My Personal Finance Journey

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A $206 Mistake (And My Tax Filing for 2003)

Contributed by mm | April 5, 2004 1:46 PM PST

This morning I was preparing my tax filing for 2003. I waited till April to file my tax because I was told that due to the new tax laws passed last year, some brokerage firms may be subject to lots of Form 1099 errors. (Nothing happened to me though.) It didn't take me much time to complete my filing: my 2003 tax return is pretty simple as I am still in standard deduction and I keep good record of my few investment transactions. I have filed it online using TaxAct for free. (Yes, it is free. Actually, this year everyone can file tax for free online.) It should take 2-3 days before I know whether IRS officially accepts my online filing or not.

I do, however, dig out a mistake I made last year about my sale of CI shares on October 31, 2003. I bought the shares back in October 25, 2002 and I deemed the sale qualifies the capital gain of $2,057 as long-term capital gain, enjoying the reduced 15% tax rate.

Yes, it is categorized as long-term capital gain. But because I took a massive capital loss in my failed shorting of AMZN earlier, the CI gain is used to offset the AMZN loss, and make it effectively taxed at the higher short-term capital gain rate of 25%. As my CI sale back in October is almost purely driven my the long-term capital gain mentality, if I could hold the issue into 2004, I would be $207 better of (I would pay $2,057 * 25% less in 2003 tax return and would only need to pay $2,057 * 15% more in 2004 tax return -- I am looking forward to log some capital gains for this year).

What makes this more ironic is the fact that today CI raised its earning guidance significantly, resulting in a 11% run of the stock in one session. I do not regret sell the stock at $56 because it exceeded my target price of $52 and the outlook of CI was unclear, but I feel bad about my miscalculation in selling CI prematurely to forgo the favorable long-term capital gain treatment.

Alas, devil is in the details.

(On a brighter side, my tax due for 2003 is $1,269, and since I paid much more tax in 2003 than in 2002, there is no IRS penalty for the due. I effectively borrowed the money interest-free for several months. Also, my tax incurred liability accrual at 2003 year-end was $1,261. I was only $8 off in the accounting, which makes me feel better.)

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