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Prop trading, K-1, expenses, taxes
- Thread starter garyk
- Start date
Quote from GreenTraderTax:
Sorry TA but you are clearly wrong here. Read the Schedule E instructions.
Unless you have a Schedule C business activity, you canât use Schedule C. A proprietary trader member of a LLC filing a partnership tax return receives a Form K-1 that is reported on Schedule E. This prop trader does not have a Schedule C business activity; unless he or she has significant trading activity outside the prop trading firm in his or her own trading accounts.
IRS rules clearly state (Sch E instructions), and CPAs in the know clearly put non-reimbursed partnership or LLC expenses on Schedule E. In fact professional tax preparation software does the same. CPE classes for CPAs teach this practice.
Remember the K-1 items are recorded on Schedule E to match whatâs listed on Form K-1; so there will be no questions from the IRS. Only the additional non reimbursed expense amounts and home office expenses are reported on Schedule E underneath those K-1 numbers.
Prop traders need these valuable deductions and missing them or reporting them the wrong way is a problem.
Robert A. Green, CPA
Sharpshooter Bob hits the tax target bullseye again for Elite Traders.
Well, it's a no brainer whose exhibit booth I'll be visiting this weekend at the TradersEXPO in Vegas
with my trader tax and pre-trading expense questions...
Bob posted some additional information on this in his message board, it's worth reading:
http://www.greencompany.com/gttforu...ber=100&page=0&view=collapsed&sb=5&o=&fpart=1
http://www.greencompany.com/gttforu...ber=100&page=0&view=collapsed&sb=5&o=&fpart=1
I've noted the responses to my original "Schedule C" posting. I posted that response after consulting with a knowledgeable, experienced CPA who specializes in filing taxes for traders. Having practiced law for 23 years, I know that knowledgeable experts can, and do, disagree on certain issues--sometime frequently. That is especially true for issues arising out of the Internal Revenue Code. The more one studies the Code, the more one realizes how complex it can be. The good news is that the readers of this forum are the beneficiaries of such debates since the knowledge level of everybody involved is increased.
I appreciate the professionalism and respect the opinions of those who have posted the Schedule E responses. As a result of their input, I am going to do further research on the topic. If I conclude my original posting was correct, I will say so and give my reasons. On the other hand, if I conclude my original answer was incorrect, I will say so for everyone to see. I probably will not have time to do the additional research and post a follow-up until Thursday, Nov. 18 at the earliest. If I can't get it done then, I will post a follow-up as soon as possible next week.
I appreciate the professionalism and respect the opinions of those who have posted the Schedule E responses. As a result of their input, I am going to do further research on the topic. If I conclude my original posting was correct, I will say so and give my reasons. On the other hand, if I conclude my original answer was incorrect, I will say so for everyone to see. I probably will not have time to do the additional research and post a follow-up until Thursday, Nov. 18 at the earliest. If I can't get it done then, I will post a follow-up as soon as possible next week.
To all Forum participants:
You will recall the controversy I created last week when I posted my "Schedule C" answer, and was immediately met with a number of postings that disagreed. The other posters asserted that the correct place to deduct the expenses not listed on the K-1 was on Schedule E.
I have taken the time to go back and further research the matter. I conclude that the dissenters were correct. My previous posting was incorrect. The additional expenses should, in fact, be entered on line 28, column (h) as a separate line item. The Instructions state, "Do not combine these expenses with, or net them against, any other amounts from the partnership."
While this is not a perfect fit, since column (h) of line 28 is captioned "Nonpassive loss from Schedule K-1" [and these expenses are not, in fact, listed on the K-1], the instructions seem to make clear this is what the IRS wants the taxpayer to do.
I want to thank all those posters who brought the mistake to my attention. The Forum served the exact purpose for which it was designed--to provide information to traders and to elevate the knowledge level of all involved. I appreciate that professionals can, and do, disagree frequently on matters involving the Internal Revenue Code. Such a disagreement exists with respect to every case that ever makes its way to the Tax Court or beyond. Nevertheless, I respect the opinions of others and if I am shown to be wrong in a response--as I was on this occasion--I will not hesitate to issue a correction.
You will recall the controversy I created last week when I posted my "Schedule C" answer, and was immediately met with a number of postings that disagreed. The other posters asserted that the correct place to deduct the expenses not listed on the K-1 was on Schedule E.
I have taken the time to go back and further research the matter. I conclude that the dissenters were correct. My previous posting was incorrect. The additional expenses should, in fact, be entered on line 28, column (h) as a separate line item. The Instructions state, "Do not combine these expenses with, or net them against, any other amounts from the partnership."
While this is not a perfect fit, since column (h) of line 28 is captioned "Nonpassive loss from Schedule K-1" [and these expenses are not, in fact, listed on the K-1], the instructions seem to make clear this is what the IRS wants the taxpayer to do.
I want to thank all those posters who brought the mistake to my attention. The Forum served the exact purpose for which it was designed--to provide information to traders and to elevate the knowledge level of all involved. I appreciate that professionals can, and do, disagree frequently on matters involving the Internal Revenue Code. Such a disagreement exists with respect to every case that ever makes its way to the Tax Court or beyond. Nevertheless, I respect the opinions of others and if I am shown to be wrong in a response--as I was on this occasion--I will not hesitate to issue a correction.