Capital Gainz - Newsletter #9
Capital Gainz Newsletter #9
January 13, 2000
Dave Cohen
AlleyCat Software
Web: http://www.alleycatsw.com
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In these newsletters, I'll provide useful hints and tips for
Capital Gainz. To make things easy for email, these
newsletters will be plain old ASCII text.
If you want to be removed from the mailing list, send me a
request via email.
All prior newsletters can be found on our Web site.
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Contents
1) Minor Upgrades
2) New 'Net Buy' Figure
3) Taxes and Selling Methods
4) Email Recommendations
5) Electronic Brokers
6) Tax Report - Schedule B
7) Tab Key
8) New Company?
9) Y2K
10) Search Engines
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1) Minor Upgrades
I periodically post minor Capital Gainz updates to our Web
site. By 'minor', I mean something like 6.0f to 6.0g. I
don't usually send out instant alerts, since these are
generally small changes. Exceptions are:
- I notify users who have explicitly noted a problem
or requested a feature that is addressed in the update.
- I send out mass email notification if the update
includes something major - such as the early 6.0 update
that added Internet price retrieval.
However, I do generally note significant additions or
fixes in this newsletter - for example, see topic #2 below
on the new 'Net Buy' figure.
The best thing about these minor updates is that they are
free for registered users of that version. Thus, if you
upgraded to version 6.0, you can download and install minor
updates such as 6.0b, 6.0c, 6.0f, etc at no cost. You don't
have to install all of them in order, either - if your first
6.0 upgrade was 6.0c, and the Web site currently lists 6.0g
as the current version, you can download and install it.
The only requirement to installing these minor upgrades is
to have your username/usercode handy, since it is called
for in the installation process. If your last purchase was
done electronically, you should have an electronic copy
of your invoice, containing your username/usercode for this
version, from the email confirmation we send out. The
username/usercode for a version, such as 6.0, is good for
all minor updates, such as 6.0g. I suggest stashing the file
containing this invoice in your Capital Gainz program
directory for future reference. If you lose it for some
reason, email me and I'll generate a copy and email it to
you.
We do charge for major upgrades, such as 4.0 to 5.0, or
5.1 to 5.2. A major upgrade is defined as one where the
number changes. Now, if we were a public company, I could
just give away all programs and upgrades at no cost, and
see my company stock go through the roof... (For those
who haven't noticed, many an Internet company has come out
with free service or free products and seen their market
value increase dramatically. I personally just don't get
it.)
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2) New 'Net Buy' Figure
Version 6.0h addsa Net Buy figure, representing the amount
of 'new' cash invested, to the Performance Report. This
value is calculated as:
Purchases - Sales - Distributions + Fees
For a stand-alone mutual fund with which you make direct
purchases, the figure for that security will indicate the
amount of new cash invested over the requested period.
However, if you have a cash account that all funds flow
through, then the new cash invested for the portfolio is
determined by the Net Buy figure for the portfolio total -
not for the cash account. For instance:
Add $1000 to CASH account
Buy $500 worth of stock XYZ
At this point:
CASH Net Buy = 1000 - 500 = 500
XYZ Net Buy = 500
Total Net Buy = 1000 + 500 - 500 = 1000
Given that Net Buy is fresh cash added, then adding Net Buy
to the calculated Return amount will determine the
portfolio increase/decrease over the period. And, note
that:
Increase in Value =
Net Buy + Return =
Portfolio Value Date #2 - Portfolio Value Date #1
Looking at the sample portfolio, the following figures are
calculated:
1997 Portfolio Value = $181,295.64
1998 Portfolio Value = $242,106.56
1998 Performance Return = $33,197.70
1998 Net Buy = $27,613.22
Doing the calculations shows this relationship is correct:
(242,106.56 - 181,295,64) = 33,197.70 + 27,613.22
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3) Taxes and Selling Methods
In the Capital Gainz Help files and in several newsletters,
I've discussed the pros and cons of the various selling
methods. To expand on this, here are a couple concrete
examples of using using the Max Gain and Max Loss methods
to save money on taxes. I am not an accountant, but I am
pretty sure these example calculations hold to the letter
of the IRS law.
Example 1:
Assume:
- 3 purchases of a mutual fund:
50 shares at $10 for $500
100 shares at $20 for $2000
100 shares at $30 for $3000
Current Value: 250 shares at $50 = $12,500
- 1998 tax laws are used
- Holdings are long term
- You are single and earn $38,000 year, and so are in
the 28% tax bracket
- You are getting married next year, and your husband
or wife will not have a job - that will put you in
15% tax bracket
- Long term capital gains are taxed at 20%, unless you
are in 15% tax bracket, where they are taxed at 10%
You have to sell $4000 to pay off a credit card. Next
year, you will sell the rest to make a down payment on
a condo.
If you use FIFO to sell shares:
1998 sell 80 shares for gain of $2900, tax = $580
1999 sell 170 shares for gain of $4100, tax = $410
If you use SCAT to sell shares:
1998 sell 80 shares for gain of $2240, tax = $448
1999 sell 170 shares for gain of $4760, tax = $476
If you use Min Gain to sell shares:
1998 sell 80 shares for gain of $1600, tax = $320
1999 sell 170 shares for gain of $3800, tax = $390
Total tax:
FIFO: $990
SCAT: $924
Min Gain: $710
By using Min Gain method, you would realize over $200
in free money.
Instead of realizing a drop in tax brackets due to
marriage, you can achieve a similar situation considering
retirement.
Example 2:
Assume:
- 2 purchases of a mutual fund:
100 shares at $20 for $2000
100 shares at $10 for $1000
Current Value: 200 shares at $30 = $6,000
- 1998 tax laws are used
- Holdings are short term
- You are in 39.6% tax bracket
- You have a son in 15% tax bracket
You want to make a $3000 gift to your son to help with
credit card bills. You then plan to sell the remaining
shares to make home improvements. Using the gift tax
laws, you transfer shares at current value, and recipient
assumes cost basis for when they sell them.
If you use FIFO to transfer shares:
100 shares transferred and sold by son/daughter
for gain of $1000, tax = $150
100 shares sold
for gain of $2000, tax = $792
If you use Max Gain to transfer shares (transfer shares
with highest gains):
100 shares transferred and sold by son/daughter
for gain of $2000, tax = $300
100 shares sold
for gain of $1000, tax = $396
Total tax:
FIFO: $942
Min Gain: $696
By using Min Gain method, you and your son would realize
over $200 in free money.
Now, consider the same situation, except instead of
giving your son the shares, you donate them to a charity.
Now, the total tax burden for you is $792 with FIFO, or
$396 with Max Gain.
The main points in these examples are:
- The tax laws and Capital Gainz give you a lot of
control over which shares to sell or transfer.
- Choosing exactly which shares to sell or transfer can
result in significant savings.
- SCAT selling method will never be better than the best
selection of specific shares, and will only rarely be
the same.
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4) Email Recommendations
In a prior newletter, I discussed various places where you
could get an 'email address for life'. The idea is to
advertise an address that is actually linked to your real
email address - so if you change your ISP, just relink:
Reserve address john_doe@yahoo.com at Yahoo!
Real ISP email is johndoe123@aol.com, so set up
john_doe@yahoo.com to forward mail to it, and advertise
john_doe@yahoo.com to the world
If you change ISPs and end up with an email account of
johnxdoe@mindspring.com, then change john_doe@yahoo.com
to forward mail to it - everyone can still send mail
to john_doe@yahoo.com
Some follow-up notes from users:
- Yahoo! was recommended as being reliable 'email for
life'.
- IName for AltaVista was also recommended.
- To get a 'good' name, consider using '-'s and '_'s -
while johndoe@yahoo.com might be taken, you may be
able to get john-doe@yahoo.com.
- Consider getting your own domain name, perhaps through
your ISP. Then, you can use whatever name you want -
in fact, in many cases all mail to such a domain
could be funneled to same ISP email account.
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5) Electronic Brokers
A tale of two online brokers.
For E*Trade, here are some of the woes I've encountered:
- Email is often not answered.
- Online account has had frequent problems preventing
logging in.
- Big, new mutual fund center failed to take into account
the ability to ADD to a fund - rejected any subsequent
investment attempt to existing fund holding that was
less than the required initial investment. Forced such
transactions to occur over the phone. (This has since
been fixed.)
- Slow performance.
For Fidelity, I'll relate a story that sums things up:
I already had 3 accounts (mine, my wife's, and an IRA)
with Fidelity, and decided to transfer a small, stray IRA
I had with another fund company. I requested that all
transferred money be invested in a specific mutual fund.
When the account was transferred, Fidelity automatically
combined it with an existing IRA - I didn't know I could
do this, so had actually requested a new account. Of
course, adding to an existing account was much better in
terms of record-keeping. However, somewhere along the line
my request to invest was dropped, and the money was sent
to the money market core fund for the account. I noticed
this after a few days, and calculated that it cost me
$129 in lost gains - this was a small IRA. I emailed
Fidelity with this problem on a Sunday - I didn't make a
big fuss, since it was not a lot of money.
On Monday, I got a call from Fidelity. The representative
apologized for the error. Then, she not only offered to
backdate the transaction to get the price I should have
gotten in at, but actually informed me that the market
was down 150 points at the time and gave me the choice of
sticking with what I already had - the money market
account. How often have you had a choice whether to
invest or not invest based on a several days old price?
I said to go ahead and backdate it - that's the decision
I had made at the time, and I would stick with it.
(Turned out to be smart, since this was a small-cap fund
that actually ended up on the day.)
Yes, Fidelity does not offer the lowest commissions. (I
don't trade a lot.) But this kind of service (and
remember that it was over just a small amount of money)
is almost unheard of in the online, or even the 'real'
world. Personally, I am very impressed.
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6) Tax Report - Schedule B
Capital Gainz' Tax Schedule Report for Schedule B breaks
down all distributions and related activity into a number
of categories, allowing you to determine the best place
to put them on your actual tax forms. In addition to being
broken down by each specific distribution type, the
following subtotals are also shown for each security,
and for all securities:
Interest Section:
Int-Taxable: total taxable interest
For securities that are not defined as being in an IRA,
and where the Security Type specifies not tax-exempt:
- Interest
- Bond Discount
- Bond Amortization
- Accrued Interest (subtracted)
Int-Exempt: total nontaxable interest
For securities that are not defined as being in an IRA,
and where the Security Type specifies tax-exempt:
- Interest
- Bond Discount
- Bond Amortization
- Accrued Interest (subtracted)
Int-Gain from Sale
For securities where the Security Type specifies to
treat the gain on sales as interest (US Savings Bonds):
- Gain on sale
All Types: total of all types of interest
Int-Taxable + Int-Exempt + Int-Gain from Sale
Dividends Section:
Div-Taxable: total taxable dividends
For securities that are not defined as being in an IRA,
and where the Security Type specifies not tax-exempt:
- Dividends
- Discount (negative commission)
- Short Term Capital Gains
Div-Exempt: total nontaxable dividends
For securities that are not defined as being in an IRA,
and where the Security Type specifies tax-exempt:
- Dividends
- Discount (negative commission)
Div-NonTaxable
- Return of Principal
Div-To Schedule D
- Long Term Capital Gains
All Types: total of all types of dividends
Div-Taxable + Div-Exempt + Div-NonTaxable +
Div-To Schedule
Investment Fees Section:
Fee
- Fees
Margin Int
- Margin Interest
Note that 'tax-exempt' refers to a security that is
associated with a Security Type that specifies tax exempt
status. Local securities defined as IRAs are skipped in the
Schedule B report.
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7) Tab Key
For those computer users still not quite comfortable with
the Windows interface, get familiar with using these keys:
Tab = accept field, advance to next field
Shift-Tab = accept field, go back to previous field
In recording a purchase Capital Gainz, for instance:
Enter Date, then Tab
Leave Shares at 0, then Tab
Enter Price, then Tab
Enter Amount, then Tab
Capital Gainz calculates the number of Shares
Incidentally, in my opinion, the decision to make the Tab
key do what the Enter key used to do in DOS - and make
the Enter key mean "accept form" - is THE dumbest decision
in user interface history.
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8) New Company?
Are you as sick and tired as I am of of watching college
drop-outs make millions of dollars on IPOs for companies
that give stuff away (Internet access, computers) or sell
what is actually free (Linux operating system)?
Well, one late night I came up with a brilliant plan for
and can't-miss IPO. The premise is: "give everything away
free". For comic relief, check out:
http://www.alleycatsw.com/btbfree.htm
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9) Y2K
Upon coming out of my well-equipped and well-armed bomb
shelter, I saw that Y2K was a non-issue. There are no
known or reported problems with Capital Gainz concerning
Y2K.
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10) Search Engines
In my consulting work, I do a lot of Web searching. If you
poke around with search engines, here are my impressions -
you may not even know about my favorites:
Yahoo! (www.yahoo.com)
I've rarely used it. Categories are sometimes
duplicated, and I really prefer keyword searches.
Lycos (www.lycos.com)
Was my favorite for awhile, then something changed
and results become inconsistent, so I ditched it.
Excite (www.excite.com), InfoSeek (www.infoseek.com)
Ok for non-technical, high-level searches. I rarely use
them.
Northern Light (www.northernlight.com)
Very good search engine, and might be my favorite except
for the matches that point to local collections that
require purchasing.
Google (www.google.com)
Never heard of it? Try it - it is not only my favorite,
but also the best I have ever used.
Microsoft (www.microsoft.com)
This searches only the Microsoft site. It is awful, and
slow. I get better results finding pages on the Microsoft
site by going through Google.
Ask Jeeves (www.askjeeves.com)
Promising, but I'm not really happy with the interface.
It actually uses a lot of the other search engines.
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