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 ...
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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.
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).
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.
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.
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Broker-issued Form 1099-Bs for securities provide cost-basis reporting information, but they donít 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 ó even Roth IRAs.
Itís 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.