Futures , Taxes, and Mark to Market

Originally posted by crackedback
MTM on futures nullifies the 60/40 treatment according to "THE CODE". All P&L is ordinary gains.

You may or may not have been deemed MTM depending upon the form of the letter written to establish MTM. If you CLEARLY stated securities only, that DOES NOT establish said treatment for ALL trading activities. You can be MTM on some accounts and not on others... it all depends on your letter. It pays to be specific in the letter as to the affected accounts.

Later,

Cracked
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Still very confused on this one. If I elect MTM, and lose 60/40 what are ordinary gains? You mean oridinary income?

What futures trader in his right mind would ever under any circumstances elect mtm? Surely on April 15th of current year he is not expecting to lose for the year, and the only benefit I see is if he loses he can convert cap loss to ordinary loss, but still, he needs somehow to come up with some ordinary income to offset.

I have read everything I can find, and as it stands now, the way I see it, the new MTM law is simply a law to bring stock traders up to where futures traders have always been. So the MTM election should not be used by futures traders if it in fact nullifies their one remaing tax advantage over stock traders, namely the 60/40 split.

Notice how long it goes between posts on this thread? man I mean it takes a lot of looking around, and way too many accountants disagree on way too much.

So, it is still not clear, but as I see it, a trader who trades both stocks and futures should be VERY CAREFUL to keep those accounts separate, and should be darn sure that the MTM election applies only to accounts and not to the trader/taxpayer, and even that still seems to be in question.
 
http://aol.thestreet.com/basics/tradertaxes/716334.html

anyway, here's a pretty simple explanation

so, for me and my money, to answer the original question on this thread, electing mtm is a very bad deal for a winning futures trader.

And I don't even want to think about what kind of twisted mind came up with the idea that you must by April 15 decide if you will be a winner for the year and then make your mtm election based on that. I guess they figure, "Hey your a trader, you're supposed to be able to predict the future, right?"

And then, all they have to do is say, if you were a REAL trader, you wouldn't have elected mtm, so we are revoking your trader tax status.
 
Gotta do it. I pay mine $700 to do my tax return (deductible). Not cheap, but better than an IRS audit. Tread carefully here. Most accountants and tax lawyers are quite ignorant of the laws regarding tax treatments for professional futures traders. Speaking from experience here.
 
Profitseer,

My response should have read Ordinary Income, why I wrote gains is beyond me. You appear to have understood.

IMO, if you are a profitable futures trader, it's a bad decision to go with MTM election.

I agree that MTM is to get stock traders on a de-facto eqivilant basis as futures traders without the 60/40 benefit.

Later,

Cracked
 
Maybe someone wants to take a stab at this.

Let's assume that someone elects MTM for stocks and not for Futures, keeping the 60/40 short/longterm split advantage.

They make 20,000 trading stocks (all short term gain) and lose 10,000 trading futures.

What are the tax implications there? Do you deduct the entire 10,000 loss against the 20,000 gain? I think this boils down to how are long term losses deducted against short term gains.


If you've elected MTM for all transactions, then I would think you would net everthing together to get the tax liability.
 
While we are on this dreaded subject I have this question. What value gets stated for tax purposes when trading futures. Example ... If I trade 1 ES contract is the total trade value for IRS purposes $800 or $40,000 ? If it is $40,000 and I am doing 10 to 20 round trips a day this would be some huge total annual $$ I don't like that :confused:
 
Originally posted by nasdaqmadness
While we are on this dreaded subject I have this question. What value gets stated for tax purposes when trading futures. Example ... If I trade 1 ES contract is the total trade value for IRS purposes $800 or $40,000 ? If it is $40,000 and I am doing 10 to 20 round trips a day this would be some huge total annual $$ I don't like that :confused:
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No, you don't list trades on sched D, Just enter amounts from form 6781. Put 60% on the long term line and 40% on the short term line.
 
Originally posted by stock777
Maybe someone wants to take a stab at this.

Let's assume that someone elects MTM for stocks and not for Futures, keeping the 60/40 short/longterm split advantage.

They make 20,000 trading stocks (all short term gain) and lose 10,000 trading futures.

What are the tax implications there? Do you deduct the entire 10,000 loss against the 20,000 gain? I think this boils down to how are long term losses deducted against short term gains.


If you've elected MTM for all transactions, then I would think you would net everthing together to get the tax liability.
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That's what I think. When it's all said and done, you are going to have just one number for all capital gains.
 
stock777,

But short term is already figured at your ordinary rate, so the end result would be 16,000 at the short term rate, and 6000 would be long term. But for losses, the whole thing is taxed at the largest group rate, so when it's all said and done, your tax would be on 10k at the ordinary rate. (I think)
 
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