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Filing tax return as Trader Status and Mark to Market Election
- Thread starter Bolimomo
- Start date
Does anyone like an online Tax trade CPA, like the Green guy and I think there is another too? Being in Syracuse NY I seem to be having difficulty so far (smaller city). Met with one guy but play more phone tag than I do actual business talk.
Quote from professorkev:
I can only deduct 3K of those losses as capped by tax laws. I trade as a stupid individual who didn't declare M2M earlier in the year. I retained a CPA in November and have yet to go into detail over the numbers and setting up an entity and m2m
You can deduct all your gains for the following years though.
Quote from professorkev:
So you formed an Entity? which one did you go with? on your own or through the CPA?
Has anyone used Greentradertax.com for their CPA service? wondered if they are any good.
Kev, as much as I hate to say it, it really depends on your situation. My personal opinion is, for the simple partnership and LLC cases, I will go with DIY, which was the case for me. There is really no need to pay someone else to form the LLC/partnership and obtain the EIN from IRS.
Greentradertax is not cheap, but they do give good advice.
I am a CPA as well as a professional poker player and daytrader. What "opt789" said was right.
My tax advice is only for daytraders and not for investors.
1. It's too late to elect mark to market for your 2009 tax return. You had to make that election by April 15, 2009.
2. The main benefit of mark to market is that you can deduct all your stock losses instead of being limited to $3,000/year. So if your wife made $100K working and you lost $100K daytrading, you'd have no income and get a big refund for all the taxes your wife paid in. Also, the wash sale rules no longer apply if you make the election.
3. You also need to file an IRS form 3115 (change in accounting method). Why? Because you used to report your stock trades on Sch D as capital gain/loss and were limited to a $3K loss but once you elect mark to market you report your stock trades on Form 4797 as ordinary income/loss and you can deduct all your losses. That's a significant change in accounting method.
4. You elect mark to market by drafting a letter in MS Word and attaching it to your tax return or extension. In this letter called a 475(f) election you attach a statement that includes the following:
1. That you are making an election under section 475(f) of the Internal Revenue Code.
2. The first tax year for which the election is effective.
3. The trade or business for which you are making the election.
4. That the election only applies to securities and not to futures.
The statement should have been filed by April 15, 2009 for your 2009 tax return.
5. If you're going to form a business entity for your trading I recommend a S-corp. A C-corp has double taxation and an LLC pays high gross receipts fees. The benefit of forming a business entity is that it solidifies your business activities and expenses with the IRS. Running a $100 million in stock trades through your personal tax return is a big red flag to the IRS. Your new business entity will also need to make a mark to market election but does not need to file a form 3115 (b/c there was no accounting method you changed from).
6. Whether or not you made a mark to market election, you can write-off some expenses on your Schedule C of your tax return such as internet, WSJ subscription, stock seminars, margin interest, etc.
7. More info on daytrader vs. investor can be found here:
http://www.irs.gov/taxtopics/tc429.html
I don't want to answer everyone's PMs so don't send me any PMs.
My tax advice is only for daytraders and not for investors.
1. It's too late to elect mark to market for your 2009 tax return. You had to make that election by April 15, 2009.
2. The main benefit of mark to market is that you can deduct all your stock losses instead of being limited to $3,000/year. So if your wife made $100K working and you lost $100K daytrading, you'd have no income and get a big refund for all the taxes your wife paid in. Also, the wash sale rules no longer apply if you make the election.
3. You also need to file an IRS form 3115 (change in accounting method). Why? Because you used to report your stock trades on Sch D as capital gain/loss and were limited to a $3K loss but once you elect mark to market you report your stock trades on Form 4797 as ordinary income/loss and you can deduct all your losses. That's a significant change in accounting method.
4. You elect mark to market by drafting a letter in MS Word and attaching it to your tax return or extension. In this letter called a 475(f) election you attach a statement that includes the following:
1. That you are making an election under section 475(f) of the Internal Revenue Code.
2. The first tax year for which the election is effective.
3. The trade or business for which you are making the election.
4. That the election only applies to securities and not to futures.
The statement should have been filed by April 15, 2009 for your 2009 tax return.
5. If you're going to form a business entity for your trading I recommend a S-corp. A C-corp has double taxation and an LLC pays high gross receipts fees. The benefit of forming a business entity is that it solidifies your business activities and expenses with the IRS. Running a $100 million in stock trades through your personal tax return is a big red flag to the IRS. Your new business entity will also need to make a mark to market election but does not need to file a form 3115 (b/c there was no accounting method you changed from).
6. Whether or not you made a mark to market election, you can write-off some expenses on your Schedule C of your tax return such as internet, WSJ subscription, stock seminars, margin interest, etc.
7. More info on daytrader vs. investor can be found here:
http://www.irs.gov/taxtopics/tc429.html
I don't want to answer everyone's PMs so don't send me any PMs.
Quote from ProGambler:
5. If you're going to form a business entity for your trading I recommend a S-corp. A C-corp has double taxation and an LLC pays high gross receipts fees. The benefit of forming a business entity is that it solidifies your business activities and expenses with the IRS. Running a $100 million in stock trades through your personal tax return is a big red flag to the IRS. Your new business entity will also need to make a mark to market election but does not need to file a form 3115 (b/c there was no accounting method you changed from).
What is the benefit of making M2M election for S-corp? Does S-corp have ordinary income to deduct the trading losses from?
Quote from gkishot:
What is the benefit of making M2M election for S-corp? Does S-corp have ordinary income to deduct the trading losses from?
The benefit of making a mark to market election for an S-corp is the same benefit individuals get which is unlimited ordinary losses on your stock losses. Without the election you'd receive a K-1 from your S-corp with capital losses so when you report the losses on your personal return you'll be limited to $3,000. Your S-corp doesn't need other ordinary income to deduct the trading losses.
In the end, you would get a K-1 from your S-corp that shows all the stock gains/losses as ordinary income instead of capital income and you would then enter the numbers from the K-1 to your personal tax return.
And in order to claim M2M on personal individual taxes you need to be considered a Day Trader correct? THus the reaosn for entityt trading becuase electing trader status is easier to accomplish. Either way, it seems daytrading as an entity is the way to go and simpler than keeping it on an individual status. The issues is , which entity status to go with.
Quote from ProGambler:
The benefit of making a mark to market election for an S-corp is the same benefit individuals get which is unlimited ordinary losses on your stock losses. Without the election you'd receive a K-1 from your S-corp with capital losses so when you report the losses on your personal return you'll be limited to $3,000. Your S-corp doesn't need other ordinary income to deduct the trading losses.
In the end, you would get a K-1 from your S-corp that shows all the stock gains/losses as ordinary income instead of capital income and you would then enter the numbers from the K-1 to your personal tax return.
I am sorry I am not sure I understand that. Let's say I had 100K of losses some year ( no profits ). What good does it do for me to have all of them on S-corp tax return? What benefits do I get for that? ( Instead of having just 3K of losses and 97K carry over)
On the other hand I can offset all my gains next year with the previous years losses anyway even without M2M selection.
I believe S-corp does not have any other sources of ordinary income outside of trading to offset the trading losses against ( like of your wife for example). Does it?
I"m looking at http://www.irs.gov/instructions/i3115/ch01.html
it doesn't say anything about a letter? but it says I need to send a copy of 3115 to National Office, and attach a copy with tax return.
instructions: http://www.irs.gov/pub/irs-pdf/i3115.pdf
has anyone filled it out and is willing to help me? I'm super confused..
it doesn't say anything about a letter? but it says I need to send a copy of 3115 to National Office, and attach a copy with tax return.
instructions: http://www.irs.gov/pub/irs-pdf/i3115.pdf
has anyone filled it out and is willing to help me? I'm super confused..