Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Uncle Sam Is the World's Smartest Trader

Stock-Markets / Investing 2013 Nov 21, 2013 - 12:48 PM GMT

By: Money_Morning

Stock-Markets

Robert Hsu writes: It's interesting that an investor in the "communist" Peoples' Republic of China can make millions tax-free... while investors in the United States - the supposed bastion of free enterprise and capitalism - have to pay, in some cases, a near-50% tax on investment gains.

If trading and investing is all about weighing risk and reward, then the tax code itself makes Uncle Sam the ultimate trader. He gets a nice chunk of your reward, even as he avoids your risk.


Now, I don't mind having Uncle Sam as a silent partner, but like any good partner, he should stick around to help shoulder losses during bad times as well as participate in the good times.

Unfortunately, this isn't what happens....

"Heads I Win... Tails You Lose"

Currently, short-term capital gains get taxed as ordinary income.

But, short-term losses - above a miniscule $3,000 per year - are not deductible against ordinary income.

If you are going to tax trading gains as ordinary income, then shouldn't trading losses also be fully deductible against ordinary income as well? Logically, the answer is yes. But that's just not the reality here in the United States.

This situation is basically akin to Uncle Sam flipping a coin and saying, "Heads I win... tails you lose."

Just ask my friend Dan...

The Warren Buffett of China

My friend and money manager Dan Bin has been called the "Warren Buffett of China."

As you'd expect with a nickname like that, Shenzhen-based Dan has enjoyed great success by applying Buffet's methodology to Chinese stocks. Between 2005 and 2007, Dan made over $300 million investing in Chinese companies for his clients and himself.

I recall a conversation I had with Dan in 2007 regarding Buffet's buy-and-hold approach to stocks. At the time, we both saw the Chinese equity market topping, and I advised Dan to abandon his Buffett-like buy-and-hold methodology.

It certainly wasn't because of any flaws in Buffett's - or Dan's - strategy. It was because of the "Uncle Sam" factor.

Long-term buy-and-hold is Buffet's strategy to reduce tax liability - a problem not faced by China stock investors, or those in other major Asian markets. When Dan realized this, he was actually shocked by how high the capital gains tax in the United States is... and how this rigs the game in Uncle Sam's favor.

But what's a handicap for investors can be downright terrible for entire economies.

The Real Job-Killer

Now, because investing entails significant risk, this asymmetrical tax construct actually reduces investment in the country. And that hurts job creation and puts limits on economic growth. Basically, the unfairness of an asymmetrical tax regime makes investing less attractive.

And the worst part is investors have no choice...

You see, in this arena of low interest rates and high inflation, we have to put our money to work for us just to stand our ground. We must play this rigged game.

And, since we've no choice but to step in and play, it's absolutely vital that we fully reckon with the tax efficiency of our investing strategies.

Fortunately, this is where the sheer variety of securities available swings the game back in our favor.
Trade Smarter, Pay Less

One way to optimize your investing strategy so that it's as tax-efficient as possible is to own "pass-through" securities.

We've discussed pass-through entities such as master-limited partnerships (MLPs), real estate investment trusts (REITs), business development companies (BDCs), and private equity firms.

Because many of these partnerships own depreciable assets such as oil wells, buildings, and natural gas pipelines, much of the taxable income is reduced by depreciation.

The best part is that even though many of these assets actually appreciate in value over time... they can be depreciated for tax purposes.

These types of securities are structured to pass through most of their earnings to shareholders, or unitholders, in this case.

And unitholders get dividends - distributions - passed through directly, without Uncle Sam taking a big bite at the corporate level.

For income-oriented investors, these pass-through securities are a great way to swing the game back in their favor... and away from that ultimate trader, Uncle Sam.

Up Next:Turn the tables on Uncle Sam. Give yourself every possible tax advantage with these top-performing pass-through securities...

Source :http://moneymorning.com/2013/11/21/your-uncle-is-worlds-smartest-trader/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in