Reducing taxes on lost stock money

By Dave Ramsey

Owe taxes on lost stock money

Dear Dave,

I have a problem in the sense that I made millions of dollars in the stock market trading on my dad’s account. It was mostly technology stock. I was on the margin and the whole thing shorted out. I started with $200,000 and it went up to $6 million. I didn’t realize margin was bad. Of course, everything collapsed and now my accountant is telling me that I, or rather my dad, owes $197,000 in taxes.

I haven’t filed any returns on this, so about $100,000 is back taxes owed and $97,000 is penalties. We made estimated tax payments along the way, but everything was complicated by all of the trades and we just procrastinated on filing. We just thought the money would be there when we needed to pay it. My dad’s not broke, he has $600,000 in real estate investments, but I was doing the trading. Do you know of anything I can do to reduce that $197,000 tax bill?

Ameel

Houston, Tex.

Dear Ameel,

No. I don’t know any way to reduce that bill. However, if I were you I’d get a couple of good CPA firms to go through this with a fine tooth comb and try to find anything you can legally do to reduce this amount owed. I would seek some advice from a tax expert, which I am not.

The only thing that’s commonly used to reduce tax payments is an OIC – Offer in Compromise. That applies if you’re broke – you don’t have the money to pay the taxes that you owe – and the IRS writes off part of the tax bill. You have to prove to them that you can’t pay and this is not the situation you’re in. You’re not a candidate for an OIC if your dad was on the margin account because he too officially owes the bill and he has assets. He’s got $600,000 in real estate he could sell to pay this. It will be painful, but so was losing six million dollars doing day trading playing with tech stocks. What a nightmare you’ve been through. That is a lot of Stupid Tax to pay. I’ve done stupid myself and paid with some zeros on the end, but this is a mess. I’m sorry you’re going through this. I’m sure it’s put a strain on your relationship with your dad as well.

Dave


What’s the best way to pay for an MBA?

Dear Dave

I’m a single 27-year-old captain in the army with no kids, $40,000 in mutual funds, $30,000 in cash and no debt. Providing I’m not sitting in an Iraqi desert in two years, I’m probably going to be leaving the service and going to graduate school. Over the two years of grad school, tuition and all expenses will probably be about $100,000 for an Ivy League school MBA. Since I attended West Point I do not get the G.I. Bill. How do I pay for this?

Mark

Dothan, Al.

Dear Mark,

First, I’d recommend you get some advice on the MBA. An Ivy League MBA is probably of limited value to you as compared to a traditional quality MBA that doesn’t have the prestige with it. That being said, there are a few fields where the prestige matters.

For example, I’ve got a Bachelor of Science degree. With what I do for a living, it doesn’t matter where I got my degree. What matters is that I got great knowledge. The University of Tennessee is a good business school. So I know how to operate a business. I operate a big one.

The point is this: What are you looking for from the MBA? Are you looking for the Ivy League thing to open some doors because you’re going into an industry that only looks at Ivy League MBAs? That’s a pretty rare industry. There are some out there, but it’s kind of like a law degree. There are a lot of broke lawyers with Ivy League degrees. There are plenty of wealthy attorneys who went to YMCA night school. You need to decide what you’re going to do with the MBA first. You need a return on investment here – basics of an MBA, right? If I’m going to pay $20,000 or $120,000; I want to know what I’m getting for this extra $100,000.

Now, back to the basic question: how do you pay for school? Cash! Don’t use student loans. Just save up and pay. If you listen to my advice for very long, you’re always going to hear me tell people not to borrow money. You’ve done a great job getting to where you are: West Point graduate, 27 years old and a pile of money. Just keep piling up money and pay cash for whatever you do.

Dave

Disclaimer: Questioner’s identities have not been verified by Dave $ays column or this Website..


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