by Tyler_JC » Tue 17 Jul 2007, 00:35:46
$this->bbcode_second_pass_quote('Niagara', '')$this->bbcode_second_pass_quote('mekrob', 'I')f this thing is true, then why exactly are the richest people in America still paying taxes?
Mekrob, as a Canadian it boggles my mind how the American people allow themselves to be ripped off by the IRS tax laws and still no one has done anything about it.
I'll give you 2 examples:
1) Windfall tax. Americans must pay tax on winnings from lotteries and casinos. But gambling is done with after-tax dollars.
You must pay tax on winnings, but are you allowed to write-off gambling loseses? No.
2) FIFO (first in, first out) capital gains tax. In Canada we use the average cost base method which is the only logical way.
The IRS uses FIFO which is a ripoff. Here's an extreme example.
-in 1984 you buy 1000 shares of Microsoft for $0.01 per share (adjusted for splits).
-in 1999 you buy another 1000 shares for $50/share
Your cost base is $25/share (1000*.01 + 1000*50)/2000
Now, you decide to sell half your position.
Microsoft is trading at ~$30. In Canada you would pay a capital gain of $5/share (30-25)
In the States, the stupid IRS says you must first unload the ORIGINAL shares you bought for $0.01. Therefore you pay gains of $29.99/share on the first 1000 shares.
Why do 'Muricans put up with such crap???

1. Our capital gains taxes top out at 15%. Canadian capital gains taxes top out at 14.5%. So the overall tax rate is the same.
2. Who says you have to sell off your 1 cent shares first? You are allowed to indicate on your tax form which shares you are selling and from which tax basis.
But when you sell your shares purchased at $50, you can write off your capital losses to offset your capital gains.
Also, you can use capital losses to offset ordinary income (up to a $3,000 deduction) or to offset future capital gains.
3. You CAN write off gambling losses. The trick is hanging on to the receipts.