Newbie Tax Questions

V

vanilla2

I am still in my first year as an non-professional, non mark to market, independent futures trader, and have not yet filed taxes as a trader.

I had a few general questions if anyone could lend some advice.

1. I trade through IB. Is it ok if I'm saving my daily and monthly statements in HTML format, or have you found the Excel format better to work with come tax time?

2. What is my best option for tax software, does anybody do their trading taxes through Turbotax, or am I better off with a product like Greentradertax? ...better yet, am I simply better off getting an accountant for the first time to make sure I don't miss any good deductions or optimal tax structures?

3. Should I be paying taxes quarterly, or is April fine?

What a mess this will be. Any advice is definitely welcome.
 
In my opinion If you are trading futures only, you do not have to claim MTM trading approach, because futures such as emini are not subject to wash sale and you pay lower taxes, this year taxes are even lower, if you are doing stocks you have to claim MTM status. You do need to file your taxes quarterly. For your trading record keeping consider GTt tradelog from green trader tax. The question of going to an accountant is personal, not most accountants know how of trading taxation. I do my taxes myself for the past three years and so far no trouble. Green trader is good in trader taxation and you may want to consider them.
Good luck
 
Quote from vanilla2:

I am still in my first year as an non-professional, non mark to market, independent futures trader, and have not yet filed taxes as a trader.

I had a few general questions if anyone could lend some advice.

1. I trade through IB. Is it ok if I'm saving my daily and monthly statements in HTML format, or have you found the Excel format better to work with come tax time?

2. What is my best option for tax software, does anybody do their trading taxes through Turbotax, or am I better off with a product like Greentradertax? ...better yet, am I simply better off getting an accountant for the first time to make sure I don't miss any good deductions or optimal tax structures?

3. Should I be paying taxes quarterly, or is April fine?

What a mess this will be. Any advice is definitely welcome.
More...

i use turbo tax for trading taxes. it works just fine.i think people should do or at least know how to do their taxes. that gives you an understanding of how to maximize you tax advantages throughout the year.
i don't think beginning traders should pay quarterly taxes for this reason.if you have a good first quarter and you pay a big quarterly tax bill and then have a bad rest of the year you could find yourself in a position of needing that money and no way to get it back until next year. if you make money all year you will owe a penalty but it is basically just interest on the money and a good trader should be able to make more with the money than the penalty is.
 
Quote from trader333:

you do not have to claim MTM trading approach,
More...

That is correct. MTM is not recommended for folks who strictly trade futures for the very reason trader333 pointed out.
 
I posted this in another thread and would like to revive it. I think it also fits in this thread.

Chinook

--------------------------------

Again I only trade section 1256 contracts and assuming a profitable year:

1)File 1040 as an individual.
2)Report trading gains and losses on Schedule D and form 6781.
3)Report the allowable deductions associated with the trading business on Schedule C. Line B of Schedule C, use code 5329 for "other financial investment activities" as the business.
3)Schedule C generally doesn't have any income on it because the income is capital gain on Schedule D. The total of trading deductions shows as a loss, which carries to line 12 of Form 1040, reducing the amount of tax paid on trading gains.

Again assuming a profitable year, the only drawback I see is not being able to deduct health insurance premiums and contributing to a retirement plan.

Does anyone file similar to what I outlined above?
 
Quote from TGregg:



That is correct. MTM is not recommended for folks who strictly trade futures for the very reason trader333 pointed out.
More...

The only advantage MTM has for any trader is the ability to get a refund on taxes paid the previous year if the next year is a loss. But again, this would not be worth giving up 60/40 treatment in the long run.

 
Quote from illiquid:



The only advantage MTM has for any trader is the ability to get a refund on taxes paid the previous year if the next year is a loss. But again, this would not be worth giving up 60/40 treatment in the long run.
More...

Might want to be be careful saying that this would not be worth it.

The 40/60 tax treatment is nice, but for a trader whos gains/losses can fluctuate GREATLY each year, if one year you end up with an abnormally large loss due to personal trading, market crash, etc. then you are stuck with a HUGE capital loss carryforward, that you can only use up in later years, but only if you earn that much of a profit.

When that time comes, you may regret not electing MtM accounting so that you can get a NOL carryback refund instead of sitting on a loss carryforward that is only on paper.

Each situation is different, which is why we are given a choice at least. And this choice is nice because the IRS allows us to treat trading as a business and smooth out fluctuations in gains/losses over time just as other businesses need to do during their business cycle.
 
2 things to add:

- I use Turbo Tax, and since I cannot import from IB, I generate
a single line on my Schedule D, which is an accumulation of
my total gain for the year. Additionally, I attach a letter to the
IRS, with my tax return, stating that I'm a Day Trader, and if
need be, details of my trades will be furnished upon request
(I have both monthly trade printouts from IB and I keep a
detailed spreadsheet).

- Pay your taxes quarterly most definitely. If you owe your
first year (within 10 % of expected tax payments), you will
get a non-penalty grace period. More than 10% and you will
have to pay penalty.
 
To each his own, but I had been using TurboTax for a few years, found a good accountant, and he paid for himself three times over the first year I used him. Maybe I am wrong, but in several cases, he has attached letters of explanation to my return regarding unusual deductions that may well have headed off audits (or at least questions) that I would not have known how to do. (Not to mention what the hours of my time was worth that is now done by someone else.) It sure seems like a few hundred dollars well spent to me.
Jessie
 
Thank you all for the very illuminating pointers. This is going to help in a major way. I appreciate the detailed responses.

I expect I'll be back with some intelligent questions after I do some more homework. This is a great start.
 
You must log in or register to reply here.
Back
Top