Playing With Numbers

It's tax time, or will be soon, and so I've been collecting my stack of information slips.

One of the benefits I have at my company is an employee stock purchase plan. Similar to many companies, the company I work for allows employees to contribute some chunk of their base salary into a fund that is then spent quarterly buying stock for us at a 15% discount.

Unlike some of my colleagues, I sell my shares pretty much as soon as I can. It's usually 5-10 business days from the date of the stock purchase to the time it's in my stock account and accessible to me, so in the interim, the price has fluctuated somewhat.

Now, as everybody knows, when you sell a stock, you're taxed on the capital gains; but here's where the fun with numbers begins.

To contrive the example with nice round numbers, I bought something worth $100 for only $85, but paid income tax on the $15 difference, so the asset, from the tax man's point of view, is $100.

Thanks to this little peculiarity, on paper, for tax purposes, I almost lost money in 2006 on the stock market.

Financial math really appears like voodoo sometimes.