2001: A Tax Nightmare

Though tax season is never pleasant, this year it's been chilling.

It's not just that investors suffered brutal and unfamiliar market losses in 2000. Or that some of the worst-performing mutual funds distributed sickening capital gains. Or that the employee stock option frenzy drew unwitting folks within shooting range of the vicious alternative minimum tax. Or that thousands of folks now writing steep checks to Uncle Sam are also casualties of the layoffs permeating our economy. Or that high tax bills have people headed to the market to sell already sinking stocks, sending their low prices even lower.

It's that all of these things are happening at once.

Readers of TheStreet.com are hurting, and they're letting us know it.

Wrote one reader: "It is my opinion that one cause of the bubble bursting last fall was people like me, realizing stock options they exercised earlier in the year were going to become a horrible sentence to unavoidable rape and pillage by the IRS, starting April 17, 2001. We sold 'at market' and have put the money into CDs, to assure it would be there on April 16, 2001, at 5 p.m., when we mailed away the largest checks we will ever see at one time.

"Short of getting 'W' to sign AMT pardons for all U.S. taxpayers, or an Executive Order to amend the AMT trigger level for year 2000 tax returns, it appears to me that the government 'surplus' is now fully funded by congressional nationalization of the stock market."

It's tough to say just how heavy a burden tax selling is placing on the market, but individuals know the burden it's placing on them. It's only going to become more evident in the next couple of weeks.

"It's been a terrible year," says Steve Mertz, an A.G. Edwards financial consultant who does outplacement workshops around the country. The worst, he says, is people who were laid off and had a certain window -- 90 or even 30 days -- to exercise stock options and restricted stocks. Not only did they face the host of tax issues surrounding those actions, but during the window period the stocks also would fall from 52-week low to 52-week low.

"With someone dealing with the emotional issue of being laid off, then they find out, oh, buy the way, you've got 90 days to address this issue, and the stock market's in the tank ... it's just caused misery upon misery," says Mertz.

Throughout this period, TSC has been writing about the tax trauma for 2001 -- examining how Uncle Sam's especially heavy hand this year will affect both you and the markets. Today, we've pulled together some of our best material for a special package, 2001: A Tax Nightmare. To find out more about this year's tax pain, just click on the following stories:

You Don't Have to Be Rich Anymore to Worry About AMT: Tax columnist Tracy Byrnes discusses how the alternative minimum tax has trickled down from the Bill Gateses to the hoi polloi investors and employees, and what it means for your tax bill.

Exploring Your Options for Paying Uncle Sam: Catherine Valenti offers some options for investors facing that most-vexing question: What's the best way to pay for my fat tax bill this year?

Blame It on the AMT: What Works columnist Jamie Heller addresses the AMT, and its role as the market worry du jour.

Redemption Fears Shackling Investors: Justin Lahart examines how investors pulling money out of stock funds to foot the bill for tax season may punish the market.

Funds That Double Your Pain: K.C. Swanson screens for mutual funds that had lousy returns for 2000, and big capital-gains tax hits.

There's a Silver Lining to Those Big Distributions by Funds: Tracy Byrnes offers the long-term upside to the near-term pain of big distributions from funds.