Special Edition #1

Reduce Your 2001 Taxes with Uncle Sam’s Blessing

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Wealthy Americans have high-priced tax attorneys and CPAs to help them to reduce and minimize their federal income taxes. You can use one of their strategies to reduce your 2001 federal taxes.

The strategy is called tax-loss selling. Tax professionals use it primarily to reduce their clients’ taxes. But there are two additional, and equally important, advantages: 1) employing a tax-loss strategy keeps their client’s assets positioned for growth, and 2) positions them for larger long term profits.

Now you can review, evaluate and possibly use this simple tax-minimizing, wealth-building technique. If you believe it can be helpful in reducing your federal income taxes (and possibly your state taxes as well), discuss this matter with your professional tax advisor. Now on to the specifics...

What is tax-loss selling?

Tax-loss selling is a technique that allows individual Americans with investments that have declined in value to "recognize" that loss for tax purposes – yet stay positioned for the future growth they anticipate.

Generally, a loss on an investment can be recognized when the investment is disposed of. The primary exception to this rule is the wash sales rule which provides that losses on sales of stocks or securities or contracts or options to acquire stocks or securities cannot be recognized if substantially identical stocks or securities are acquired within 30 days before or after the sale. However, this rule does not apply to investments other than stocks or securities. Thus, a loss on the sale of one type of gold coin can be claimed even though a different type of gold coin is purchased at the same time. If the same type of coin is bought and sold in the same transaction there would be a problem in recognizing a loss.

Why should I use this technique?

Most importantly, it allows you to reduce your current federal income taxes and possibly your state income taxes.

What are the exact steps to take advantage of this rule?

Here are the steps an investor might want take to establish a tax-loss in 2001:

1. Identify an asset that may have declined in value since you acquired it. Let’s say you purchased ten one-ounce gold Canadian Maple Leaf coins.

2. Identify the reasons you acquired this asset. When you invested in the coins you had three reasons: 1) to help diversify your mutual funds and CDs; 2) to build an inflation-fighting nest egg for your retirement years, and 3) to position a portion of your savings for a rise in gold bullion’s value.

3. Identify their date of acquisition and cost. In this example you invested in the gold Maple Leafs on January 5th, 1998 at $400 each, for a total investment of $4,000.

4. Identify today’s market value. To make this example easy to understand, let’s say you could sell them for $250 each or a total of $2,500.

5. Identify an asset that is a "twin" to the asset you own – one which is almost exactly the same, yet "different" in the eyes of the government. For example, a one-ounce American Eagle gold coins may be considered a "twin" for the Canadian Maple Leaf gold coins. And your business purpose for swapping the coins may be to own American-produced gold with potentially higher acceptance than foreign made coins.

6. Identify today’s market value for the "twin" asset. In this example you can buy one-ounce American Eagle gold coins for $255 each.

7. Instruct your Goldline Account Executive to sell your 10 Canadian Maple Leaf coins and immediately acquire 10 American Eagle coins.

8. Keep the paperwork in a secure place with your other tax-related materials. You will use it when you file your taxes – and take your tax loss – next year.

How do I calculate my savings?

Assuming you are in the 35% tax bracket and you can use all of the loss, you will reduce your tax payments by $525 ($4,000 - $2,500 = $1,500 x .35 = $525).

Notice that you have substantially the same investment position – 10 ounces of pure gold – but have generated a tax-loss that earned you a $525 tax reduction in 2001! Another way to look at it is that your actual out of pocket loss has been reduced from $1,500 to $975 (except for commission and transaction costs). That’s why this technique is so popular.

Conclusion

If you have an investment position that may have declined from your acquisition level, you may earn substantial benefits using this technique. The amount of your tax savings will be determined by the size of your asset’s decline, the length of time you’ve owned it, other gains and losses you claim and the tax bracket you’re in. In addition, tax laws and your personal situation change from time to time.

You should consult your tax advisor or CPA to determine if this technique is right for you and to determine how much you can actually save based on your current tax and investment situation.

To implement this tax-saving technique with your precious metal assets, contact your Goldline Account Executive by calling toll-free 1-800-827-4653. One final tip: transactions for tax year 2001 must be completed before December ends, so please don’t delay.

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