Quote from ggoyal:
ok, so let me get this straight,
if my futures income is the only income I have, then I have to pay additional amount over the 23%? I was guessing there would be some social sec and fica?
can someone please give an explanation as to what the exact amount would be if say someone earns 150k only trading futures. no other income at all.
Quote from osorico:
It depends how your trading accounts are titled and how you file taxes. As an individual without an exchange seat, gains are taxed at the blended 23% rate. Period. No self-employment tax needed. But you also have no "earned income", so you can not make contributions to retirement plans, or write off other items requiring earned income, such as health related expense.
This scenario is completely different if you trade via a business structure with or without an exchange seat. The business facilitates your trading, and you are paid from the business. The business enjoys the benefits of business, including preferential tax treatment of futures trading, employee benefits, writeoffs, etc, and you enjoy the benefits of earned income and company benefits, along with being subject to self employment tax more affectionately known as FICA. Your employment arrangement dictates how the fica (self-employment) tax is handled. For example independent contractor or payrolled.
Osorico
Quote from PocketChange:
Why would anyone trade under their own ss# for any accounts other than retirement / preferential tax treated accounts?
What is so hard about spending $1K and setting up an LLC, corp or even a trust?
That is not correct. Regardless as to whether or not you incorporate, you can still deduct all of your trading related operating expenses against your tax liability. Regardless as to whether or not your incorporate, as long as you don't lease or own an exchange membership, you still pay the 60/40 blended tax rate on your futures transactions. The only thing you would not be able to do as an individual would be to pay yourself earned income.Quote from ggoyal:
I am in Texas(no state tax), single status. If i incorporate, I can have all those write offs, but then i would be subject to self employment and Fica. correct?
Quote from ggoyal:
Ok, so if i set up an LLC vs. trading unincorporated, uninc. would still come out cheaper right?
I am in Texas(no state tax), single status. If i incorporate, I can have all those write offs, but then i would be subject to self employment and Fica. correct?
But if i trade under my own name, uninc. even though i wouldnt be able to write things off, the amount spent on taxes would still be lower.??
if that is the case, seems to me being unincorporated is the best choice.
Quote from Jachyra:
you can still only have $3,000 per year of capital loss carry forwards (this is for futures transactions as per the original post... obviously securities transactions have different tax code). That doesn't mean if you have $6,000 worth of losses one year that you can't eventually deduct all those losses... it simply means that if you are profitable the following year you can only deduct $3,000 against your gains, and you'll have to wait for the year afterward to deduct the remaining $3,000 if you're profitable that year as well.
Quote from Jachyra:
I confirmed this last year with Robert Green when I was trying to decide between leasing a full membership or going with an ECM, so I can tell you with absolute certainty that unless something has changed within the last year, that if you lease or purchase an exchange membership with a futures exchange, you lose the 60/40 blended rate and all your gains are counted as ordinary income. According to him, the only exception is the CME's Electronic Corporate Membership.
Yikes, I can't believe I wrote that... thank you very much for correcting me... my bad.Quote from Sanity:
Actually that is not correct, capital loss carry forwards are not limited for the purpose of offseting future gains. If you lost 10k one year and then made 25k the following year, the full 10k can be applied to the 25k thus making your capital gains tax liability 15k. The $3,000 per year is the max you can deduct against ordinary INCOME. so for example if you lost 10K in futures, then got a regular job, you could deduct 3k for the next 3-4 years against that income until the 10k carry forward has been used up
http://www.greencompany.com/EducationCenter/GTTRecTaxTreatmentTraders.shtml
Does the $3,000 annual capital loss limitation mean you can only use $3,000 of your carryover losses each year? No, you may utilize the entire capital loss carryover in the following tax year, and if you have sufficient gains you may apply it all. Otherwise, after all activity on Schedule D is combined the following tax year, you are limited to a $3,000 net loss. Many traders mistakenly think they can only apply $3,000 per year going forward.
Quote from jeb9999:
This is totally incorrect. Members of futures exchanges get 60/40 treatment. Section 1256 contracts are reported on tax form 6781 which gives all futures traders 60/40 treatment.
The tax issue for members of futures exchanges is that their futures profits are subject to FICA tax. The self-employment tax (FICA) provision in Section 1402(i) does not effect the 60/40 treatment of Section 1256.
Every member of a futures exchange knows that they are entitled to 60/40 treatment under section 1256.