Watch Out –— Here Comes Don

Don actually had a question for me about New York City’s charming Unincorporated Business Tax. (If you live in New York but write a song while on vacation in Portugal … and if that song, miraculously, becomes a big hit in Brazil … the royalties you earn on that song over your lifetime are subject to New York State and New York City income tax, naturally, but also to the New York City Unincorporated Business Tax. Why? “For the privilege of doing business in the City of New York.” This was not Don’s specific problem — nor even mine, exactly — but it does give you an idea of how aggressively New York interprets the reach of its third income tax.)

But no, this may be April 15, but it’s not about taxes. It was the rest of Don’s message I felt duty bound to share with you. Don writes:

I am a financial albatross. I bought a gold wedding ring when gold was at $800 and it plummeted to $300 or so almost immediately. I bought a house at the height of the Oregon land rush of the late seventies which seems to have precipitated a collapse in the housing and lumber industries. After renting it at a loss for five years (moved to NY to put my wife through grad school whereupon she divorced me), I sold it. After predicting for years the collapse of the stock market, I gave in and joined the crowd with a mutual fund purchase just months before the market lost a third of its value or whatever in the crash of ’87. Recently (late last summer), I moved some CDs into mutual funds and kicked off a terrifying correction. A wealthy (by my standards) doctor friend (amazing how rich all my classmates got by NOT being a potter for 15 years after college) called me up and said if I was ever tempted to buy stocks again he’d pay me to stay out of the market.

Fair warning. On your advice (so I have someone to blame), I’m about to put half of my Keogh savings for this year into mutual funds. My advice to you is to sell short or hedge or whatever it is you do to make a killing on a falling market.

I would take Don’s advice, only my own experience shorting stocks over the last 25 years has been so dreadful — a few wonderful and notable exceptions notwithstanding — as to lead people to call and beg me to tell them when I’m shorting something, so they can buy calls on it and make a killing. My general rule of thumb: If I am buying puts, I should be buying calls.

(One actually can do both — puts and calls at the same time, called a straddle — which is a bet that something will happen, you just don’t know what. If I ever do that, I guarantee the winds of the market will fall strangely still, with little activity in either direction until the day after my straddle expires.)

Don’s tax question, for any New Yorkers out there with Schedule C income above $25,000 or so (and to make the rest of you feel good that at least you don’t have this problem today):

Being a New York resident and a self employed computer weeny I find myself facing a possibly killing liability on years of back UBT taxes. What I don’t know is a) whether there is a statute of limitations on this stuff. [A.T.: No.] b) whether there is a tax amnesty in effect that would help [A.T.: I don’t think so.] c) whether the penalties etc are at all negotiable [A.T.: Possibly.] and d) whether there is someone better than an accountant to help me with this. The tax preparers I’ve encountered seem much more concerned with quickly filling out a form and getting their fee than answering bothersome and delicate questions about past oversights. [A.T.: Your local bartender would be a good one to talk to, both before and after you meet with the tax folks.]