Tax question

S

silk

What happens if you make $200k short term capital gains last year. Then you lose that $200k plus some the next year and don't have any money to pay taxes on previous years profits. Anyway to use this years losses to offset previous years gains.

Or have you dug your self a tax hole with the IRS. A big tax bill from trading when you really have made nothing.
 
Quote from silk:

What happens if you make $200k short term capital gains last year. Then you lose that $200k plus some the next year and don't have any money to pay taxes on previous years profits. Anyway to use this years losses to offset previous years gains.

Or have you dug your self a tax hole with the IRS. A big tax bill from trading when you really have made nothing.
More...


Search TraderStatus here, or Google it. You might need TS to get around last years gains...

Contact a tax lawyer/CPA....and a couple of links. You should be able to get an extension, April 15th is coming up soon (or this year it might be the 16th or 17th.)

Have not used their services.

http://traderstatus.com/default.htm

http://www.greencompany.com/index.shtml
 
Not to worry, you can deduct $3K per year in the future to offset gains...for 66 years! :(

Sounds like you're f*cked for last year.

US tax laws suck.


But I don't know what the hell I'm talking about, so if this is more than hypothetical get help fast.
 
Quote from silk:

What happens if you make $200k short term capital gains last year. Then you lose that $200k plus some the next year and don't have any money to pay taxes on previous years profits. Anyway to use this years losses to offset previous years gains.

Or have you dug your self a tax hole with the IRS. A big tax bill from trading when you really have made nothing.
More...

As a trader I make quarterly payments for both Federal and State taxes, as I believe one needs to do. At the end of 2006 I assume you knew you had $200K in short term gains. Didn't you withdraw any money from your trading account for any taxes in excess of what you'd paid in Q1, Q2 and Q3 of 2006? If your scenario above is accurate I suspect you'll have to pay the original tax as well as interest. But you'd be best to contact a CPA and/or tax attorney, especially with taxes due in the next 10 days.
 
Quote from silk:

What happens if you make $200k short term capital gains last year. Then you lose that $200k plus some the next year and don't have any money to pay taxes on previous years profits. Anyway to use this years losses to offset previous years gains.

Or have you dug your self a tax hole with the IRS. A big tax bill from trading when you really have made nothing.
More...

No tax expert here, but my understanding is that corporations are allowed to carry back capital gains losses for 2 yrs and carry forward for 20 yrs. Unfortunately that is useless as an individual filer. I have never heard of the IRS allowing you to carry back losses. This may be part of the reason that some folks trade under the shell of a corporation or elect trader status, which allows you to mark-to-market.

Oh, and just so the IRS doesn't loosen that vise on your balls, several stringent criteria must be met to qualify for trader status.

You can however use this loss to offset future gains. Take out a loan, pay your taxes, and try to make the next few years profitable.

OP
 
Consider this. After a decade of wealth building and trading you finally build a 1 million dollar account. You then turn the $1 million into $4 million trading last year. But then you lose $3 million to start this year. So you are back to $1 million account, but now you owe $1 million for last year's taxes. If you pay the IRS your $1 million you are now wiped out. You were a millionaire, but by making $3 million and then losing $3 million now you have nothing if you can't use this years losses to offset last years profits. This can't be the way it works. That would really suck.
 
Mark to market election. You can then carry back all your losses to previous year's gains.

Quote from silk:

Consider this. After a decade of wealth building and trading you finally build a 1 million dollar account. You then turn the $1 million into $4 million trading last year. But then you lose $3 million to start this year. So you are back to $1 million account, but now you owe $1 million for last year's taxes. If you pay the IRS your $1 million you are now wiped out. You were a millionaire, but by making $3 million and then losing $3 million now you have nothing if you can't use this years losses to offset last years profits. This can't be the way it works. That would really suck.
More...
 
Ok that makes sense that there is someway to avoid such a problem.

I remember hearing stories back in 2000 during the dot com crash that people who got stock options had large tax bills but then got wiped out on their stock when the dot coms crashed. Similar situation for those people.
 
Quote from Lights:

Mark to market election. You can then carry back all your losses to previous year's gains.
More...

Wait a minute. I do not believe you can do this after the fact or everyone would not elect MTM until they had a down year. The government explicitly states you have to elect MTM before you incur those losses. In other words, you have until April 15th of this year to decide if you want MTM status for this tax year, not last years. You cannot retroactively go back and get last years losses to offset this years gains. I am not an accountant but I am pretty sure about this.
 
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