Why is LNCO trading at a near 6% premium to LINE now? When trading first started last year, LNCO was at a 5% discount to LINE and that is now reversed. Is it because many investors are willing to pay extra for simplified tax reporting or are there other reasons?
LNCO vs. LINE: Completely depends on the circumstance of the individual investor.
As regards to tax preparations, LNCO dividends are surely easier to report for taxes than LINE payouts. But that is a very minor point.
For me, I have chosen LNCO over LINE for my investment. And the choice makes a lot of financial sense, if you understand my particular situation. My current income consists of social security, a very small annual pension, dividends, non-taxable interest from muni bonds, and non-taxable interest from federal tax-exempt bonds. My current annual income is about $55k. But, almost all of my social security income is not taxable and neither are my muni or federal tax exempt bonds.
And what a lot of tax payers don't know is that there has been a 0% dividend/capital gain tax rate for the last 4 years. This zero percent rate applies to singles with less than $32k of taxable income and for marrieds with less than $60k of taxable income. Taxable income = adjusted gross income - standard/itemized deduction - personal exemptions. So your adjusted gross income can equal between about $40k for singles and $80k for marrieds to qualify for the 0% dividend/capital gain tax rate.
Since my social security income, muni bond income, nor my federal tax exempt bonds are taxable, then none of my dividends are either, since I fall under the umbrella of the 0% dividend/capital gain tax rate. So, legally and practically none of my income is taxable.
However, if I invested in LINE, the payouts would not become taxable until I sold the LINE shares (at which I would have to count all my LINE payments as a reduction in cost basis of my shares, and as a profit for my LINE investment.) or until my LINE payouts exceed my LINE cost basis.
Do your homework, to see if you qualify for the 0% capital gains rate on dividends.
In essence, under my current tax situation and under current tax law (at least through 2013), I receive my LNCO dividends tax-free without lowering the cost basis for my investment in LNCO shares.
If I owned LINE, I would only be deferring the taxes on my LINE payouts and would definitely be lowering the cost basis of my LINE shares. So, if I sold my LINE shares, at a lower cost basis, or if my cost basis hits zero, then the taxman will take a large chunk of my profits in taxes.
Of course, the tax laws may change in the future. If so, I would have to relook at the situation and make necessary changes in order to limit the taxes I pay.
And before you criticize me for limiting my taxes, keep in mind that most of you are involved in LNCO or LINE for the tax advantages that they offer. Good luck/fortune to all investors everywhere.
I hate to keep adding points in favor of owing LNCO over LINE, but here is another very important point/advantage for owning LNCO and not LINE:
With LNCO, you will only be exposed to gains that are taxed at a capital gains rate. But with LINE it is very possible that your gains will ultimately be exposed to ordinary income tax instead of capital gains tax.
LINE issues a K-1 at tax time which complicates filing tax return. LNCO does not. I own both and after sorting through all the complications of entering K-1 data on to appropriate tax forms the small amount of income which is tax deferred isn't worth a hill of beans.
Plus LNCO is far better to own in an IRA or ROTH w/o K-1 complications which that can happen in those tax preferred accounts.