I thought we could use a thread devoted to Taxes. This is all things taxes regarding trading.
One example, Advantages/disadvantages for different situations (equities, futures, forex, etc) as well as benefits of filing sole-proprietor vs LLC or as a CTA/professional, etc.
If you have something to share on the subject please chime in.
I have spent a lot of time with this issue. Questions and issues I had to figure out.
Do you have a LOT of deductions or expenses other than trading fees?
Do you need "earned income" to offset other things?
Is all of your income from trading or do you have other things?
Does your spouse work or have income?
Wash sale rule? This was a big concern to me as I trade mostly the same ETF's, no longer an issue as I switch over to futures.
For me the self employment tax negated all benefits of filing as a business. Self-Employment Tax
Great timing for a thread as the IRS rules are certainly going to change for traders over the next couple years.
They specialize in tax issues for traders (equities/futures/options/forex), have webinars, emails, etc. that may be helpful to some on this forum.
I do not work for them or get any kickbacks for mentioning them LOL !
Hope this helps,
gulab
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I have used Traders Accounting in the past to help get set up correctly. They are good, but they don't give it away for free. Everyone's situation is different, and there are reasons to set a business up in different forms. It can also depend on where you live, so it does not hurt to talk to your accountant as well (or find one). A local person can also get business entities in place for you. Traders Accounting has the trading business expertise, but a local person that you can go talk to might also serve this purpose.
Personally, I have a corp that controls an LLC that controls my trading accounts. For my situation, this was the best set up. For others that would be overkill.
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I am not an account or tax advisor, so please talk to someone that knows what they are doing, as everyone's situation is different. There are a lot of options, and you have to understand the tradeoffs for each different business model, based on what your objectives are.
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One of the better websites for tax issues is www.greencompany.com You can find answers to many questions and also has info if you like to set up a hedge fund. I bought his book and it has a lot of info in it.
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I had a question about Futures Trading Taxes. As a rookie trader, this is my first year day trading part time. Overall for the year I have took about a $500 loss on my account. Basically I would just like to get some input on the best way to go about filing my taxes for next year with regards to trading. I have been told a Capital Gains/Loss would be the best way to go for a new trader. reading the Canadian CRA It also states that speculators may file a capital gains/loss.
The only thing confusing me with this is the Superficial Loss rule. It states buying back a security within 30 days of a loss, will cancel out that loss. So as a day trading, I am constantly buying/selling say gold contracts, so would all of my losses be pretty much be canceled out if I took a trade within 30 days from my loss?
Any advice here would be appreciated thanks.
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I talked with the guy from Taxes for Traders once a few years ago, about trading as a corp, and he seemed pretty knowledgeable. He actually advised me against it, as I was a brand new trader at the time. He advised me to get my feet wet first, learn a trading methodology, and once I am profitable, we can talk about what would best fit my situation.
In terms of trading as a corporation, I definitely advise talking to a 'knowledgeable' accountant, my regular accountant had no clue. In my research, I found various firms have different ideas and opinions about the best setups, some advise multiple corporations of different types, and dependencies, like a C corp's owning an LLC's, etc.
I created a C Corp myself in Delaware, it's fairly easy, but have never traded under it, I'm stuck paying the fees every year now, until I decide what to do with it.
I'm not sure if this is still true but a few years ago I setup a few accounts under an LLC. As a result, the broker wanted me to be classified as a 'professional'. That is not bad except that professional traders usually pay higher fees. The broker said the exchanges require that I pay higher fees as a pro.
I closed all of the accounts and just trade under my own name now so this may have changed recently.
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I am referring to The Superficial Loss rule for buying back "identical property" within 30 days of the loss. The Canadian Revenue Agency says any identical property purchased within 30 days of the loss would make it a superficial loss opposed to a capital loss. The CRA website also states that Future contracts for the same commodity with the same delivery month are considered Identical Property.
So basically my question is, I can not just show a full 1 year total loss statement to my accountant? I will have to sniff out superficial losses since I day trade and most likely took a trade before the 30 day period after a loss? Any suggestions would be great.
Yes, I do think that is correct. You have to weigh if any potential tax savings outweigh the higher professional broker fees, and the additional fees you will have to pay your accountant to prepare additional tax returns for one or more corporations.
I don't know about Canada, but in the states I believe this is the Wash Sales Rule (IRS Publication 550 (2009), Investment Income and Expenses), and it only applies for equities, not futures. That document says "<Wash sales rules>...do not apply to losses from sales or trades of commodity futures contracts and foreign currencies". I think this rule and the pattern day trading rule, which requires a $25K account to day trade equities, were originally intended to keep the run of the mill investors from attempting to day trade and loose all their money.
I've read here (https://www.fool.com/taxes/2000/taxes001006.htm) that to get around the wash sales rules, just don't trade for the last 30 days of the year, or just trade a different stock in the last 30 days of the year, because even if you bought and sold the stock hundreds of times during the year, if you sold all your shares before the last 30 days of the tax year, and did not buy back any within the last 30 days of the tax year, then the rule no longer applies. Of course, I would advise you to verify that with an accountant.
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Futures trading (or any day trading that is your primary business) is treated as an income activity by CRA, so capital gains and superficial rule do not apply.
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Snoop, even if I have not registered a business or a LLC and have a full time job, I will have to report my futures day trading as a regular business income? So my total losses for the year would be shown then I assume?
I'am still obviously going to talk to my accountant next year around time for filing, but just trying to learn a little on my own before hand, thanks.
I recently asked the CRA and the agent said it would be fine to report my losses as a capital loss? He also said its ok to ignore the superficial loss rule as long as all my losses are not just bunched up near the year end which he said a lot of traders do.
Should I go with this information as being correct? First year trader so I am still puzzled on which method to go with.
I took the gentlemans name from the CRA, but I plan to call them up again next year sometime in January to ask one more time to be on the safe side. If I get the same response I will go ahead and use the capital loss, if I get a different answer I am going to have to go into the CRA office I think and talk to them in person about this to make sure I get the correct answer.
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.
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Assuming you are in USA you would pay 60% of profits at the long-term capital gains tax rate and 40% at the ordinary income tax rate for futures trades.
This is a very interesting concept that I am looking into as well. Huge tax savings potential. I'm wondering how many traders here use this method for tax reasons? Also, for those who use it, do you use an automated strategy in it as well? Thanks!
biggest issue with trading with a Roth is that, in my case at least, I have to use a backdoor to gain access to it. Basically the limits in terms of funding are too restrictive and I dont want to have to pay taxes based on all my IRA accounts values...
this year my plan is to move everything on the IRA to a soloK with the exception of the amounts I have reported on form 8606. If you can fund and trade on a Roth IRA, dont hesitate and do it, as long as you are profitable of course... you can open your account with IB and TOS, or use an alternative asset custodian like Millenium Trust or PENSCO to open the account with any FCM they support.
Not sure I understand what you mean about funding your Roth. That isn't what I'm referring to. Trading from a Roth isn't funding it. The Roth is already funded and I'm just using the money already in the Roth to trade with. That's what happens to the Roth funds whether in a CD or mutual fund or whatever. Whether or not I continue contributing to my Roth or now, the funds in the Roth continue to expand or contract as the earnings expand or contract. So, I'm curious what you really mean by funding...Want to make sure we're talking about the same thing.
That last part is key! A Roth is no place to play around and lose money just because of the tax advantage, as there is no advantage to taking losses in a Roth, and a Roth is not as easy to fund (i.e. can not just replace funds like you would in a normal account). For most people a Roth is probably the definition of funds that you should not be trading with.
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I know a guy who did just what you warn against. He already had a track record of losing on every method he tried. Ran out of money and started trading in his IRA. Guess what? He was losing money there as well. By the way, in case you are wondering, that guy is not me...whew!!!
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Roth's are great.. nothing like tax free revenues and income... as long as you can actually grow that account it just means you wont have to worry about the tax man at all when you retire.
Issue with Roth is that Not all people will qualify to be able to contribute (aka fund) the Roth Account directly..
Some people, like myself, will have to use a little tax loop that has to do with conversions.. which was expanded in 2010 in the hopes of the IRS to raise more revenue.
basically, any after tax contributions (as reported on form 8606 to the IRS) can be flipped into a Roth IRA from a traditional with $0.00 taxes as long as the remainder of your retirement funds are found within a qualified plan ( e.g. 401(k) or Solo 401(k)) ... doing so requires some careful planning of course.
if that is not the case, meaning that you dont have access to a qualified plan, you will then have to pay taxes during the conversion based on what percentage of the total IRA funds the amount you want to convert will be...
I was not referring at all about funding a trading account with Roth funds, but rather being able to fund the roth itself. I hope that clarifies it better..
and as usual, please consult your tax advisor.. I am not offering advise, merely alerting those reading as to the challenges that you will be facing..
I agree with both of you, @aslan and @MWinfrey, if one is not already successful, then one should not trade on an IRA at all regardless of what kind.. there is no easy way to fund it once more if you blow the account.. and it is not like you can write off the losses, so not the best vehicle to learn to trade or get started trading...
but if one is consistenly profitable, then by all means.. trade with IRA away... IMO for the IRA one should have profit targets and losses clearly defined.. contrary to how one would trade on a regular account where I would say define loss, but no defined wins...
When I traded stocks I tried trading an IRA. The problem with IRA trading is that the money can only be used on one trade per day. This meant that the money used to make one GOOG trade of 1000 shares might leave little unused money in your account to trade with. Each trade leaves less untouched money to use, even when all your positions are closed. Hopefully I am remembering this correctly.
Dan
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I absolutely hate the way I express myself sometimes. I think we are still talking about 2 different things. Let me be a bit more specific in an effort to reduce the confusion I've caused and let me put it into a context of my personal situation.
I have several Roth accounts that have existed for years. I intend to use one of those accounts for trading purposes. I will not continue monthly contributions to that Roth. So, aside from fees, the only changes to that account will be the profit or loss that I incur trading using that account. Therefore, any profit or loss in that Roth account is nontaxable assuming the IRS rules don't change.
Again to be clear I will only be doing this with a proven profitable trading method.
So, have I muddied the waters even more? I still have to clear all this with my tax professional but does my approach make sense or am I out to lunch?
This is a great discussion and one that I appreciate a lot.
nope, the IRA trades (almost) just like a regular account ... PDT rules apply to IRA's, and the only thing you cant do with the IRA is short or have a negative margin balance... everything else you can do as long as your balance is over $25K.. but there is no 4:1 leverage during the day (goes back to the negative margin balance thing)...
so you can write puts as long as there is enough cash on the account to cover the underlaying... write covered calls only.. buy puts/calls and do spreads... and you can trade futures given the "margin" is really a pledge.. same goes for forex..
we are talking about the same thing, just two different points... I am focusing on how to contribute and the challenges, you are focusing on what to do after one contributes.
in your case, you are already funded... in my case, I have to continue to fund it to make it a decent size.. $10-15K will only let me trade 1 contract in futures and that is still not enough to trade options for me.
so you are correct... you can take one of your Roth IRA's and trade it... we are not arguing that point.
my recommendation, if they are all Roth's.. consolidate them ... instead of several have like 2 of them.. or maybe 3... use one for Trading Futures, another one for holding real estate, and another one that you will continue to contribute where you may have a strategy that is more conservative (10-15% per year)... that is basically what I am doing but all under a single umbrella of a Solo 401(k)... the Roth is just to trade futures once it grows to $25K, so another 2 years before I will do anything serious on it.
everyone's situation is different... but that is what I would do if I had significant Roth Assets... I would take advantage of the current real estate situation and get some rental properties that I could exit from in 2-3 years, or sooner, at a profit and grow that account..
hence why is better to long ITM/ATM calls if you think that GOOG is heading north .. allows you to "leverage" more... and your risk is limited to your premium... which enables you to make multiple bets ..
yw... and you are ahead of the game let's put it that way... I only realized the whole Roth thing about 6 months ago.. I always avoided anything after tax since I dont get the write off, but then I came to find out that I could do quite a lot of things within the IRA/Roth IRA/Solo K world that are not mainstream but legally allowed, and my thought process changed. Now, I dont mind the $5K a year on after tax, considering the benefit of tax free cash when I retire .. luckily for me, I have another 25 years before that really happens, so I gained the knowledge and education in time..
good for you...you are way ahead of the game. i turn 59 on March 31. I've always been a bit slow off the blocks. I mentioned this in an early post of this conversation but because I don't have "real job" income, my earnings off trading won't effect my social security eligibility.
Vanguard is awful IMO, you are better off with Fidelity/Schwab/TDA... you get the big name and the ability to trade equities, etf's, options on both, mutual funds, and if your account large enough IPO's and private placements. Schwab/Fidelity are always offering private placement/subscriptions..
for futures trading... You can take the account to TOS(Penson) or IBKR... without having to go to a third party custodian.. other than that, you can use alternative custodians such as Millenium Trust and PENSCO trust... those are the two that I picked after researching the 5 available on the market place and interviewing their back office and compliance department.. you can then turn around and open an account with Crossland, VFM, etc or hold real estate on them, or anything allowed by the IRS... they have a cost (anywhere from $500-$1000) per year depending on the amount of assets and the number of subaccounts... so if you just want to trade the markets there are no cost options with TOS/IBKR ...
btw, you should research them as well... we might have different requirements, but PENSCO/MTC were the ones with the least amount of issues...
How many of you guys are incorporated? I'm seriously considering it, because by the time you realize that it's necessary/advantageous, it's more of a pain at that point.
once you make it a proper business, you will pay a bit "more" for some things (market data being one)... but it is well worth it when you can write off expenses and fund your own retirement, etc.. which "reduces" your profit.. and helps you manage your overall tax burden.
I have an LLC for my technology consulting, so I just trade one of the LLC's account in addition, but most of my trading is really on IRA account.
Before filing your 2010 tax returns, traders and investment managers should learn these tips from trader-tax industry pro Robert A. Green, CPA and CEO of GreenTraderTax.com. Learn how to set up your tax affairs better for 2011 too.
Please register for each part separately.
Part I - Trader Tax Benefits, Qualifying, Business Expenses & Tax Treatment
Tuesday March 29 at 4:30 PM EST
• Trader tax benefits for forex, securities and futures traders;
• How to qualify for trader tax status, and claim these tax breaks, even for 2010;
• Business deductions (trader tax status) vs. limited investment expenses;
• Key tax treatment differences between securities, futures, forex and other instruments;
• Tax elections and when to make them; and
• How to handle pre-business education expenses, while staying clear of promoters' false promises for education deductions using poor multi-entity schemes.
Part II - Trader Tax Returns, Entities & Retirement Plans
Thursday March 31 at 4:30 PM
• Claiming trader tax status and preparing business trader tax returns;
• Trading gains/losses are reported on different forms;
• Problem and solution: Transfer of income strategy;
• Trade accounting: A snap for futures & most forex traders;
• Trade accounting is a responsibility for securities traders;
• Trade accounting for securities is easier with TradeLog®
• Net operating losses (NOLs).
• Entities for traders; and
• Retirement plans for traders
I've read some of the articles referenced here, and some of the posts, but can someone who says a corp of some kind is better than reporting as a sole proprietor just bullet-point it? Maybe just 3 reasons. I see all this generalized stuff, but I don't see the real benefit, except to the company who you pay to do the paperwork.
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.
btw, itemizing does not mean you can write everything off the same year... I believe your deductions must not be a lot, but at the same time.. I guess it all depends as to what you call "deductions"...
I like to write off all my computers, training, software, market data expenses, subscriptions, etc. without limitations... I also like to "deduct" my 401(k) contributions to my own retirement plan, along with my life insurance payments and other "deductions" aka benefits that I decide to provide for myself that fall within the law...
I deduct things like my office equipment using section 179 so I can deduct it all at the same time. I do not deduct anything currently where I have to depreciate it, as I used to when I owned rental property. But this doesn't answer my question as to why a corporation is necessary for these deductions?
Another common belief, that a corporation like an LLC provides protection for personal assets, is misunderstood--if it were that easy we would all just operate under an LLC and be liable for nothing.
we are changing subjects, but a properly structure SMLLC will in fact protect you as long as your corporate veil cant be pierced.. since you do RE, it is no different than the reason why one should have each rental property under its own LLC and ensure that one operates them as completely individual companies, etc. IMO the only way to "protect" personal assets is not have any and become judgement proof.. there are 1000's of way to protect assets (all legal) so not going to run into that given it is a rather personal thing creating an asset protection plan.
As to the LLC for trading.. in my case, I my earnings take me into AMT land very easily.. so as I said before, my opinion given my circumstances is that is easier to create an LLC... my "deductions" are engineered to lower my tax liability... as an investor, you cant have a soloK and write off "contributions"... there are other examples, I suggest you re-read the information within the posts and possibly visit the greencompany website and watch the webinar recordings...
I'm no tax expert, and as a foreigner living in US, I'm still learning about US taxes. But, I'm also not convinced you need an LLC. Besides all the additional paper work and tax forms, you need to keep your LLC which will cost you money. You also will need to pay State business taxes, IL for example, you pay 9.5% business taxes.
On the other hand, from the IRS's perspective, the business (sole proprietorship) is not a taxable entity. Instead, all of the business's assets and liabilities are treated as belonging directly to the business owner.
Can someone give me some concrete example (doesn't need to be personal or too complex, but say, a trader makes 200K trading, pays 1k to keep the LLC/year, pays 19K state tax , etc. etc...)? It seems to me that you will spend a lot more money with an LLC than a sole proprietorship. I find it really hard to justify all the additional work and expenditures, considering that if you have trader status you can itemize your business expenses.
Am I missing something here?
It would be very helpful for this thread if someone could break this down in simple terms, without referring (with all due respect because they are also helpful) to other links or references that just adds to the confusion...
Thanks!
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why is that people always need to be convinced of things? are you not capable of conducting your own research and arriving to your own conclusion from the materials provided? you do realize that everyone's situation and circumstances are different, right? what I find of use, will or might not be what you find of use about trading under an LLC.
there is quite a bit of information posted on the subject already on the website, I would suggest you do your homework and read up on the matter, or reach out to a subject matter expert, express your setup/situation and be guided by a proper professional.
I personally see the benefit of being able to reduce my overall "taxable" income as a benefit to an LLC as I can contribute to my own SoloK account. I can also write off other expenses such as insurance, education, etc. without limits or worrying about audits.
Please note that though an LLC is disregarded for tax purposes by the IRS, it can become an entity by its owners or managers electing to have it treated as a corporation(C/S) or partnership (if more than one member)
Also, the "paperwork" is rather not complex.. an annual report is filed along with a fee of around $250 depending where you reside. Also, please keep in mind that trading income is not viewed as "earned income" so it is not taxed as such.
I chose to trade under an LLC at the beginning of the year because I want to fatten up my SoloK trust for other purposes. The PDF I attached from Green Company does cover what you are asking in some level of detail, and there are also webinars on the site that explain the presentation. I can only suggest you take a look at it and see if it is for you, or not.
I am a struggling trader who may be turning it around and like many have that dream of trading for living. I wanted to look up the tax commitment on how it it should be handled and found this article: Taxes on Commodities Trading .
Which in summary says: You will receive a 1099B from your broker which you will state your profits and losses for the year, subtract the losses from the profits and that will give your capital gains.. Here is where I found it most interesting: " There are favorable tax rates for commodities as they are taxed at 60% long-term capital gains and 40% short-term capital gains. Long-term gains are capped at 15% and short-term gains are taxed at your ordinary tax rate, which depends on your adjusted income. You do not have to worry about accounting for and listing each individual trade on your tax returns. You just need to know your net profit or loss."
He goes on to show an example calculation. I didn't hear any of you mention this but this would be great news. Unfortunately I didn't see a date on the article but I was hoping some of you who are profitable and have a kick ass CPA could confirm this?
P.S. Also as a side note on figuring out profitability for trading I am starting with a profitability target/goal and just wanted to see what the tax ramifications etc are and how much my targets should be per day/week etc. There appears to only be approx. 250 trading days per year. I was wondering if any of you actually kept a log and have a good idea of how many days you realistically trade. I know some weeks around holidays many of you sit aside and of course vacations and crappy trading keeps you out.
This is a video from the Mirus Futures site under archived webinars for public viewing. Traders Accounting talk about several topics of general interest.
regards.
I would be careful using the advice of an educational company instead of a tax consultant who specializes in futures trading. They incorrectly stated that index futures are treated as 100% short-term capital gains when futures for a broad-based index is actually a 1256 contract and thus eligible for 60 percent long-term / 40 percent short-term.
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The Film Determined to find the law that requires American citizens to pay income tax, producer Aaron Russo set out on a journey to find the evidence. This film which is neither left, nor right-wing is a startling examination of government. It exposes the systematic erosion of civil liberties in America since 1913 when the Federal Reserve system was fraudulently created.
Tis tax season, so I thought I'd throw in my two cents.
I created a partnership entity, declared trader tax status, and hired a professional tax firm a couple years ago. This year, I am looking profitable, and am going to establish a mini 401k.
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I plan to trade in my Roth as well as I become more consistently profitable.
I went with Green Tax, anybody else have experience with them. Mine has been good.
Tis tax season, so I thought I'd throw in my two cents.
I created a partnership entity, declared trader tax status, and hired a professional tax firm a couple years ago. This year, I am looking profitable, and am going to establish a mini 401k.
Without an entity and trader status, your deductible losses are limited to $3k per year. Who could ever imagine that you might lose more than $3k just starting out. Imagine it.
I've always done my own taxes, I may again. But each time I see the work done by the pro's, and thinking I can just copy it for next year, I pause, and have not switched back yet. This year I did have some local tax folks look at my past returns, and they all, 3, said stick with who I've got. So it is a littler trickier filing trader taxes than most.
And the mini-401k lets you put part of your profits in a tax advantaged account. And I believe you can trade in it later. So it's a double win. Hope to open mine up this year.
There are two national providers of this service plus plenty of local entity and tax guys, one you may already have a relationship with. I did not have anyone local, so I went with one of the nationals (not the one that recently did the webinar, as I wanted an entity and a cpa. Do your own due diligence).
I believe you have until April 15 to declare trader tax status for 2012. So definitely look into that now and see if it's for you.
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Thanks for the info rpm...
Do you have to create an entity to declare your trader tax status, or can one do this without setting up an entity, much in the same way one can run a business as a sole proprietorship?
Green abd Company seems to keep their ear to the ground on tax issues that affect us. Securities Traders Need Tax Relief on IRS Cost-Basis Reporting Rules
477 Letters and Emails Sent So Far
New “cost-basis reporting” rules for 2011 are not functioning properly. Botched implementation is unfairly causing millions of taxpayers to significantly overpay their tax bills. The IRS should have issued the same set of rules for brokers and taxpayers, but did not. How can the IRS now send tax notices and audits to hundreds of thousands of taxpayers over 1099-Bs prepared under one set of rules, while holding taxpayers accountable to another set of rules? Taxpayers did not sign up to be deputy accountants for this mess!
Kindly sign in below to read our full petition. Please sign and send it to your Congressmen very soon. For more background information on this problem, see our cost-basis reporting page at http://www.greencompany.com/EducationCenter/Trader-Tax-Center/Cost-Basis-Reporting.shtml. Thank you for your help. Robert A. Green, CPA, CEO GreenTraderTax.com, Managing Member Green NFH, LLC, Leader TradersAdvocacy.Org. Please send comments to info@greencompany.com
I believe the entity (partnership) allows more deductions, in that I wanted my wife to attend trading travels. Green and Company has a treasure trove of info on their website. See if that can answer your questions for your situation. And compare to the answers from the recent seminar by traders accounting. GreenTraderTAx is the site I believe. I don't mean to turn this into a vendor thread, but they have alot of info on the site to read and you need to see how it applies to your situation.
The following user says Thank You to rpm123 for this post:
For futures, you enter a single line item for the gains or losses of the year. For losses, there is a $3000 maximum per year you can claim, and then carryover future losses into next year, and so forth. For gains, futures are taxed as 60/40, meaning 60% long term gains, and 40% short term gains.
I dont always agree with everything I post, but like to get peoples feed back etc... But people do need to educate themselves... I dont have a problem with ignorance as ignorance is you just dont know what you dont know... I am ignorant in many areas of my life... However, what I do have a problem with is when people dont take their ignorance and turn it into investigation... now you cant claim ignorance... This applies to anything of course. Anyways... best of trading to you guys!!!!
IRS Insider Joe Banister Exposes Federal Reserve Coup and IRS Fraud
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.
The following user says Thank You to josh for this post:
Just FYI, TurboTax lets you see both the interview and the corresponding form side-by-side, and you can see what each input changes on the form as you go.
I have bought and sold stocks for decades, but I am relatively new to day trading. I hear most people talking about setting up a corporation in order to be able to deduct all of their trading expenses. But I am more interested in a corporation for asset protection. Maybe I am overly protective, but I am surprised more people do not seem to be concerned about asset protection. In fact I also invest in real estate and one of Landlord’s biggest concern is asset protection.
As I learn more about day trading, I see traders shooting to get a few ticks. In order to make any money on a few ticks you have to buy a lot of contracts. I see investors using more leverage than Lehman Brothers did when they went bankrupt. When I see investors using a few thousand dollars to buy millions in contracts I worry.
Maybe the best day traders are young bright individuals who have $10-20K and nothing else. If they lose everything they can just go bankrupt. But my understanding is if you invest as an individual (IRA or not) and you have a pot to piss in, then they can go after all your assets if something goes wrong.
And a stop loss is not going to protect you. What happens if you get a flash crash, a terrorist attack or Iran explodes a nuclear bomb or some other unexpected event and you have millions invested on the wrong side at that instance?
Does anyone else worry about asset protection or am I just pernoid? If so, any suggestions.
EnergyFrank, I would say it depends on the number of trades that you had. I hear the IRS is looking for you to have a minimum number of trades in the 500 range or better for the whole year. If you have that many round turns I would say you are good to go.
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.
Well one route, which I'm sure you're aware of, is to renounce your citizenship. But I'm not sure of all the potential consequences that come with that. And reality is that's probably not an option most of us would take. And interestingly some countries, like Monaco, do not allow dual-citizenships.
Without having done much research about this subject, I'll guess that you could gain a lower tax bracket by trading under a company and paying yourself a "reasonable salary" ($30k-$40k) while most of your expenses and assets are paid for and owned by your (foreign/off shore/on shore?) trading company. Unfortunately there would probably be increased "trading professional" status expenses. Or a little of both: personal trading and professional trading firm.
My guess is you could find several tax pros who would basically be presenting you a "low risk-fly under the radar" trading entity setup.
We know you aren't a CPA giving legal advice 
