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Tax issue
- Thread starter Darshan
- Start date
Quote from the1:
You guys are passing judgment without all the information. If he were payed as an employee at the trading firm it may be considered "earning income," in which case his accountant is right. Only 3k will be deductible on his return but at least he can deduct 3k per year for the next 8 years and 1k in the 9th. If he were paid through a K-1 or a 1099 then it may change his tax case completely.
And filing M2M status with the IRS can be a complete can of worms, not to mention that it is difficult to prove. It sounds as though the OP would have little trouble proving it though.
what if he had lost $60k at lightspeed? does it mean he can deduct 3k every year for the next 20 years? or is there a limit?
First, I should tell you I am not a CPA or a tax professional but I've been around the block a few times and I believe your accountant is correct because a 1099-MISC qualifies you as a private contractor and as a result, converts your income to "earned income" rather than Capital Gains income. As you know, you can't write off a capital gains loss against earned income so the best you can do is deduct the 3k loss for the next 8 years and 1k in the 9th. The good news is you can use this deduction to reduce future capital gains profits.
Did you pay Social Security and Medicare on this 1099 income? If not, you were probably supposed to. One of the reasons employers use 1099 contractors is to shift the burden of paying SS and Medi to the contractor. Trading firms are notorious for this. They view themselves more as brokers than they do employers.
It never hurts to get a 2nd opinion but I believe your current accountant is correct.
Did you pay Social Security and Medicare on this 1099 income? If not, you were probably supposed to. One of the reasons employers use 1099 contractors is to shift the burden of paying SS and Medi to the contractor. Trading firms are notorious for this. They view themselves more as brokers than they do employers.
It never hurts to get a 2nd opinion but I believe your current accountant is correct.
Quote from Darshan:
I received a 1099-MISC. from the initial firm. I didn't have to put anything up and gave them a 10% cut.
Thanks for your help
I think your right,Quote from the1:
First, I should tell you I am not a CPA or a tax professional but I've been around the block a few times and I believe your accountant is correct because a 1099-MISC qualifies you as a private contractor and as a result, converts your income to "earned income" rather than Capital Gains income. As you know, you can't write off a capital gains loss against earned income so the best you can do is deduct the 3k loss for the next 8 years and 1k in the 9th. The good news is you can use this deduction to reduce future capital gains profits.
Did you pay Social Security and Medicare on this 1099 income? If not, you were probably supposed to. One of the reasons employers use 1099 contractors is to shift the burden of paying SS and Medi to the contractor. Trading firms are notorious for this. They view themselves more as brokers than they do employers.
It never hurts to get a 2nd opinion but I believe your current accountant is correct.
Fortunately it's not too late to set up a M2M account yet for the year. That's what I'll be doing.
Thanks for your help
Quote from mksummny:
file as a M2M trader and you can take the loss on the whole lightspeed account and only pay tax on 75k which was your profit. If you dont file M2M then you will be subject to the ordinary tax loss of 3k per year. Go to traderstatus.com to read more about it. I suggest you get a better accountant. I use Colin Cody from the previous website and have for 8 years now.
Cody was a great guy. Took the time to talk to me and help me with the issue. Seemed incredibly knowledgable. I would recomend him.
Quote from Darshan:
Fortunately it's not too late to set up a M2M account yet for the year. That's what I'll be doing.
Maybe you have a different setup from what I am thinking, but for an individual you had to declare mark-to-market accounting by April 15, 2009 to have it apply for the tax year 2009:
http://www.fairmark.com/traders/mtmacc.htm
I've been down the M2M road before and you have to be careful how you proceed down this path. If you're not careful ALL of your accounts will be lumped into the M2M designation when you may not want them to be. If you have a different account that you use for long-term investing it will become an M2M account as well and you will have to mark-it-to-market each year and pay short-term taxes accordingly. There are ways to avoid this so be sure to get some professional help before you go this route. And to the other poster who posted you have to file it before 04-15 I think he is right. I don't believe you can make it retroactive.
Quote from Darshan:
I think your right,
Fortunately it's not too late to set up a M2M account yet for the year. That's what I'll be doing.
Thanks for your help
Quote from sprstpd:
Maybe you have a different setup from what I am thinking, but for an individual you had to declare mark-to-market accounting by April 15, 2009 to have it apply for the tax year 2009:
http://www.fairmark.com/traders/mtmacc.htm
He told me I could set up a general partnership accoumt an do it this way.
An LP is the mother of all tax deductions. I think you'll like the tax treatment of this entity. He probably mentioned you need at least one other person to form this business entity. Be sure to choose someone you trust, preferably a spouse or family member. It sounds as though your accountant is well versed in tax law and business in general.
Quote from Darshan:
He told me I could set up a general partnership accoumt an do it this way.