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Senate Bill to revoke Futures 60/40 tax treatment


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Senate Bill to revoke Futures 60/40 tax treatment

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  #21 (permalink)
 bobwest 
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snax View Post
Regardless of being professional or non-professional, you still have to report/pay taxes on profits quarterly is that correct?

Hey, I get to use the same thing twice:

bobwest View Post
Also, I am not a tax professional, and you should always consult a qualified tax professional, and all the usual disclaimers.

Bob.

I'm pretty confident that this is the best answer.

Bob.

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  #22 (permalink)
 vmodus 
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snax View Post
Regardless of being professional or non-professional, you still have to report/pay taxes on profits quarterly is that correct?

Like @bobwest, I am not a tax professional. However, I've been doing this for long enough to put my voice behind it. Since you are U.S. based, here goes...

If you have earnings that are not taxed at the point they are earned (W-2 wages, some gambling earnings, etc.), you should be paying estimated taxes on those earnings if earning more than $1,000 for the year (form 1040-ES). You do not have to report revenues, earnings, or anything else when paying estimated taxes (clarification added).

Source:

https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes

If you underpay, there could be a penalty, but the IRS is not draconian about such things. It is an estimated payment, after all. I paid a small penalty for underpayment once in 19 years ($16, a long time ago). The IRS wants you to get close to your actual tax liability and they want to see payments every quarter. In my case my income can vary greatly from quarter to quarter, so I adjust my quarterly payments according to my own revenue estimates. My January payment (4th payment) tries to make up for any over/underestimation.

You can read pub 505, call the IRS directly with questions, or find a tax professional. I hope this helps, @snax!

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 snax 
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vmodus View Post
Like @bobwest, I am not a tax professional. However, I've been doing this for long enough to put my voice behind it. Since you are U.S. based, here goes...



If you have earnings that are not taxed at the point they are earned (W-2 wages, some gambling earnings, etc.), you should be paying estimated taxes on those earnings if earning more than $1,000 for the year (form 1040-ES). You do not have to report revenues, earnings, or anything else.



Source:


https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes



If you underpay, there could be a penalty, but the IRS is not draconian about such things. It is an estimated payment, after all. I paid a small penalty for underpayment once in 19 years ($16, a long time ago). The IRS wants you to get close to your actual tax liability and they want to see payments every quarter. In my case my income can vary greatly from quarter to quarter, so I adjust my quarterly payments according to my own revenue estimates. My January payment (4th payment) tries to make up for any over/underestimation.



You can read pub 505, call the IRS directly with questions, or find a tax professional. I hope this helps, @snax!



Hey @vmodus, this does help. I have a referral for a tax professional who is supposed to be knowledgeable in this area but Iím trying to get a bit more understanding before I contact them.

Also, I admit the thought has crossed my mind that seeking out a tax professional is somehow going to jinx any hope of becoming profitable next year.

Thanks for your help and take care!


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  #24 (permalink)
 SMCJB 
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bobwest View Post
Well, this just shows that I should think more before I type.

....

Fortunately, you don't get to stay wrong for long around here. Thanks to you both for waking me up.

The reality is you were mostly right! The two big exceptions are CL and GE/ED/Eurodollars which both have 10 years of contracts. In CLs case the individual months trade out 2-3 years and the Dec contracts are liquid out 5-6 years but the last 3-4 years have very little open interest. Even Eurodollars which are highly liquid out 6-7 in all (quarterly) contracts doesn't have much OI in 8-10. NG actually goes out 12 years but is only liquid for the first 3 years. Any OI there is further out than that I think you will find was OTC Block Trades and not screen traded.

Most of the metals are listed out 5 years, but only the first 12-15 months trade. The Ags vary from 1-5 years but very little activity outside of the 1st year.

Of course when it comes to financials, Equity Index's, Currencies, Treasuries, there's very little activity outside the front month.

snax View Post
Regardless of being professional or non-professional, you still have to report/pay taxes on profits quarterly is that correct?

Not sure what the official ruling is but yes I believe you are expected to make estimated payments on any income that does not have tax deducted at source. A good rule to know though is that as long as the tax you pay (through deductions and/or estimates) is equivalent to 110% of your previous years tax liability you can't be fined/penalized as long as you pay the balance when you file or extend before April the following year.

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SMCJB View Post
The reality is you were mostly right! The two big exceptions are CL and GE/ED/Eurodollars which both have 10 years of contracts. In CLs case the individual months trade out 2-3 years and the Dec contracts are liquid out 5-6 years but the last 3-4 years have very little open interest. Even Eurodollars which are highly liquid out 6-7 in all (quarterly) contracts doesn't have much OI in 8-10. NG actually goes out 12 years but is only liquid for the first 3 years. Any OI there is further out than that I think you will find was OTC Block Trades and not screen traded.

Most of the metals are listed out 5 years, but only the first 12-15 months trade. The Ags vary from 1-5 years but very little activity outside of the 1st year.

Of course when it comes to financials, Equity Index's, Currencies, Treasuries, there's very little activity outside the front month.

Not sure what the official ruling is but yes I believe you are expected to make estimated payments on any income that does not have tax deducted at source. A good rule to know though is that as long as the tax you pay (through deductions and/or estimates) is equivalent to 110% of your previous years tax liability you can't be fined/penalized as long as you pay the balance when you file or extend before April the following year.

Well, good to know I'm mostly right. My futures trading experience is with the equity index contracts, and I answered from that point of view. There is more to the world than my little slice of it, though.

As to paying estimated tax, I would always do that for income that had not had any withholding made, just to keep from having any big surprises at the end of the year, and to stay square with the IRS. I just didn't want to sound like I were giving advice to anyone else.

Bob.

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 booneyall 
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snax View Post
Regardless of being professional or non-professional, you still have to report/pay taxes on profits quarterly is that correct?


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It would be advisable to make quarterly estimated payments on your profits but it's not "required". The 60/40 profits are combined with your other income and personal deductions so there are a number of variables to consider. If you have profits and do not make estimated payments, you may be subject to underpayment interest/penalty.

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 vmodus 
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booneyall View Post
It would be advisable to make quarterly estimated payments on your profits but it's not "required".

I have to disagree with you on whether payment is required. I am not a tax professional, but I can state with certainty that if you go above that $1,000 threshold, as evidenced by a 1099 or other earnings form, you are required to make quarterly payments. This goes for just about any earnings that are not taxed, which covers a lot of types of 1099's.

Example:
  • $700 trading income (1099-B)
  • $700 Uber driving income (1099-NEC)
At $1,400, quarterly payments, even small ones, are required. The IRS may waive a penalty, but you don't want to start raising flags with them that may trigger an audit in the future.

When in doubt, just pay. It is easy to setup all your payments for a tax year in advance (EFTPS) and then adjust if needed.

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 SMCJB 
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@booneyall, @vmodus, as I mentioned earlier, the exception on estimated tax payments is that as long as the tax you pay (through deductions and/or estimates) is equivalent to 110% of your previous years tax liability you won't be fined/penalized (as long as you pay the balance when you file or extend before April the following year).

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SMCJB View Post
@booneyall, @vmodus, as I mentioned earlier, the exception on estimated tax payments is that as long as the tax you pay (through deductions and/or estimates) is equivalent to 110% of your previous years tax liability you won't be fined/penalized (as long as you pay the balance when you file or extend before April the following year).


This is correct.


Additionally, there's other safe harbor rules besides the 100%/110*% of previous year's tax liability...

- Paying 90% (of total current year's tax bill) in Q4 (due Jan 15). If you paid at least 90% of current year's tax bill on the Q4 estimated quarterly voucher, you can pay the remaining 10% by Apr 15.

- Alternatively, you can pay 100% of tax liability by Jan 31st but then you'd be filing a full return, not a quarterly payment. You'd have your 1099 by this time but your own accounting should have already come to the same conclusion as the 1099 before you receive it giving you enough time to do a full year tax return.


*If your AGI is >150K, then it's 110% of prior year's tax liability, otherwise it's 100%.


As I'm not a tax professional, have a chat with GreenTraderTax. They will tell you the same and have better advice tailored to your specific circumstance.

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 ron99 
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I never pay estimated taxes. I just pay the small fine. It's about 3%.

I consider this a low interest loan from the government.

I started not paying when one year I made some estimated payments then the estimated payments were far too much because of losses in 4Q. The gov got to hold my money for months and I couldn't use it during that time.

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