 2,079 Net After Tax Profit for Short Term Gain 
 --------------------------------------- 
  
 Long Term Event 
 All Same through Gross Profit 
  
 $ 2,970 Gross Profit 
 $   594 Cap. Gain Tax at 20% (current LT rate) 
 _______ 
 $ 2,376 Net After Tax Profit for Long Term Gain 
 

So, if we develop and implement a strategy that gives us
primarily Short Term Capital Gain events, we here in the U.S.
pay in this example, $297 penalty. Looking at it from a return
on investment basis, it represents an increase of 14.3% if we
can use Long Term Capital Gain rates instead of short term. This
makes the difference between one brokerage's commission and
another's seem trivial.

The size of the trade makes no difference to the tax rates, so
this is true if you are a big investor or a small one.

Now, how many of you would be willing to pay that much more for
commissions? I think we know the answer. So, does using a
strategy like AIM, which in conjunction with
First In, First Out accounting, make a difference over a
shorter term strategy? Yes. A short term strategy has to work
all that much harder to make the same net gain.

Over the years I've found that usually over 90% of my
transactions qualify as Long Term Capital Gain events. This
makes AIM a very tax efficient strategy.

Best regards,
[e-mail]