I only trade ES, in and out, lots, so I already get Sec. 1256, MTM, right? I also have a side business as a writer where I take deductions for publications, computer equipment, etc. I do not take the home office space allowance because when I sell the house I don't want the extra bookkeeping/accounting hassles (wife's decision). I'm not planning on raising capital from outside investors, friends and family or otherwise. So is there any benefit to getting a CTA, incorporating as a family partnership or claiming trader status on my taxes?
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Do I need to incorporate or even seek trader status with the IRS
- Thread starter Kirribilli
- Start date
If you seek trader status, then the expenses would be above the line rather than itemized deductions. Unless you do not have any expenses to speak of, and those expenses you do have are paid through the other business.
If you have trader status and you elect Sec 475 M2M, then your losses from trading futures would be deductible against other income. But if you were profitable, you'd be giving up the 60/40 tax benefit.
If you incorporate, you better separate your trading from your other income producing activities, and that might better avoid an IRS challenge that you are an investor rather than having trader status.
If you have trader status and you elect Sec 475 M2M, then your losses from trading futures would be deductible against other income. But if you were profitable, you'd be giving up the 60/40 tax benefit.
If you incorporate, you better separate your trading from your other income producing activities, and that might better avoid an IRS challenge that you are an investor rather than having trader status.
Quote from Kirribilli:
I only trade ES, in and out, lots, so I already get Sec. 1256, MTM, right? I also have a side business as a writer where I take deductions for publications, computer equipment, etc. I do not take the home office space allowance because when I sell the house I don't want the extra bookkeeping/accounting hassles (wife's decision). I'm not planning on raising capital from outside investors, friends and family or otherwise. So is there any benefit to getting a CTA, incorporating as a family partnership or claiming trader status on my taxes?
You do not NEED to do anything except file appropriate (and truthful) tax returns.
The primary reasons (not an exhaustive list, nor in order of importance) for claiming trader tax status are
1) eliminate the $3000 annual loss deduction limitation
2) eliminate wash sale accounting and reporting
3) create earned income (from trading gains) which is REQUIRED for benefits and deductions related to health insurance, retirement accounts, home office allowance, and other items typically subject to AGI thresholds.
4) Reduce overall tax rate on trading gains. (28% blended rate for 1256 contracts in 2013)
You might investigate a husband/wife partnership (not a HW joint venture), as you may be able to employ your wife and gain tax advantage through associated deductions.
The tax guides from Green Trader Tax are excellent research resources.
FWIW: Home office deduction has been greatly simplified starting in 2013. Not the recapture, but the deduction calculation itself is now very simple, if qualified.
Quote from stocksonly:
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If you have trader status and you elect Sec 475 M2M, then your losses from trading futures would be deductible against other income. But if you were profitable, you'd be giving up the 60/40 tax benefit.
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MTM election can be made for equity AND/OR Section 1256. It is not a one-size fits all election unless you make it as such.
Some good thoughts. But to clarify some issues:
>>MTM election can be made for equity AND/OR Section 1256. It is not a one-size fits all election unless you make it as such
We are only talking Futures trading here. So in this case the M2M election for securities is not at issue.
>>eliminate wash sale accounting and reporting
Claiming Trader Status does NOT eliminate wash sales. But wash sales per se, are not at issue since futures in this instance are exempt from the wash sales rule anyways.
>>create earned income (from trading gains)
Claiming Trader Status does NOT create earned income. Nor does electing M2M.
>>Reduce overall tax rate on trading gains. (28% blended rate for 1256 contracts in 2013)
Claiming Trader Status does NOT reduce the income tax rate to the 60/40 blended tax rate.
>>MTM election can be made for equity AND/OR Section 1256. It is not a one-size fits all election unless you make it as such
We are only talking Futures trading here. So in this case the M2M election for securities is not at issue.
>>eliminate wash sale accounting and reporting
Claiming Trader Status does NOT eliminate wash sales. But wash sales per se, are not at issue since futures in this instance are exempt from the wash sales rule anyways.
>>create earned income (from trading gains)
Claiming Trader Status does NOT create earned income. Nor does electing M2M.
>>Reduce overall tax rate on trading gains. (28% blended rate for 1256 contracts in 2013)
Claiming Trader Status does NOT reduce the income tax rate to the 60/40 blended tax rate.
Thanks much, guys. For an ES scaling/day trading account, profitable, I just don't see the need at this point. Just wanted to sound off against some folks more knowledgeable than me. I take the IRC 1256, btw. If I blow up someday, I may rethink the M2M. Cheers,
Quote from stocksonly:
Some good thoughts. But to clarify some issues:
>>MTM election can be made for equity AND/OR Section 1256. It is not a one-size fits all election unless you make it as such
We are only talking Futures trading here. So in this case the M2M election for securities is not at issue.
>>eliminate wash sale accounting and reporting
Claiming Trader Status does NOT eliminate wash sales. But wash sales per se, are not at issue since futures in this instance are exempt from the wash sales rule anyways.
>>create earned income (from trading gains)
Claiming Trader Status does NOT create earned income. Nor does electing M2M.
>>Reduce overall tax rate on trading gains. (28% blended rate for 1256 contracts in 2013)
Claiming Trader Status does NOT reduce the income tax rate to the 60/40 blended tax rate.
Ummm no kidding.
But without Trader Tax Status (and possibly MTM) ...
Nothing, Nothing, other than standard 1040 income and capital gains accounting/reporting is available. And for a trading business that is not advantageous. Hence the OPs interest, I would guess.