Prop firm agreements and losses

B

byeung

My prop firm has this in their agreement:

"Therefore, you should understand that any losses on securities transactions in the Company Account, including in the Trader Sub-Account, belong to the Company, and not to you, and so are not available to you to offset any ordinary income or capital gains that you may earn during any tax year."

I had a decent sized loss my first year trading with this company, and as per the above sentence, it looks like I won't be able to use any of it to offset my income.

My question is, what prop firms DO allow you to deduct your losses? I don't want to think I'm going to have another loss this year, but at the same time, I want to protect myself if I do.
 
and if you get a K1, will you be able to deduct losses from ordinary income.

Are they subject to the 3000$ limit or if i file as a trader then losses exceeding them can be written off?
 
Any CBOE firm will give a k1. You will be required to join as a class B member. This requires fingerprinting/background check with the FBI/series 56 licensing.

If you're registered with a broker-dealer, you can report your losses. If you are in an international firm which doesn't require registration, how do you expect to write off your losses? lol

if you're on 1099, you want to move to k1 structure under a broker-dealer for US residents. Ask your firm if they offer this.
 
You cannot write off losses even with a K-1 if you don't take the loss. If the firm eats the loss, they get the tax write off, not you. Why the hell would the IRS let two people both claim the same loss?

Now, what you can do is use the loss to offset your profit the following year. So say you lose 25k in 2010 and make 50k in 2011. You can use the loss on the K-1 from 2010 to partially offset the gains from 2011. But in 2010 you cannot use that loss if you didn't actually lose any money. The firm lost the money, not you!

Edit: If you lost your deposit, then you can write this amount off.
 
Quote from byeung:

My prop firm has this in their agreement:

"Therefore, you should understand that any losses on securities transactions in the Company Account, including in the Trader Sub-Account, belong to the Company, and not to you, and so are not available to you to offset any ordinary income or capital gains that you may earn during any tax year."

I had a decent sized loss my first year trading with this company, and as per the above sentence, it looks like I won't be able to use any of it to offset my income.

My question is, what prop firms DO allow you to deduct your losses? I don't want to think I'm going to have another loss this year, but at the same time, I want to protect myself if I do.
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(Disclaimer: not meant as legal or tax advice, not representing Bright Trading or any of it's affiliates or associates, simply personal discussion from Don Bright)

Our traders get their losses, up to their capital contribution of course. K-1 means no FICA (Self employment taxes), 1099 means you a subject to FICA.... capital gains do not apply of course...ordinary income or loss to the trader... not sure where you got that agreement, seems a bit odd unless you are fully backed or something.

FWIW,

Don
 
Quote from Don Bright:

(Disclaimer: not meant as legal or tax advice, not representing Bright Trading or any of it's affiliates or associates, simply personal discussion from Don Bright)

Our traders get their losses, up to their capital contribution of course. K-1 means no FICA (Self employment taxes), 1099 means you a subject to FICA.... capital gains do not apply of course...ordinary income or loss to the trader... not sure where you got that agreement, seems a bit odd unless you are fully backed or something.

FWIW,

Don
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Don, I think you are misunderstanding him. I believe he is trying to get losses that are not HIS. He didn't clearly state it but I assumed he was not talking about his deposit. There is no way for a firm to give the trader losses from firm money.
 
Quote from Maverick74:


Edit: If you lost your deposit, then you can write this amount off.
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good. exactly what i was looking for. Ofcourse if i end up loosing money above and beyond the deposit its the firms loss and they get to use it (not that i intend to loose :); infact i dont have any rolling 3 month period in the past few years that i am in a hole but just checking what the rules are)
 
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