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The Tax Thread

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  #101 (permalink)
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Big Mike View Post
I'd like to start a new subject on Tax Avoidance (legal).

As many of you know, I am looking to move out of the country soon and "retire". Retirement is more a state of mind and financial independence, as I plan to continue to trade and would never imagine not trading.

I've been trying to do homework on how to minimize taxes as a US Citizen but living in, and trading from, another country. I am hitting a lot of roadblocks.

There has to be a lot of people here in a similar situation, so I'm looking for some suggestions to point me in the right direction before I hire a professional.

Mike

Might be relevant to your post @Big Mike
(Apologies if it's been mentioned already)
hth

"The Ex-PATRIOT Act lies like a coiled snake on a table in the U.S. Senate. The longer title of this unenacted bill from 2012 is the Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy Act. Its self-description is, "A bill to amend the Internal Revenue Code of 1986 to provide that persons renouncing citizenship for a substantial tax avoidance purpose shall be subject to tax and withholding on capital gains, to provide that such persons shall not be admissible to the United States, and for other purposes."

The Ex-PATRIOT Act seeks to impose a perpetual exit tax and a re-entry ban on “specified expatriates.” A specified expat is anyone with a net worth of at least $2 million or a tax liability averaging at least $148,000 over the last 5 years. A renunciation of citizenship would be automatically viewed as a tax dodge. The person would need to prove his innocence to the IRS to become exempt from a permanent and annual 30% tax on all earnings from U.S. investments. The net worth level at which the tax triggered would undoubtedly sink over time and, perhaps, quickly so...

...As it is currently written, the Ex-PATRIOT Act would not be retroactive in its tax provisions. But 2013 may be the last year to use the old tax code....

The Act was introduced in May 2012 by Senator Charles Schumer (D-NY), read twice, and referred to the Senate Committee on Finance. It is likely to pass in 2013.. "

2014: TOO LATE TO LEAVE THE U.S.?

"Every moment I wake up I realize I know nothing, and then I smile..." zt379
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  #102 (permalink)
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Thanks, but I don't want to renounce citizenship.

Mike

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  #103 (permalink)
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If you are old enough, you could trade from a Roth (of course it needs to be funded somehow)

Another alternative is to double up your size and pay your taxes :-)

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  #104 (permalink)
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Since we are in The Tax Thread:

Does anyone know the tax treatment of accounts lost as a result of the PFG bankruptcy. Are these loses claimed as capital lose, stolen property, or what?

Please don't say talk to your lawyer or accountant, some don't have one.

Cheers!

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  #105 (permalink)
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aslan View Post
If you are old enough, you could trade from a Roth (of course it needs to be funded somehow)

Another alternative is to double up your size and pay your taxes :-)

And I do trade from a Roth but I also have other accounts which I can actually make withdraws out of

Mike

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  #106 (permalink)
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Big Mike View Post
And I do trade from a Roth but I also have other accounts which I can actually make withdraws out of

Then you are not old enough!

I am curious where you would want to move to?

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  #107 (permalink)
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aslan View Post
Then you are not old enough!

I am curious where you would want to move to?

I recently turned 35.

See this thread on retirement locations:


Leaning towards Panama for now.

Mike

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  #108 (permalink)
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Big Mike View Post
Yes, not willing to renounce citizenship. I agree it will involve an entity but haven't figured out the details yet.

Possibilities include an entity not owned by a US citizen perhaps.

Sent from my Nexus 4

@Big Mike

Your options are very limited no matter what some "creative accountants" may say. Some will advise the establishment of a corporation in the BVI citing privacy of the identity of individuals etc.

The problem as the controlling shareholder any income from the corporation is treated as individual income in the eyes of the IRS and must be declared as part of worldwide income. If you do not declare the income you are evading tax pure and simple. It's also difficult to defend significant business expenses to reduce income if you are a sole proprietor.

If you gift the funds to a non US based person/entity this would take years and could be subject to specific gifting provisions. That person would need to be trustworthy and be required to declare the income as worldwide income unless he or she lives in the BVI, Malaysia or another country that doesn't tax their residents on offshore sourced income. Having said that, if they are not US citizens those people will lose the tax residency of their old country once they have been out of the country for 183 days meaning they won't need to declare offshore based income.

Unfortunately being a US citizen is a "tax ripoff" pure and simple.

In any case, your best bet would be to talk to a highly experienced international tax expert from a reputable firm (that doesn't sell offshore structures) asap as this is a complex area and is individual specific. The sooner the better as many tax planning initiatives are best put in place many years prior to a planned departure.

Cheers
DJ

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  #109 (permalink)
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Thanks DJ. I've talked to a couple of expert tax advisors but they both said basically I was SOL so I was hoping for a different answer, or someone with more international experience that knew a way around it.

I am not trying to evade, just avoid. The potential savings as you know is quite large so I wanted to keep exploring options. I was hoping that living outside of the US would open up new options not available to others living inside the US.

Ugh.

Mike

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  #110 (permalink)
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IRS Announces Simplified Option for Claiming Home Office Deduction Starting This Year; Eligible Home-Based Businesses May Deduct up to $1,500; Saves Taxpayers 1.6 Million Hours A Year

IRS Announces Simplified Option for Claiming Home Office Deduction Starting This Year; Eligible Home-Based Businesses May Deduct up to $1,500; Saves Taxpayers 1.6 Million Hours A Year

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  #111 (permalink)
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Just found out:

Designation of Eurex Deutschland as a “Qualified Board or Exchange” for purposes of Section 1256(g)(7) of the United States Internal Revenue Code

On 7 February 2013, Eurex Deutschland announced that the U.S. Internal Revenue Service (“IRS”)has designated Eurex Deutschland as a “Qualified Board or Exchange” for purposes of Section 1256(g)(7)of the U.S. Internal Revenue Code. This ruling, effective for all contracts entered on or after 1 March 2013, means that U.S. persons that trade at Eurex Deutschland may receive “60/40 tax treatment” in the same way when trading at other U.S. futures exchanges.

https://www.eurexchange.com/exchange-en/resources/circulars/398662/
Internal Revenue Bulletin - February 25, 2013 - Rev. Rul. 2013-5

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  #112 (permalink)
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Here is a heads up for your Retirement Accounts in 2014, this is IRA and 401K Accounts.
I am going to post this because it is looking like Our Retirement Accounts may be in Jeapardy, Similar to what has happened to our Social Security Fund.
This is my Speculative view.
OBAMA’S NEW BUDGET WILL DESTROY YOUR IRA’S AND 401K ACCOUNTS…
Uncle Sam Wants Your IRA's | Banking-Holiday

Anyway i like the Futures Tax Liability at 60/40 which like others have mentioned 60 % of Profits taxed at 15 %, and 40 % of your Trading Profits at your regular rate.
2013 Rate Brackets: 2013 tax bracket rates
By Kay Bell • Bankrate.com

Taxes » Tax Brackets » 2013 Tax Bracket Rates

With the enactment Jan. 2, 2013, of the American Taxpayer Relief Act of 2012, the six income tax brackets that were created more than a decade ago and which had been scheduled to expire at the end of 2012 were made permanent. In addition, a new top tax rate was added. For the 2013 tax year (returns due April 15, 2014), the seven individual income tax rates and the earnings to which they apply are shown in the table below.

2013 tax rates table link:
2013 Tax Bracket Rates | Bankrate.com

So you have 60% of Trading Profits Taxed at a 15% rate and the remaining 40% taxed at your Rate in the table for a combined average from the two rates is your Total Tax liability if you Trade Futures Contracts like Gold and Crude and other Futures, even SPX.
Do your research on what gets the 60/40 Rate, and as some have mentioned 1099 is single Line input and Every Trade does not have to be listed, just Total Profit above what you started with.
POTENTIAL TAX ADVANTAGE WITH FUTURES - Blended Tax Rates and Capital Gains -

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  #113 (permalink)
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Big Mike View Post
I looked into Hong Kong corporations but it seems no longer possible as a US citizen. The US has squashed all tax havens...

Mike

So to your knowledge the Singapore option is off the table because US law is quashing it?

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  #114 (permalink)
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sysot1t View Post
On the presentation, just take a look at slide 7, and 41-44... those are the main benefits, the rest are all manuvering to minimize the tax liability...

I only disagree with one thing that most people say that shouldnt be done. A beginner would benefit greatly from having a SMLLC-SCorp setup from the start. The cost to setup a proper LLC will run you about $500-600 from a number of different sites, it is always wise to get the LLC done on your own state.

As long as you are going to capitalize it properly, and by that I mean around $20-30K (ideally $50K), the costs to operate the LLC are minimal and you will get from the start the ability to deduct everything you need to... even better, with your own business you can also move the IRA's into a soloK account and then do other things with that money that you could not otherwise do...

that is just my opinion and my own preference.. of course, the above doesnt work right if you are doing it with $5K.. as it would represent a big portion of your trading funds, but again with $5K one should be trading forex and microlots to learn to trade in reality, and should stay away from futures... a lot better to learn to trade risking $2-3.00 per day or even trade, than risking $50-100 and blowing up on no time.

again, just my opinion.


Incfile does it for about $150 - never seen a $500 rate to incorporate.

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  #115 (permalink)
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josh View Post
Also just having done this a week ago, I would like to wholeheartedly recommend a free service:

I was linked there from the IRS page, and it's federal only, not state. I strongly dislike the interview-based software, where you are asked a series of questions. I much prefer to look at the form that will actually be filed. It takes a little more research sometimes to figure out what to do, but IMO the transparency of the process and having the confidence of seeing the actual forms and knowing what your financial situation actually is makes it worthwhile. The interview will ask you ten million questions, most of which do not apply to you, and it may still not cover all bases or get the forms filled out right for your individual scenario.

This does some auto calculations, and is the best software I have used because it's just the form, and it's clean, efficient, and you see what forms you're using to file with instead of the wizard of Oz behind the curtain.

To expand on what Mike said, the 6781 form info goes onto Schedule D, where you will calculate your 60/40 split, and then this information, gain or loss, then goes onto the 1040.

I had a profitable year I did the 6781 which, had me put my short term capital gains(40%) on Schedule D line 4 and long term capital gains(60%) on Schedule D line 11.
to complete Schedule D and all my profits are from trading Future contracts (ES,YM) line 7 you put same as line 4 and line 15 you put same as line 11. Then line 16 'Combine lines 7 and 15 and enter the result' which means you add the short and long term capital gains you spit up on form 6781 back together.
then line 16 states "If line 16 is a gain, enter the amount from line 16 on Form 1040, line 13," and my doing this you end up getting taxed on all of it as regular income and you don't get the 60% long term capital gains tax.
Then you go line 17 =yes, line 18=0, line 19=0, line 20 =yes. Complete the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040, line 44 (or in the instructions for Form 1040NR, line 42). Do not complete lines
21 and 22 below.
So I go to the Qualified Dividends and Capital Gain Tax Worksheet I did it 3 times and each time by IRS math. It flips the numbers and has me calculate my 15% tax on my short term capital gains (40% of futures contracts not the 60%) using craze math. then once you have that # you go and look at Tax table and enter it on line 44.
The outcome is you pay regular income taxes on 100% and on your short term you pay an extra 15% so this tax advance sucks.
I called the IRS waited one hour and once I say what I was doing and used the name '1256 contracts' They said they can not help me and I needed to look on there website.

Here is my question has anyone REALLY know how to enter the 60/40 on the 1040 ?

Even if you had your accountant do it its not that hard to pull your 1040 (last years) out and see if he did what I did and you are over paying or if he did it right and what does the Schedule D look like.
I think the IRS does not want to help me because 90 percent of day-trader over pay their taxes.
The way I see doing it is leave part 3 of Schedule D blank. on my 1040 line 13 put my short term capital gains (40%)amount which it will get taxed at regular income Then going into the 'tax table' figure out the long term capital gains(60%) and put that amount on line 44 on form 1040.
Anyone who has had a profit trading 1256 contracts I would love to hear from you Thanks LD

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  #116 (permalink)
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lawdam View Post
I had a profitable year I did the 6781 which, had me put my short term capital gains(40%) on Schedule D line 4 and long term capital gains(60%) on Schedule D line 11.
to complete Schedule D and all my profits are from trading Future contracts (ES,YM) line 7 you put same as line 4 and line 15 you put same as line 11. Then line 16 'Combine lines 7 and 15 and enter the result' which means you add the short and long term capital gains you spit up on form 6781 back together.
then line 16 states "If line 16 is a gain, enter the amount from line 16 on Form 1040, line 13," and my doing this you end up getting taxed on all of it as regular income and you don't get the 60% long term capital gains tax.
Then you go line 17 =yes, line 18=0, line 19=0, line 20 =yes. Complete the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040, line 44 (or in the instructions for Form 1040NR, line 42). Do not complete lines
21 and 22 below.
So I go to the Qualified Dividends and Capital Gain Tax Worksheet I did it 3 times and each time by IRS math. It flips the numbers and has me calculate my 15% tax on my short term capital gains (40% of futures contracts not the 60%) using craze math. then once you have that # you go and look at Tax table and enter it on line 44.
The outcome is you pay regular income taxes on 100% and on your short term you pay an extra 15% so this tax advance sucks.
I called the IRS waited one hour and once I say what I was doing and used the name '1256 contracts' They said they can not help me and I needed to look on there website.

Here is my question has anyone REALLY know how to enter the 60/40 on the 1040 ?

Even if you had your accountant do it its not that hard to pull your 1040 (last years) out and see if he did what I did and you are over paying or if he did it right and what does the Schedule D look like.
I think the IRS does not want to help me because 90 percent of day-trader over pay their taxes.
The way I see doing it is leave part 3 of Schedule D blank. on my 1040 line 13 put my short term capital gains (40%)amount which it will get taxed at regular income Then going into the 'tax table' figure out the long term capital gains(60%) and put that amount on line 44 on form 1040.
Anyone who has had a profit trading 1256 contracts I would love to hear from you Thanks LD

It isn't that simple. Do you have other income? If so then it may be that you are not figuring the worksheet correctly. My only income comes from section 1256 contracts so my results may different than yours. I can send you a sample return though that might be helpful.

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  #117 (permalink)
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wirechild View Post
It isn't that simple. Do you have other income? If so then it may be that you are not figuring the worksheet correctly. My only income comes from section 1256 contracts so my results may different than yours. I can send you a sample return though that might be helpful.

Wirechild Thanks for the help.
I would like to see it can you email it to me
cassadaga at hotmail.com

Put something in the subject so I find it in my junk file
Many thanks
Lawrence

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  #118 (permalink)
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marcopolo1 View Post
Just found out:

Designation of Eurex Deutschland as a “Qualified Board or Exchange” for purposes of Section 1256(g)(7) of the United States Internal Revenue Code

On 7 February 2013, Eurex Deutschland announced that the U.S. Internal Revenue Service (“IRS”)has designated Eurex Deutschland as a “Qualified Board or Exchange” for purposes of Section 1256(g)(7)of the U.S. Internal Revenue Code. This ruling, effective for all contracts entered on or after 1 March 2013, means that U.S. persons that trade at Eurex Deutschland may receive “60/40 tax treatment” in the same way when trading at other U.S. futures exchanges.

https://www.eurexchange.com/exchange-en/resources/circulars/398662/
Internal Revenue Bulletin - February 25, 2013 - Rev. Rul. 2013-5

That's good info. I've been thinking about Eurex futures lately.
The one question I have though is if I trade Eurex futures, do I only owe US taxes, or would their be EU tax liabilities as well? (I'm a US citizen, trading on US soil, from a US broker.)
If you have any info, I'd appreciate it.
Thanks!

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  #119 (permalink)
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BlackSwan04 View Post
That's good info. I've been thinking about Eurex futures lately.
The one question I have though is if I trade Eurex futures, do I only owe US taxes, or would their be EU tax liabilities as well? (I'm a US citizen, trading on US soil, from a US broker.)
If you have any info, I'd appreciate it.
Thanks!

If you are a living in USA you only pay the IRS taxes.

If you are a US citizen, living overseas the USA expect you to still file with the IRS and you may have to pay the IRS tax plus whatever country you are living in.

Hope this helps
LD

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  #120 (permalink)
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lawdam View Post
If you are a living in USA you only pay the IRS taxes.

If you are a US citizen, living overseas the USA expect you to still file with the IRS and you may have to pay the IRS tax plus whatever country you are living in.

Hope this helps
LD

Awesome. That's perfect!
Yeah I've been doing research off and on about it and it seems like the fact that no one ever mentions paying foreign taxes, or that I don't need a foreign tax ID number to trade it, implied I would only owe domestically. Thanks for the (non CPA, unofficial ) confirmation.
Btw, Which eurex products do you trade? I'm looking at swing trading FGBS.
Cheers!

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  #121 (permalink)
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BlackSwan04 View Post
Awesome. That's perfect!
Yeah I've been doing research off and on about it and it seems like the fact that no one ever mentions paying foreign taxes, or that I don't need a foreign tax ID number to trade it, implied I would only owe domestically. Thanks for the (non CPA, unofficial ) confirmation.
Btw, Which eurex products do you trade? I'm looking at swing trading FGBS.
Cheers!

I have not started trading it yet but I have a goal.
To wake in Spain or Portugal, trade the euro Am session then trade the USA Am session then go get some dinner at a nice cafe. I have been researching this for about a year. ( you are right I am not a CPA)
I figured since the trading is taking place in the USA and I plan on spending some time here in the USA anyway. I would just pay the USA taxes and live overseas using credit/debt cards.
Thanks to the new USA laws it hard to open bank accounts overseas if not impossible; being an American I can't open a bank account there, how would I pay their taxes there?
LD

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  #122 (permalink)
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lawdam View Post
I have not started trading it yet but I have a goal.
To wake in Spain or Portugal, trade the euro Am session then trade the USA Am session then go get some dinner at a nice cafe. I have been researching this for about a year. ( you are right I am not a CPA)
I figured since the trading is taking place in the USA and I plan on spending some time here in the USA anyway. I would just pay the USA taxes and live overseas using credit/debt cards.
Thanks to the new USA laws it hard to open bank accounts overseas if not impossible; being an American I can't open a bank account there, how would I pay their taxes there?
LD

Apologies. My comments regarding "non CPA, unofficial" were meant to head off any "this is not official tax advice, please consult a tax professional, etc." comments, not to cast doubt on your information or credentials.
That sounds like a great plan. I have often thought of living abroad, but I'm not sure I could swing it with my familial obligations. I figured I'd cross that bridge when I can afford it. For now I'm just looking for a good, small scale, swing trading vehicle and FGBS seems to trend pretty nicely.
Good luck in your endeavors and thanks again!

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  #123 (permalink)
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lawdam View Post
Wirechild Thanks for the help.
I would like to see it can you email it to me
cassadaga at hotmail.com

Put something in the subject so I find it in my junk file
Many thanks
Lawrence

Just saw your reply. I sent it to you via a PM here on futures.io (formerly BMT).

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  #124 (permalink)
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wirechild View Post
Just saw your reply. I sent it to you via a PM here on futures.io (formerly BMT).

Wirechild I would have to be an Elite member to open attachment and responded to PM.
Down the road I maybe but right now I am just looking around.
Nice to meet a real trader Ld

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  #125 (permalink)
Orlando+Florida/USA
 
 
Posts: 8 since Nov 2013
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BlackSwan04 View Post
Apologies. My comments regarding "non CPA, unofficial" were meant to head off any "this is not official tax advice, please consult a tax professional, etc." comments, not to cast doubt on your information or credentials.
That sounds like a great plan. I have often thought of living abroad, but I'm not sure I could swing it with my familial obligations. I figured I'd cross that bridge when I can afford it. For now I'm just looking for a good, small scale, swing trading vehicle and FGBS seems to trend pretty nicely.
Good luck in your endeavors and thanks again!

No Apologies needed. I look in to FGBS thanks
LD

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  #126 (permalink)
Arkansas
 
Experience: Intermediate
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Trading: TF, 6E, 6B
 
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lawdam View Post
Wirechild I would have to be an Elite member to open attachment and responded to PM.
Down the road I maybe but right now I am just looking around.
Nice to meet a real trader Ld

Ahh, I didn't realize you had to be elite to open the attachments:-( Ok, I can email it to you tonight.

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  #127 (permalink)
columbus OH/USA
 
Experience: Advanced
Platform: TOS
Broker: TOS
Trading: ES TF NQ, CL NG
 
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BlackSwan04 View Post
That's good info. I've been thinking about Eurex futures lately.
The one question I have though is if I trade Eurex futures, do I only owe US taxes, or would their be EU tax liabilities as well? (I'm a US citizen, trading on US soil, from a US broker.)
If you have any info, I'd appreciate it.
Thanks!

In general, you pay in both country (USA & the country you made the money). See Tax Topics - Topic 856 Foreign Tax Credit for Foreign Tax Credit.

However, USA and Germany have a tax convention to avoid double taxation: See https://www.irs.gov/pub/irs-trty/germany.pdf
Usually in these agreements immovable property gain are payed in the country the property is located, while movable are not, which is the case here - See chapter 13 - Section5:
5. Gains from the alienation of any property other than that referred to in the preceding paragraphs
shall be taxable only in the Contracting State of which the alienator is a resident.


Note that if you open a bank/brokerage account outside the US. You might need to fill up either or both (depending on amount of $$$$ in accounts):
- Form 8938, Statement of Specified Foreign Financial Assets https://www.irs.gov/pub/irs-pdf/f8938.pdf (with 1040)
- TD F 90 - 22.1 Report of Foreign Bank and Financial Accounts TD F 90-22.1 Report of Foreign Bank and Financial Accounts (Due in June I think)

Some other open issues that needs to be looked into:
1/ Tax withholding. Are any gain automatically withhold in Germany? If yes (see this for dividend for example Refund Of German Withholding Taxes – Good News For Foreign Investors - Tax - Germany) then might need to fill up German forms to get this money back somehow (because don't own tax in Germany).

2/ Even if don't own tax, there might be some reporting requirement (no idea there) to be done with tax man in Germany....

If anyone knows about (1) or (2), please post!

Disclaimer: I'm not a tax advisor and the above is not advice but general information on the subject.

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  #128 (permalink)
Boise Idaho/US
 
 
Posts: 50 since Mar 2012
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marcopolo1 View Post
In general, you pay in both country (USA & the country you made the money). See Tax Topics - Topic 856 Foreign Tax Credit for Foreign Tax Credit.

However, USA and Germany have a tax convention to avoid double taxation: See https://www.irs.gov/pub/irs-trty/germany.pdf
Usually in these agreements immovable property gain are payed in the country the property is located, while movable are not, which is the case here - See chapter 13 - Section5:
5. Gains from the alienation of any property other than that referred to in the preceding paragraphs
shall be taxable only in the Contracting State of which the alienator is a resident.


Note that if you open a bank/brokerage account outside the US. You might need to fill up either or both (depending on amount of $$$$ in accounts):
- Form 8938, Statement of Specified Foreign Financial Assets https://www.irs.gov/pub/irs-pdf/f8938.pdf (with 1040)
- TD F 90 - 22.1 Report of Foreign Bank and Financial Accounts TD F 90-22.1 Report of Foreign Bank and Financial Accounts (Due in June I think)

Some other open issues that needs to be looked into:
1/ Tax withholding. Are any gain automatically withhold in Germany? If yes (see this for dividend for example Refund Of German Withholding Taxes – Good News For Foreign Investors - Tax - Germany) then might need to fill up German forms to get this money back somehow (because don't own tax in Germany).

2/ Even if don't own tax, there might be some reporting requirement (no idea there) to be done with tax man in Germany....

If anyone knows about (1) or (2), please post!

Disclaimer: I'm not a tax advisor and the above is not advice but general information on the subject.

Yeah I looked into the foreign tax credit issues along with the tax treaties. But what seems to be the crux is whether or not taxes would be due in Germany at all (which if not, would make the FTC and treaty issues moot).
Since I would be trading from a US broker, with a US account, while residing in the US, and I don't have a German taxpayer ID number, it seems there would be no German tax burden. But I haven't found any conclusive documents to support it. And the only two discussion forum posts I found on the subject (one by lawdam, and another on a different site) indicate that there would be no foreign tax obligation.
At this point it seems like the extreme lack of evidence to support the argument for a German tax burden is supportive of the argument against there being a German tax burden. Or maybe my Google-Fu is weak, and I'm missing something obvious.
@lawdam, did you ever come across any official documents or anything regarding US traders owing foreign taxes on Eurex products? Or was it more of a deductive conclusion that you came to?
Thanks!

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  #129 (permalink)
columbus OH/USA
 
Experience: Advanced
Platform: TOS
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Trading: ES TF NQ, CL NG
 
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BlackSwan04 View Post
Yeah I looked into the foreign tax credit issues along with the tax treaties. But what seems to be the crux is whether or not taxes would be due in Germany at all (which if not, would make the FTC and treaty issues moot).
Since I would be trading from a US broker, with a US account, while residing in the US, and I don't have a German taxpayer ID number, it seems there would be no German tax burden. But I haven't found any conclusive documents to support it. And the only two discussion forum posts I found on the subject (one by lawdam, and another on a different site) indicate that there would be no foreign tax obligation.
At this point it seems like the extreme lack of evidence to support the argument for a German tax burden is supportive of the argument against there being a German tax burden. Or maybe my Google-Fu is weak, and I'm missing something obvious.
@lawdam, did you ever come across any official documents or anything regarding US traders owing foreign taxes on Eurex products? Or was it more of a deductive conclusion that you came to?
Thanks!

It's all there directly from the IRS, can't found more evidence than that : https://www.irs.gov/pub/irs-trty/germany.pdf

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  #130 (permalink)
Orlando+Florida/USA
 
 
Posts: 8 since Nov 2013
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BlackSwan04 View Post
Yeah I looked into the foreign tax credit issues along with the tax treaties. But what seems to be the crux is whether or not taxes would be due in Germany at all (which if not, would make the FTC and treaty issues moot).
Since I would be trading from a US broker, with a US account, while residing in the US, and I don't have a German taxpayer ID number, it seems there would be no German tax burden. But I haven't found any conclusive documents to support it. And the only two discussion forum posts I found on the subject (one by lawdam, and another on a different site) indicate that there would be no foreign tax obligation.
At this point it seems like the extreme lack of evidence to support the argument for a German tax burden is supportive of the argument against there being a German tax burden. Or maybe my Google-Fu is weak, and I'm missing something obvious.
@lawdam, did you ever come across any official documents or anything regarding US traders owing foreign taxes on Eurex products? Or was it more of a deductive conclusion that you came to?
Thanks!

It's late but here is a quick answer. I called my broker last year and his answer was they file a 1099-b with the IRS no one else. I would say call your broker and get it from the horses mouth.

Years ago I traded on the Canadian stock exchange, stock etc.. when a dividend got paid to my account they got their before I got mine. Then they changed the laws on oil trusts and I gave it up, they were making more money off me then I was. Hope it helps LD

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  #131 (permalink)
Portugal, Viana do Castelo
 
Experience: Intermediate
Platform: ninjatrader
Trading: 6e
 
Posts: 343 since Sep 2011


Big Mike View Post
I'd like to start a new subject on Tax Avoidance (legal).

As many of you know, I am looking to move out of the country soon and "retire". Retirement is more a state of mind and financial independence, as I plan to continue to trade and would never imagine not trading.

I've been trying to do homework on how to minimize taxes as a US Citizen but living in, and trading from, another country. I am hitting a lot of roadblocks.

There has to be a lot of people here in a similar situation, so I'm looking for some suggestions to point me in the right direction before I hire a professional.

Mike


Hi Bigmike,

There is a guidebook online that is called the International Trust Guidebook you can find it here:
International Man ?Trust Guidebook? | Casey Research

I´am looking for a free version

I´am a Portuguese citizen and looking for a way to avoid tax in a legal way and here in Portugal it is like in the US, you have to pay taxes on all the income that you or any business that you own, make, so simply forming an offshore structure is considered tax evasion but there are some loop holes. A trust formation is an unknown form here in Portugal so the way to do it is with a trust formation and then with that Trust you form an offshore company and you can trade under the name of that offshore company.

I do not know how you can do it in the US but I think you will find valuable information in that guide book.

Good trading,
JJ

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  #132 (permalink)
Orlando+Florida/USA
 
 
Posts: 8 since Nov 2013
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jsengxx2 View Post
Hi Bigmike,

There is a guidebook online that is called the International Trust Guidebook you can find it here:
International Man ?Trust Guidebook? | Casey Research

I´am looking for a free version

I´am a Portuguese citizen and looking for a way to avoid tax in a legal way and here in Portugal it is like in the US, you have to pay taxes on all the income that you or any business that you own, make, so simply forming an offshore structure is considered tax evasion but there are some loop holes. A trust formation is an unknown form here in Portugal so the way to do it is with a trust formation and then with that Trust you form an offshore company and you can trade under the name of that offshore company.

I do not know how you can do it in the US but I think you will find valuable information in that guide book.

Good trading,
JJ

This book you have a link to, on there website they state "Find out how to take advantage of this strategy before the government outlaws it (they're already working on it)." Last year when the US changed the banking laws they didn't state this new law, is for new US citizen, wanting to open a bank account outside the USA. The new laws applied to ever US citizen and every bank in the world.
I think it all comes down to how much profit you make each year trading

Where do you live? Portugal? It so, north, south what city is close to you?
Thanks LD

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  #133 (permalink)
Portugal, Viana do Castelo
 
Experience: Intermediate
Platform: ninjatrader
Trading: 6e
 
Posts: 343 since Sep 2011


lawdam View Post
This book you have a link to, on there website they state "Find out how to take advantage of this strategy before the government outlaws it (they're already working on it)." Last year when the US changed the banking laws they didn't state this new law, is for new US citizen, wanting to open a bank account outside the USA. The new laws applied to ever US citizen and every bank in the world.
I think it all comes down to how much profit you make each year trading

Where do you live? Portugal? It so, north, south what city is close to you?
Thanks LD

Hi,

I live in a small city called Viana do Castelo.

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  #134 (permalink)
Kirkland, WA/United States
 
Experience: Intermediate
Platform: NinjaTrader
Broker: Optimus/Vision/Rithmic
Trading: Futures
 
LightWeight's Avatar
 
Posts: 138 since Jul 2012
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Hey everyone, it's getting to tax time so I had a few questions if anyone might know:

This was my first year trading (futures only), and I obviously had expenses -- new computer and monitors, lifetime Ninja license, software, etc. Am I able to deduct all those as an individual trader, with no business license or anything?

Also, do I need to get a CPA, or because I only traded futures (and only have 1099's from two brokers), would it be easy enough to do them on my own? I also have a day job, which is also 1099. It SEEMS like it all shouldn't be that complicated, but having not been through this before I'm not sure if that's accurate or not, especially if I'm looking to deduct things.

Think big, think positive, never show any sign of weakness. Always go for the throat. Buy low, sell high. Fear? That's the other guy's problem. In this building, it's either kill or be killed. You make no friends in the pits and you take no prisoners. One minute you're up half a million in soybeans and the next, boom, your kids don't go to college and they've repossessed your Bentley. Are you with me?
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  #135 (permalink)
London + UK
 
Experience: Advanced
Platform: Proprietary Analytics
Broker: Multiple broker + Multiple feed
Trading: Currently European and US equities
 
sands's Avatar
 
Posts: 443 since Dec 2013
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Any opinions on UK corporate structures for futures trading, to help reduce tax liabilities?

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  #136 (permalink)
Porto Alegre RS/Brazil
 
Experience: Advanced
Platform: Ninja Trader Meta Trader
Trading: Forex, Oil, Gold, ES
 
Posts: 6 since Mar 2014
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What happens when I trade SP500 futures and DAX futures on a broker (mirus for example) and I am brazilian?

Do I have to pay taxes to USA on SP500 fututres and Germany on DAX futures?

Or I don`t pay any taxes to USA and Germany?


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  #137 (permalink)
Porto Alegre RS/Brazil
 
Experience: Advanced
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blessedone View Post
What happens when I trade SP500 futures and DAX futures on a broker (mirus for example) and I am brazilian?

Do I have to pay taxes to USA on SP500 fututres and Germany on DAX futures?

Or I don`t pay any taxes to USA and Germany?


Just discovered.

You don`t have to pay for USA or Germany. You have to pay on Brazil 15% on capital gains if not daytrading.

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  #138 (permalink)
Valdosta, GA. U.S.A
 
Experience: Advanced
Platform: Sierra , TOS
Trading: 6E, ES, CL, GC
 
Posts: 498 since Sep 2010
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I found this Article that may be interesting to check out:

False Tax Claims

I gather from this Article that our Tax for the Long term Capital Gains would now be 20% .
I calculate if Trading Futures in 2014, and looking at the 60/40 split, as 60 is calculated now at 20% Long Term Capital Gains, and
the 40 is still calculated at your Regular rate.

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  #139 (permalink)
Munich, Germany
 
 
Posts: 3 since Aug 2014
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MWinfrey View Post
I do not have a separate business set up to trade in. I trade in a joint account and only trade futures. I get a single 1099 at the end of the year from my broker. This 1099 simplifies things considerably and as such is a single taxable event regardless how many trades I place during the year. I am taxed on the amount of profit/loss reported on that 1099 and that's it. Very simple.

My plan for the near future is to trade from a Roth account. When I turn 59 1/2, I will be able to withdraw from my Roth account without penalty. By definition as I understand the tax laws is that proceeds from a Roth account are not taxable. Only contributions made to the Roth account are taxable at the time of the contribution. So, being as I will be trading from an existing Roth account, any money made trading futures will not be taxed when I withdraw the money. Further, because I don't any other form of income from a "real" job, proceeds from my Roth account will not effect my ability to draw social security.

Anyone with experience or knowledge contrary to what I've outlined is very welcome to comment.

Hello MWinfrey & All.

I am curious as to whether anyone here has pursued this avenue. I have been doing a little research on tax law as it relates to Roth IRAs, and have a cunning plan. Here is what I have found:
  • Contributions made to an IRA may be withdrawn at any time without tax or penalty, as the tax burden on that money has already been fulfilled. (This is a very important point for may plan)
  • A person may have multiple IRA accounts, but total contributions to those accounts are limited to the annual contribution limit set by the IRS. (i.e. If your limit is $6,000 a year and you have 3 Roth IRAs you could contribute $2,000 to each, or divide it up any way you choose, as long as the total is not more than $6,000)
  • Earnings (dividends and interest) on a Roth IRA cannot be withdrawn without penalty and interest until 5 years have passed from January 1st of the year in which the first contribution is attributed (5 year rule).
  • For anyone having more than one Roth IRA the 5 year rule is considered satisfied for all accounts once it has been satisfied for one of them. (This is also important for my plan)
  • Earnings also cannot be withdrawn without penalty and/or interest until the age of 59½, except for certain "qualified reasons."
  • As the IRS views multiple Roth IRA accounts as one account for tax purposes, withdrawls can be made from any account, subject to the rules above.

So this is my plan:

I have been contributing to a Roth IRA for many years. I am 56 years old so have 3½ years before I can withdraw any earnings. My plan is to open up a second Roth IRA as a trading account. I will fund it with part of my 2014 contribution, and will forgo that part for my regular Roth IRA for this year. As of 2015 I will continue making full contributions to that account. That way, except for this year's exclusion, my trading will in no way affect my retirement account.

Hopefully the 2nd Roth IRA will grow from my trading. Once it has grown to the point where I want to make withdrawls, I am allowed to withdraw up to what I have contributed to both Roth IRAs. As I have been contributing to the 1st one for many years, that's a good bit of change. And it would certainly see me through the next 3½ years.

Of course this is all predicated on me doing well trading, and that remains to be seen. But it avoids all taxes, and the hassle of reporting profit/loss, and the need to set up an LLC or some such entity.

Any thoughts? The question is, where can I find a broker who will allow me to trade through a Roth IRA? I use the NinjaTrader platform so it has to be one of the brokers they work with. That list has shrunk since they have started their own brokerage. I have a call in to them to see if they will allow it.

I appreciate any feedback on this. Thanks!

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  #140 (permalink)
Valdosta, GA. U.S.A
 
Experience: Advanced
Platform: Sierra , TOS
Trading: 6E, ES, CL, GC
 
Posts: 498 since Sep 2010
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"What Tax Bracket Am I In?" -- "It's Complicated."

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  #141 (permalink)
Boston, MA/USA
 
Experience: Intermediate
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Trading: ES
 
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MWinfrey View Post
I do not have a separate business set up to trade in. I trade in a joint account and only trade futures. I get a single 1099 at the end of the year from my broker. This 1099 simplifies things considerably and as such is a single taxable event regardless how many trades I place during the year. I am taxed on the amount of profit/loss reported on that 1099 and that's it. Very simple.

My plan for the near future is to trade from a Roth account. When I turn 59 1/2, I will be able to withdraw from my Roth account without penalty. By definition as I understand the tax laws is that proceeds from a Roth account are not taxable. Only contributions made to the Roth account are taxable at the time of the contribution. So, being as I will be trading from an existing Roth account, any money made trading futures will not be taxed when I withdraw the money. Further, because I don't any other form of income from a "real" job, proceeds from my Roth account will not effect my ability to draw social security.

Anyone with experience or knowledge contrary to what I've outlined is very welcome to comment.

Hmm - great idea - I don't have a Roth account. Would I be able to fund a Roth account from my trading income and then trade the Roth account to withdraw taxfree after 59.5? Also is there an age limit for contributing to a Roth account? TIA

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  #142 (permalink)
Lakeland FL
 
Experience: Beginner
Platform: NinjaTrader
Broker: NinjaTrader Brokerage
Trading: CL
 
Posts: 5 since Aug 2014
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baritrader View Post
Hello MWinfrey & All.

I am curious as to whether anyone here has pursued this avenue. I have been doing a little research on tax law as it relates to Roth IRAs, and have a cunning plan. Here is what I have found:
  • Contributions made to an IRA may be withdrawn at any time without tax or penalty, as the tax burden on that money has already been fulfilled. (This is a very important point for may plan)
  • A person may have multiple IRA accounts, but total contributions to those accounts are limited to the annual contribution limit set by the IRS. (i.e. If your limit is $6,000 a year and you have 3 Roth IRAs you could contribute $2,000 to each, or divide it up any way you choose, as long as the total is not more than $6,000)
  • Earnings (dividends and interest) on a Roth IRA cannot be withdrawn without penalty and interest until 5 years have passed from January 1st of the year in which the first contribution is attributed (5 year rule).
  • For anyone having more than one Roth IRA the 5 year rule is considered satisfied for all accounts once it has been satisfied for one of them. (This is also important for my plan)
  • Earnings also cannot be withdrawn without penalty and/or interest until the age of 59½, except for certain "qualified reasons."
  • As the IRS views multiple Roth IRA accounts as one account for tax purposes, withdrawls can be made from any account, subject to the rules above.

So this is my plan:

I have been contributing to a Roth IRA for many years. I am 56 years old so have 3½ years before I can withdraw any earnings. My plan is to open up a second Roth IRA as a trading account. I will fund it with part of my 2014 contribution, and will forgo that part for my regular Roth IRA for this year. As of 2015 I will continue making full contributions to that account. That way, except for this year's exclusion, my trading will in no way affect my retirement account.

Hopefully the 2nd Roth IRA will grow from my trading. Once it has grown to the point where I want to make withdrawls, I am allowed to withdraw up to what I have contributed to both Roth IRAs. As I have been contributing to the 1st one for many years, that's a good bit of change. And it would certainly see me through the next 3½ years.

Of course this is all predicated on me doing well trading, and that remains to be seen. But it avoids all taxes, and the hassle of reporting profit/loss, and the need to set up an LLC or some such entity.

Any thoughts? The question is, where can I find a broker who will allow me to trade through a Roth IRA? I use the NinjaTrader platform so it has to be one of the brokers they work with. That list has shrunk since they have started their own brokerage. I have a call in to them to see if they will allow it.

I appreciate any feedback on this. Thanks!

The only other caveat I would mention is that under the ordering rules Roth conversions from a traditional IRA come out after contributions and all though they are tax free (tax was paid on conversion) those dollars are still subject to 10% early withdrawal penalty before 59 1/2.

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  #143 (permalink)
Munich, Germany
 
 
Posts: 3 since Aug 2014
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Suraj View Post
Hmm - great idea - I don't have a Roth account. Would I be able to fund a Roth account from my trading income and then trade the Roth account to withdraw taxfree after 59.5? Also is there an age limit for contributing to a Roth account? TIA

I am not a tax expert, so take this with a grain of salt. I am just starting out trading a Roth IRA.

But the short answer is, YES. You can establish a Roth IRA with a company that specializes in self-directed IRAs. For 2014 you can contribute up to $5500 ($6500 if you're 50½ or older) as long as you have not contributed to any other retirement account during the year. Once the IRA is established, the company will transfer the amount you specify to your broker. This money must be in a separate account, as any profit generated must be independently connected to the IRA funds. Those profits are tax free as long as they are not received as a distribution before you are 59½.

You are allowed to withdraw any money you contribute to the fund at any time. Earnings withdrawn before you turn 59½ are subject to tax and, depending on the reason, possibly also a penalty.

As for an age limit, since the money is tax free I don't believe there is an age limit for contributions. With a traditional IRA, once you turn 70½ you must take a yearly distribution based on your age and the total value of the fund. With a Roth IRA the money can stay there as long as you want. I suppose you can also continue contributing as long as you want. But I will ask my fund manager about that point.

Ideally, of course, you could make contributions now for 2014 and in January for 2015, and with proper money management that should be enough to trade with indefinitely!

Cheers!

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  #144 (permalink)
Munich, Germany
 
 
Posts: 3 since Aug 2014
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aharry View Post
The only other caveat I would mention is that under the ordering rules Roth conversions from a traditional IRA come out after contributions and all though they are tax free (tax was paid on conversion) those dollars are still subject to 10% early withdrawal penalty before 59 1/2.

Since both of my IRAs, the one I have just opened and my "retirement" IRA, are Roths, that isn't an issue for me.

But for those for whom it might be, does that also apply to contributions made to the traditional IRA? I would think that since the taxes had been paid on conversion, any and all contributions would be treated equally under the rules of a Roth.

Thx!

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  #145 (permalink)
Lakeland FL
 
Experience: Beginner
Platform: NinjaTrader
Broker: NinjaTrader Brokerage
Trading: CL
 
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baritrader View Post
Since both of my IRAs, the one I have just opened and my "retirement" IRA, are Roths, that isn't an issue for me.

But for those for whom it might be, does that also apply to contributions made to the traditional IRA? I would think that since the taxes had been paid on conversion, any and all contributions would be treated equally under the rules of a Roth.

Thx!

The rule is to prevent someone under 59 1/2 from using a conversion to avoid the 10% penalty. Let's say you had a traditional IRA and you needed $5000 but were not yet 59 1/2. You convert the amount you need to a Roth and pay the tax on the amount converted and then withdraw it from the Roth. It is still subject to 10% penalty.

Whereas if you made a $5000 contribution to a Roth and then withdraw it there is no tax or penalty.

Many Roth IRAs were funded by traditional IRA conversions and those dollars must be tracked separately from actual Roth contributions under the ordering rules.

If all of your Roth account is contributions and earnings then it would not apply.

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  #146 (permalink)
Lakeland FL
 
Experience: Beginner
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Trading: CL
 
Posts: 5 since Aug 2014
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There is no age limit for contributing to a Roth, but you must have earned income, I hope to not be working at 70 1/2.

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  #147 (permalink)
Boston, MA/USA
 
Experience: Intermediate
Platform: Sierra
Trading: ES
 
Posts: 13 since Aug 2012
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aharry View Post
There is no age limit for contributing to a Roth, but you must have earned income, I hope to not be working at 70 1/2.

Does income from trading qualify as earned income? TIA

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  #148 (permalink)
Lakeland FL
 
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Suraj View Post
Does income from trading qualify as earned income? TIA

Depends on if you qualify as a trader under IRS rules. If you do then your trading activity is reported on Schedule C and net income from self-employment is considered earned income. Also, if you trade under an entity such as a corp, s-corp, or LLC and pay yourself a salary, the salary reported on form W-2 would be earned income.

Tax Topics - Topic 429 Traders in Securities (Information for Form 1040 Filers)

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  #149 (permalink)
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aharry View Post
Depends on if you qualify as a trader under IRS rules. If you do then your trading activity is reported on Schedule C and net income from self-employment is considered earned income. Also, if you trade under an entity such as a corp, s-corp, or LLC and pay yourself a salary, the salary reported on form W-2 would be earned income.

Tax Topics - Topic 429 Traders in Securities (Information for Form 1040 Filers)

Thanks, if not for anything else, I can trade partly under an LLC to fund the Roth which would then allow trading tax free! Wow.

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  #150 (permalink)
Valdosta, GA. U.S.A
 
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The Patient Protection and Affordable Care Act (also known as Obamacare) enacted in 2012 has taken several years to implement and phase in. But now that the Obamacare 2014 individual health insurance mandate is in effect, many taxpayers will face confusion over tax penalties, exemptions, premium tax credits, claw backs of subsidies (advanced credits) and extra tax-preparation fees to comply with Obamacare on 2014 tax filings. In our below content, we clarify the details of the mandate to avoid confusion. 2014 is the second year for the Obamacare Net Investment Income Tax (NIT) and we show you some strategies to reduce or avoid NIT. Here are a few things you’ll learn in our Oct. 30 blog Obamacare ushers in several new tax forms for 2014 and Nov. 12 Webinar.
Three scenarios for dealing with the Obamacare mandate on 2014 tax returns.
How to handle the five new Obamacare tax forms to your advantage.
When to enroll on an exchange for 2015 coverage and have an opportunity for a premium tax credit.
Tips for upper-income traders to reduce or avoid Net Investment Income Tax.
No matter of your tax bracket, high or low, you need to take charge of your Obamacare tax matters today. If you have upper income AGI and unearned income from investments, get ready to pay the 3.8% net investment tax.

Obamacare: Individual Mandate & Net Investment Income Tax | GreenTraderTax

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  #151 (permalink)
Legendary Market Wizard
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+1 for GreenTraderTax.
I'm a very happy client.
Their knowledge of trading related tax matters is excellent (and their specialty).

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  #152 (permalink)
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3 Tax Changes for 2015 You Need To Know About

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  #153 (permalink)
Sydney, NSW, Australia
 
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Hi, does anyone know how futures trading is taxed in Australia? Would be great if we had something like the 60/40 cgt/income tax split in the US but not holding my breath.

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  #154 (permalink)
Memphis,TN
 
 
Posts: 232 since Sep 2010

Can someone please inform me as to the Percent I need to hold out on all made profits in trading the following.... Forex, Stocks,Futures and Options

Does it matter what you trade , as to the percent of taxes you need to withhold for each individual instrument/market or are all instruments/markets taxed the same, and the percent you need to hold out for taxes , comes down to your individual income ?

Are the Taxes calculated as the following ( as an Example ):
Forex = 15%
Options= 20%
Stocks = 25%
Futures = 30%

OR

is it a Set 15%, 20%, 25% taxed on all your profits from trading, no matter what you trade ?

Thanks for the help, just want to make sure I have withheld enough

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  #155 (permalink)
Legendary Market Wizard
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Equities & Equity Options held for less than 1 year = Short Term Capital Gains = Your Individual Tax Rate (0% to 39.6%)
Equities & Equity Options held longer than 1 year = Long Term Capital Gains = 0% to 20% depending on your Tax Bracket

Most Futures & Futures Option contracts are taxed as Section 1256 Contracts which means that they are taxed 60% at your long term capital gains rates and 40% at you short term capital gains rate no matter what the holding period.
Hence in the highest tax bracket your Section 1256 tax rate is 60% @ 20% + 40% @ 39.6% = 27.84% (prior to the recent tax increases this was only 23%).

Forex I don't know. A quick google search implies that it can be taxed either way depending upon your situation.

On top of this you will also owe 3.8% Net Investment Tax if your AGI is over $200k single/$250k married.

If you own or lease an exchange membership your trading earnings may also be subject to Self Employment Tax's.

Disclaimer. I'm not an accountant, I'm a trader, hence this is only my understanding and while I believe it to be accurate it may be incorrect.

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  #156 (permalink)
Silver Spring MD
 
 
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LightWeight View Post
Hey everyone, it's getting to tax time so I had a few questions if anyone might know:

This was my first year trading (futures only), and I obviously had expenses -- new computer and monitors, lifetime Ninja license, software, etc. Am I able to deduct all those as an individual trader, with no business license or anything?

Also, do I need to get a CPA, or because I only traded futures (and only have 1099's from two brokers), would it be easy enough to do them on my own? I also have a day job, which is also 1099. It SEEMS like it all shouldn't be that complicated, but having not been through this before I'm not sure if that's accurate or not, especially if I'm looking to deduct things.

Good evening LightWeight,

Your post is an exact depiction of the situation that i currently face, but unfortunately i saw that no one replied to your post. So i was wondering if you've figured it out, and if so could you provide me with any guidance and references to the personnel or company you used.

Thank you much.

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  #157 (permalink)
Legendary Market Wizard
Houston, TX
 
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Corpben View Post
Good evening LightWeight,

Your post is an exact depiction of the situation that i currently face, but unfortunately i saw that no one replied to your post. So i was wondering if you've figured it out, and if so could you provide me with any guidance and references to the personnel or company you used.

Thank you much.

I believe that to deduct costs like that you will need to qualify for trader tax status.

As always Green Trader Tax/Green & Company are an amazing resource for information like this.
Founder & CEO Robert Green is a nationally quoted expert who appears in Forbes, Futures Magazine and other major publications.
They are my accountant and they do a great job.

LINK: Green Trader Tax - Trader Tax Status

To quote them...
Trader Tax Status: How to Qualify
It's not easy to qualify for trader tax status. Learn our golden rules based on trader tax court cases.

Currently, there’s no statutory law with objective tests for how to qualify for trader tax status (TTS). Subjective case-law applies. Leading tax publishers have interpreted case-law to show a two-part test to qualify for TTS:

Taxpayers’ trading activity must be substantial, regular, frequent and continuous.
The taxpayer must seek to catch the swings in the daily market movements and profit from these short-term changes rather than profiting from long-term holding of investments.
There's more info on their site.

Disclaimer. I'm not an accountant, I'm a trader, hence this is only my understanding and while I believe it to be accurate it may be incorrect.

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  #158 (permalink)
Silver Spring MD
 
 
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SMCJB View Post
I believe that to deduct costs like that you will need to qualify for trader tax status.

As always Green Trader Tax/Green & Company are an amazing resource for information like this.
Founder & CEO Robert Green is a nationally quoted expert who appears in Forbes, Futures Magazine and other major publications.
They are my accountant and they do a great job.

LINK: Green Trader Tax - Trader Tax Status

To quote them...
Trader Tax Status: How to Qualify
It's not easy to qualify for trader tax status. Learn our golden rules based on trader tax court cases.

Currently, there’s no statutory law with objective tests for how to qualify for trader tax status (TTS). Subjective case-law applies. Leading tax publishers have interpreted case-law to show a two-part test to qualify for TTS:

Taxpayers’ trading activity must be substantial, regular, frequent and continuous.
The taxpayer must seek to catch the swings in the daily market movements and profit from these short-term changes rather than profiting from long-term holding of investments.
There's more info on their site.

Disclaimer. I'm not an accountant, I'm a trader, hence this is only my understanding and while I believe it to be accurate it may be incorrect.

Thank you

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  #159 (permalink)
Memphis,TN
 
 
Posts: 232 since Sep 2010

Thank you for the GreenTraderTax link

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  #160 (permalink)
Memphis,TN
 
 
Posts: 232 since Sep 2010

As far as the Percentage of Gains from trading ( Stocks, Forex, Options ) , combining all profits and from all instruments traded,
If you made say $10,000 for the year 2014 , would holding 20% ( $2,000 ) be enough to cover your Capital gains tax , or is it more in the 25 - 30% percent range ?

I know about the 60/40 rule, I'm just trying to make sure I apply it correctly, and hold out extra for taxes from here on out , as to not have it come back to bite me Tax time of this year.

Thanks for the help

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  #161 (permalink)
Legendary Market Wizard
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mdsvtr View Post
As far as the Percentage of Gains from trading ( Stocks, Forex, Options ) , combining all profits and from all instruments traded,
If you made say $10,000 for the year 2014 , would holding 20% ( $2,000 ) be enough to cover your Capital gains tax , or is it more in the 25 - 30% percent range ?

I know about the 60/40 rule, I'm just trying to make sure I apply it correctly, and hold out extra for taxes from here on out , as to not have it come back to bite me Tax time of this year.

Thanks for the help

Depends entirely upon what your adjusted gross income (AGI) (aka your tax bracket) is for the year. If you make $1 million then no you'll probably pay more. If that is your only income then you may not own any tax at all.


SMCJB View Post
Equities & Equity Options held for less than 1 year = Short Term Capital Gains = Your Individual Tax Rate (0% to 39.6%)
Equities & Equity Options held longer than 1 year = Long Term Capital Gains = 0% to 20% depending on your Tax Bracket

Individual Tax Brackets


Married Tax Bracket


Disclaimer. I'm not an accountant, I'm a trader, hence this is only my understanding and while I believe it to be accurate it may be incorrect.

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  #162 (permalink)
Memphis,TN
 
 
Posts: 232 since Sep 2010

SMCJB ,
Thanks so much for posting this

This is exactly the information i was looking for

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  #163 (permalink)
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I have a question specifically about trader tax status. I started another thread for that specific sub-topic here:

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  #164 (permalink)
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The Obamacare Tax Shock That Could Have You Pulling Your Hair Out

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  #165 (permalink)
Tampa, Florida USA
 
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I'm wondering how many traders here have or are seeking 'trader tax status' and how the requirements for acquiring that status have effected (affected?) their trading.

The reason I bring this up is that it seems to me some of the things you have to do to qualify for trader tax status, or trading as a business, are actually counter productive to running a successful (profitable) trading business. One example is the 'requirement' for a minimum number of trades per year. This encourages over trading, especially if you're not a scalper who takes several round turns a day. Swing traders may be out of luck, both on the number of trades criteria and the duration of the trade criteria.

I know that each case is different, but I'd like to get a feeling of how many traders have found the requirements worth it for the business deductions and have been able to trade profitably within the IRS guidelines.

I'm leaning toward seeking trader tax status for the deductions and to re-enforce (in my own mind at least) that my trading activity is a business and should be treated that way, not just a hobby that I can fiddle around with.

What are your thoughts, opinions, comments?

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  #166 (permalink)
Arkansas
 
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cts001 View Post
I'm wondering how many traders here have or are seeking 'trader tax status' and how the requirements for acquiring that status have effected (affected?) their trading.

The reason I bring this up is that it seems to me some of the things you have to do to qualify for trader tax status, or trading as a business, are actually counter productive to running a successful (profitable) trading business. One example is the 'requirement' for a minimum number of trades per year. This encourages over trading, especially if you're not a scalper who takes several round turns a day. Swing traders may be out of luck, both on the number of trades criteria and the duration of the trade criteria.

I know that each case is different, but I'd like to get a feeling of how many traders have found the requirements worth it for the business deductions and have been able to trade profitably within the IRS guidelines.

I'm leaning toward seeking trader tax status for the deductions and to re-enforce (in my own mind at least) that my trading activity is a business and should be treated that way, not just a hobby that I can fiddle around with.

What are your thoughts, opinions, comments?

I figure up my taxes both ways (actually about 4 different ways) each year and then decide. You don't have to claim trader status until you file your return.

2014 was my 3rd full year with trading as my only income and I haven't claimed trader status yet.

This will be different for each and every trader based on your personal situation.

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  #167 (permalink)
Legendary Market Wizard
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cts001 View Post
I'm wondering how many traders here have or are seeking 'trader tax status' and how the requirements for acquiring that status have effected (affected?) their trading.

I've filed using trader tax status for 5 consecutive years. For me the big benefit is being able to fully deduct, servers, hosting, software and other business expenses.
I trade 250 days a year and execute thousands of trades so qualifying is not difficult for me.

cts001 View Post
The reason I bring this up is that it seems to me some of the things you have to do to qualify for trader tax status, or trading as a business, are actually counter productive to running a successful (profitable) trading business. One example is the 'requirement' for a minimum number of trades per year. This encourages over trading, especially if you're not a scalper who takes several round turns a day. Swing traders may be out of luck, both on the number of trades criteria and the duration of the trade criteria.

I believe the intent of the rule is to differentiate between people who trade for a business as opposed to people who trade part time and/or people who invest rather than trade.
Obviously the dividing line between the 3 can be highly debatable, but I guess they had to start somewhere.
While you do mention the trade frequency requirement Green Trader Tax lists several other desired requirements to qualify including
- Regular: Trades full-time or part-time for a good part of the day, almost every day.
- Frequent: Executes trades on more than 75% of available trading days. That’s close to four days per week.
- Continuous: Has few to no sporadic lapses in the trading business during the year. One month on and one month off is not acceptable.
- Time: Spends more than four hours per day, almost every market day working on his trading business.
- Daily market movements: Makes mostly day trades or swing trades with average holding periods under a few weeks on equities and no more than 30 days on options.
- Intention: Has the intention to run a business and make a living. It doesn’t have to be a “primary” living and you can have perennial losses as the hobby-loss rules don’t apply to a trading business.
Do you qualify for all of these?

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  #168 (permalink)
Tampa, Florida USA
 
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Yes, I meet all qualifications for trader tax status. I only mentioned a couple because they seem counter productive. If I was selling Avon, I would not have to meet these kinds of test (imagine having to make an average of 2-3 sales per day...)

I think there are a lot of 'traders' who do not opt for trader tax status but instead run an education or mentoring business that happens to deal with trading (or something like that) in order to have business tax advantages and not have to meet some of the specific requirements for trader tax status. I'm not in a position to do that.

Just trying to see if most of those who qualify for 'trader tax status' are filing for it and if it is hard to maintain or not given a particular trading style.

Thanks for the replies.

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  #169 (permalink)
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cartoon of the day

After all, it's what you learn AFTER you know it all, that counts!
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  #170 (permalink)
Legendary Market Wizard
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Forbes: Tax Treatment Of Forex Losses In Wake Of Swiss Surprise
by Robert Green of Green Trader Tax

If you are one of many who got caught on the wrong side of the forex trade when the Swiss National Bank (SNB) surprised the markets with a huge policy change this week, you probably incurred significant losses. Here’s a quick primer on how to handle these losses on your tax returns. First, it’s important to segregate your losses into two camps .....

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  #171 (permalink)
Sydney, NSW, Australia
 
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If you set up a company offshore with 0% tax, would you have to pay tax on that company's income in the country you reside in? Probably a bad question because it probably depends on your country of residence... lets assume it's the US. If you could do that and then pay yourself a small income which is then taxed at the country's rate that would mean you could live pretty much anywhere regardless of the tax rate and allow your trading account to grow as fast as possible.

Understanding yourself is just as important as understanding markets.
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  #172 (permalink)
Legendary Bought TSLA at 880
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TickedOff View Post
If you set up a company offshore with 0% tax, would you have to pay tax on that company's income in the country you reside in? Probably a bad question because it probably depends on your country of residence... lets assume it's the US. If you could do that and then pay yourself a small income which is then taxed at the country's rate that would mean you could live pretty much anywhere regardless of the tax rate and allow your trading account to grow as fast as possible.

In your U.S.-based example, the foreign company would receive PFIC treatment, which eliminates tax deferral advantages of the setup that you've described.

Glossing over some of the finer details: as a shareholder of such company, your excess distributive share of the income would be subject to taxes at the highest brackets - and effectively more - unless you make certain elections. Such elections would require you to realize those gains annually either as ordinary income or otherwise and therefore eliminate the means of deferral.

And besides, the administrative costs of operating such a foreign company are nontrivial unless you're talking about 7 figures in investment capital.

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  #173 (permalink)
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Does anyone do their own taxes using online software like HRBlock/TaxAct? Normally I do but I can't seem to find any online software that supports the Substitute 1099-B. Anyone know of one that does?

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  #174 (permalink)
the coin hunter
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DoobyWho View Post
Does anyone do their own taxes using online software like HRBlock/TaxAct? Normally I do but I can't seem to find any online software that supports the Substitute 1099-B. Anyone know of one that does?

online filing is only for simple case, buy a heavy duty version then you can file 1099 B.

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  #175 (permalink)
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cory View Post
online filing is only for simple case, buy a heavy duty version then you can file 1099 b.

Have an example of one that supports it? TaxAct online and HRBlock online both support the 1099B but not the substitute form for Futures that requires boxes 9,10,11,12.

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  #176 (permalink)
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I use TurboTax Home & Business. After using HR Block for years, and dealing with several rounds of mistakes, I moved to E&Y which is not cheap. They made a lot of mistakes also (my taxes are very complex, not only because of trading but because I file in several states for other reasons). I realized that in the end I was just paying these folks to be a very bad data entry clerk and it was taking me a lot of time. Finally, I decided to do it myself using TurboTax. The first year was a bit of a nightmare, but each year has become easier. I keep everything well filed, and I document my previous year taxes in an Excel spreadsheet. So, when I start my next year taxes I have the previous year as a reference. I also recommend the desktop version as it's much quicker and easier to navigate (instead of waiting for the Intuit servers response time on the final days of filing...).
The big advantage of this, is that not only I have much more confidence on the final result of my taxes, but now I understand much better the tax implications of my different investments.

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  #177 (permalink)
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Is the following correct for basic futures tax calculations (60% at 15% and 40% at 35%) I have attached a spread sheet with the respective formulas in place

contracts 1
commission $2.55
RT Total $5.10
long term tax 15.00%
short term tax 35.00%
profit per tick $12.50
nticks 1
gross $12.50
gross - commission $7.40
gross profit % 59.20%
before tax $7.40
after tax $5.70
business profit % 45.58%

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  #178 (permalink)
Legendary Market Wizard
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tulanch View Post
Is the following correct for basic futures tax calculations (60% at 15% and 40% at 35%) I have attached a spread sheet with the respective formulas in place

contracts 1
commission $2.55
RT Total $5.10
long term tax 15.00%
short term tax 35.00%
profit per tick $12.50
nticks 1
gross $12.50
gross - commission $7.40
gross profit % 59.20%
before tax $7.40
after tax $5.70
business profit % 45.58%

Interesting way of looking at it, but yes the Math looks correct. You could also add in a per lot infrastructure/hardware/computer/whatever cost. It should be noted that both Short Term & Long Term tax rates are not fixed and are dependent on total income. The numbers you reference are pre-2013. Max rates are currently 39.6% and 20% giving a max blended 60/40 income tax rate of 27.84% rather than 23%. I say income tax rate because you could also be subject to 3.8% investment tax if your total income is high enough.

When evaluating my trading costs I don't consider tax's but I do look at my total expenses for the year, divided by the number of lots I trade and then add that to my commission rate, to get a better representation of my true cost per lot.

Disclaimer. I'm not an accountant, I'm a trader, hence this is only my understanding and while I believe it to be accurate it may be incorrect.

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  #179 (permalink)
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I'm in the UK and the way I did it was to run the trading account as a corporate company. This enabled me to do the initial investment (deposit) as giving back the dividends that I've paid myself over the years and as a result I'm not paying any tax until my company returns my directors loan. Of course it all depends on your individual circumstances.

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  #180 (permalink)
Denver, CO
 
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I'm having some success with the ES futures - I need to improve my consistency, but it's probably safe to say that I'll be paying taxes on my profits this time next year. I've browsed some of the online tax information that's available at Green Tax Trader, and Traders Accounting, and most of what I've seen seems to focus on pure equities trading, i.e, stocks. There's not a lot of detailed information about futures contracts and the Section 1256 tax benefits. Don't get me wrong - they all mention the tax advantages of the 60/40 rule - but I haven't been able to answer a simple question ....

If I'm an individual futures trader, trading only 60/40 Section 1256 vehicles like the ES or 6E, is there actually any benefit to securing trader status, or incorporating as a business, to be taxed as a corporation instead of as an individual?

I understand the advantage if you're trading stocks or options, which could be taxed as high as 39.6% (or higher). You want to get into that lower corporate tax structure. But if you're only trading Section 1256 contracts, then you won't be paying more than (roughly) 28% ... which is lower than the corporate rate. So is there any reason for a futures-only trader to incorporate?

I understand that incorporating opens up the possibility of business deductions - but things like health plans and retirement plans come with their own restrictions and rules. Is there sufficient advantage to these deductions, to counter the loss of liquidity that comes with these features? (Or put more simply: is it easier/better just to have a big trading account full o' cash that you draw from as you need it, rather than pay yourself a salary, set up an HSA, 401(k), etc, and all the strings/hassle/red tape that comes that approach?)

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  #181 (permalink)
Chicago, USA
 
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This is just my opinion, and I'm no tax expert by any means, but until you are making a few $100Ks on Futures Trading, don't bother. It will only add complexity. You can still take advantage of the 1256 form.

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  #182 (permalink)
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Watch tomorrow's webinar. It covers this in depth

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A reminder for today's webinar.

WEBINAR: TAX STRATEGIES FOR TRADERS
TODAY @ 4:30PM EASTERN US

Presented by: Ryan Curran (Sponsored by Stage 5 Trading)

Topics include: Trader Tax Status overview,
Requirements for being classified as a Professional Trader,
Tax deductions available to Professional Traders,
And Tax Minimization Strategies -- plus Q&A

Registration:
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Big Mike View Post
A reminder for today's webinar.

WEBINAR: TAX STRATEGIES FOR TRADERS
TODAY @ 4:30PM EASTERN US

Presented by: Ryan Curran (Sponsored by Stage 5 Trading)

Topics include: Trader Tax Status overview,
Requirements for being classified as a Professional Trader,
Tax deductions available to Professional Traders,
And Tax Minimization Strategies -- plus Q&A

Registration:
https://futures.io/webinars/#registernow

Mike

Here is the webinar recording:



Please allow YouTube two hours for encoding.

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  #185 (permalink)
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Does income from trading classify as foreign income? Or how about trading through an offshore company and paying yourself from it? I am curious because Uruguay does not tax foreign income unless its interest or dividends (according to URUGUAY: TAXES).

Understanding yourself is just as important as understanding markets.
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TickedOff View Post
Does income from trading classify as foreign income? Or how about trading through an offshore company and paying yourself from it? I am curious because Uruguay does not tax foreign income unless its interest or dividends (according to URUGUAY: TAXES).

Read my thread here:



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  #187 (permalink)
Legendary Market Wizard
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This is mark to market accounting tax question mostly.

I am a full time trader under my Sole Proprietorship. My accountant suggested I convert to Mark to Market accounting for 2014, which I did.

I am married and manage my two Short Term trading accounts, my one Long Term (1yr +) account and my wife's Long Term holding account.

Today my accountant tells me that all my accounts will be treated as Mark to Market. Even my wife ( we file jointly). Does this should right? My wife is not a trader. Is anyone else in this situaltion?

I thought the major advantage of mark to market accounting was that it allowed you to take unlimited losses?
If you don't have losses I wasn't aware that it changed anything?

Disclaimer. I'm not an accountant, I'm a trader.

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  #188 (permalink)
Legendary Market Wizard
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Bloomberg: The IRS Has New Favorite People to Audit

Excerpts...

An average taxpayer’s chance of being audited has tumbled 23 percent in three years, in line with an IRS budget that’s dropped an inflation-adjusted 17 percent since 2010. Only 0.9 percent of individual taxpayers were audited last year, the lowest proportion in seven years.

If you make $200,000 to $1 million annually, your chances of an audit are around 2.2 percent, more than double the average. It's even higher for the extra-wealthy—people who earn more than $1 million are audited at a rate of around 7.5 percent

Last year IRS audits of individuals uncovered $11.9 billion in unpaid taxes


The IRS Has New Favorite People to Audit - Bloomberg Business

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  #189 (permalink)
Leeds UK
 
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For anyone living in the UK, there can be considerable advantages, under some circumstances, to trading by spreadbetting, because all profits are tax-free. In the UK spreadbetting is classified for tax-law purposes as "betting" and betting taxes were abolished decades ago. Even UK residents whose primary or sole income comes from spreadbetting are not liable for either income tax or capital gains tax on their profits.

It's worthwhile, of course, to check carefully how well and by whom a spreadbetting company is regulated, what the spreads are like, and whether counterparty trading is involved (in which they effectively hold the other side of their own clients' positions as many "retail forex brokers" do - but often they don't: they simply lay off their own net liabilities in the underlying market and have absolutely no incentive at all for any individual clients to lose their spreadbets).

Quite a lot of the "information" available online about spreadbetting (especially in trading forums) is somewhat prejudiced and hugely out-of-date: for example, there's a pervasive myth about wide spreads, which often isn't the case at all; and there's a similar myth that they don't allow "scalping".

(I haven't read every single post in this huge thread: apologies if this has already been mentioned, somewhere above.)

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  #190 (permalink)
Legendary Market Wizard
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Green Trader Tax :- 15 errors traders make on tax returns

15 errors traders make on tax returns | GreenTraderTax

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  #191 (permalink)
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Hi,

I've submitted an application to a broker and as a Canadian, I've been requested to fill out a W8-BEN form. I want to know the following:

1) what is the (% rate of withholding...) I need to put down as a futures trader under Part 2 (Claim of Tax Treaty Benefits) question 10 Special rates and Conditions.

2) Also under what specific type of income will futures trading fall under ?

Thanks for any advice,

Mauri

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  #192 (permalink)
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Green Trader Tax :- Traders: Good and Troubling News in Poppe Ruling

Very interesting read, lots in here about Section 475 tax losses.

In the William F. Poppe vs. Commissioner court case there’s good news for retail traders on the volume of trades needed to qualify for trader tax status.

There’s also troubling news. The IRS denied Poppe his Section 475 election because he could not prove compliance with the two-step election process. Traders should be more diligent in documenting their election. The consequence was that instead of deducting his $1 million trading loss as an ordinary loss Poppe was stuck with a $3,000 capital loss limitation and a capital loss carryover.

The Poppe court construed Poppe’s proprietary trading firm arrangement to be a disguised retail customer account. This ruling should be a huge concern for the proprietary trading firm industry ...

Lots more...

Traders: Good and Troubling News in Poppe Ruling | GreenTraderTax

Disclaimer:- I'm a Tax Client of Green, Neuschwander & Manning an affiliate of Green Trader Tax

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  #193 (permalink)
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Wow. Thanks @SMCJB.

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  #194 (permalink)
Legendary Market Wizard
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Green Trader Tax :- IRS plays havoc with traders misidentifying investments
The IRS and some states have been playing havoc with traders in exams, claiming traders did not properly comply with Section 475 rules for segregation of investment positions from trading positions. Noncompliance gives the agent license to drag misidentified investment positions into Section 475 mark-to-market (MTM), or to boot misidentified trading losses out of Section 475 into capital loss treatment subject to the $3,000 capital loss limitation. Both of these types of exam changes cause huge tax bills, penalties and interest.
more...
IRS plays havoc with traders misidentifying investments | GreenTraderTax

Disclaimer:- Still a Tax Client of Green, Neuschwander & Manning an affiliate of Green Trader Tax

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  #195 (permalink)
Legendary Market Wizard
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Green Trader Tax :- Defined-benefit plans offer huge tax breaks

Less relevant than than their recent blogposts, but interesting none the less, especally if your in a full time trader and make some real money.

Consistently high-income business owners, including trading businesses with owner/employees close to age 50, should consider a defined-benefit retirement savings plan (DBP) for significantly higher income tax and payroll tax savings vs. a defined-contribution retirement savings plan (DCP) like a Solo 401(k).

cut...

The IRS limits retirement benefits per year to $210,000 (2015/2016 limits). Based on the maximum factors possible, the accumulated retirement benefit would be approximately $2.6* million.

Lots more...
Defined-benefit plans offer huge tax breaks | GreenTraderTax

Disclaimer:- Still a Tax Client of Green, Neuschwander & Manning an affiliate of Green Trader Tax

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  #196 (permalink)
Chicago, IL
 
 
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Hey you guys,

I have a question my partner and I can't agree on. We are both holding physical currencies as investments but can't get a solid answer on how they are taxed. Does long and short term cap gains apply to this? If we hold it over a year does the tax consequence get reduced or is it always taxed as ordinary income?

Again, were actually holding the paper.

Best wishes.

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  #197 (permalink)
Legendary Market Wizard
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StraddleIt View Post
Hey you guys,

I have a question my partner and I can't agree on. We are both holding physical currencies as investments but can't get a solid answer on how they are taxed. Does long and short term cap gains apply to this? If we hold it over a year does the tax consequence get reduced or is it always taxed as ordinary income?

Again, were actually holding the paper.

Best wishes.

GreenTrader Tax ;- Forex

Disclaimer : Still a client

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  #198 (permalink)
Legendary Market Wizard
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Green Trader Tax / Robert Green:- Don’t Rely On 1099-Bs For Wash Sale Loss Adjustments

Broker-issued Form 1099-Bs for securities provide cost-basis reporting information, but they don’t provide taxpayers everything they need for tax reporting if the taxpayer has multiple trading accounts or trades equities and equity options.

Brokers calculate wash sales based on identical positions (an exact symbol only) per separate brokerage account. But the wash sale loss rules for taxpayers, Section 1091, requires taxpayers to calculate wash sales based on substantially identical positions (between equities and equity options and equity options at different exercise dates) across all their individual accounts including IRAs — even Roth IRAs.
More...

@green trader Tax Don?t Rely On 1099-Bs For Wash Sale Loss Adjustments | GreenTraderTax
@Forbes Wash Sale Loss Adjustments Can Be A Big Tax Return Headache

Disclaimer: Still a (happy) client

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  #199 (permalink)
Legendary Market Wizard
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Forbes :- Securities Brokers Don't Tell The Full Story About Wash Sale Losses
It’s an inconvenient truth for brokers that the IRS asks them to report wash sale losses on 1099-Bs differently from the way traders must report wash sale adjustments on income tax returns. Brokers are correct in preparing 1099-Bs, but incorrect in telling clients they should import 1099-Bs into their income tax filings.
more...
Forbes Welcome

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Legendary Market Wizard
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Bloomberg :- Do Tax Preparers Know What They're Doing?

Not trading related in anyway, but a little scary

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