Extreme FX loss

T

Tou

I am not sure whether this is the right place for this thread but I am going to give it a shot.

I have a LLC trading forex with a big name broker. Recently due to some tricky situation my broker ended up losing some USD 25,000 after a margin call as the move was too severe.

So, I talked to a lawyer and he said:
(1) Let the LLC get sued as there is nothing any broker can do to me as it is an LLC after he read the documents. i.e he said I am judgement proof and broker knows it so broker won't waste time behind me.

(2) Lawyer also mentioned that since 25k loss of broker is a kind of gain for me so broker will issue a 1099 with 25k profit for me. That will actually reduce the amount of taxes I thought I can write off by 25k as I had about 50k in principle in my account before it went down to minus 25k.

Has anyone had any practical experience regarding this situation ?
 
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What you're seeing is a "forgiveness of debt"... which is income to you with income taxes due on the amount. For the broker to be able to write off the uncollectable debit, he has to "1099 it" to you as income. Nothing new.
 
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Tou said:
I am not sure whether this is the right place for this thread but I am going to give it a shot.

I have a LLC trading forex with a big name broker. Recently due to some tricky situation my broker ended up losing some USD 25,000 after a margin call as the move was too severe.

So, I talked to a lawyer and he said:
(1) Let the LLC get sued as there is nothing any broker can do to me as it is an LLC after he read the documents. i.e he said I am judgement proof and broker knows it so broker won't waste time behind me.

(2) Lawyer also mentioned that since 25k loss of broker is a kind of gain for me so broker will issue a 1099 with 25k profit for me. That will actually reduce the amount of taxes I thought I can write off by 25k as I had about 50k in principle in my account before it went down to minus 25k.

Has anyone had any practical experience regarding this situation ?
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Who lost the $25,000? The broker or you?
 
My principle in LLC was 50k. When broker liquidated my account it became -25k. My lawyer said since this is LLC they can't do anything about it unless I committed fraud which I didn't. Hence, the broker will issue me a 1099 for 25k loss they suffered since their loss is my gain.

So, if I do the math right: My loss on principle was 50k, my gain on broker loss was 25k so my net loss is 25k.
 
Tou said:
My principle in LLC was 50k. When broker liquidated my account it became -25k. My lawyer said since this is LLC they can't do anything about it unless I committed fraud which I didn't. Hence, the broker will issue me a 1099 for 25k loss they suffered since their loss is my gain.

So, if I do the math right: My loss on principle was 50k, my gain on broker loss was 25k so my net loss is 25k.
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That's not how that works. Your net loss is still 50k...your income is 25k now..and it will be taxable. So instead of having to pay the full 25k back to your broker; he will claim a loss on it, and you will claim it as income and pay taxes on it. So, you will probably end up paying like 15-20% of the 25k depending on your bracket.
 
Crazycod said:
Wait what? you have to pay taxes on money you lose? Holeee Sheeeet Batman
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No...he only lost 50k of his own money. The 25k is the broker's money. So basically he had an "income" of 25k because obviously the broker is not going to be able to collect from OP. Since this will benefit OP, it is treated as taxable income.
 
Let's do the math for entire LLC taxation not just my new income from broker loss:

(1) LLC looses 50k due to trading loss
(2) LLC makes 25k due to gain from broker loss

Hence, net loss to LLC is 25k.

Since this is a single member LLC so all income and loss from LLC is pass through and will get attached to my other gig's income or loss. You can't pick and choose loss and income of LLC if you consider them you consider them as a whole.
 
uh no. He lost 75k trading and He made 25k in the form of loan forgiveness.

Net loss is 50k but the 75 loss and the 25 gain might fall on different schedules and hence may not offset. He might have a tax liability and lots of carry forward.
 
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