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2002 Tax Laws - The “Job Creation and Worker Assistance Act of 2002,” which became effective on March 9, 2002, contains many gems for traders. Don't rush to file your tax returns. File extensions and reap the benefits for traders that are included in this Act, including but not limited to Net Operating Losses and depreciation amounts. We also cover some very important new Revenue Procedures that make changes to the Section 481 adjustment and how to change your accounting method to MTM. More on 2002 Tax Laws... Commodities - Commodities are taxed differently from securities. You need to learn about IRC Section 1256 contracts, Form 6781 and special carry backs, and how they relate to IRC Section 475(f), the new mark-to-market rules. More on Commodities... Extensions - Read this excerpt from Robert A. Green's article in the April issue of Active Trader magazine: "2001 tax returns for 'sole proprietor' traders are due on April 15, 2002 – that's also the deadline for electing mark-to-market (MTM) accounting for 2002. By filing an extension – and attaching your MTM election to the extension – you’ll get four extra months to learn about trader tax law." You can file a 2nd extension on August 15, 2002 for two more months time until October 15, 2002. More on Extensions... IRS Exams - The IRS is turning up the heat on traders and you should read this page before you let the IRS get the better of you. More on IRS Exams... IRS Relief - The IRS and some states provide significant relief in connection with the "September 11, 2001 terrorist attack." Losing Trader - Traders who lose money every year may be challenged by the IRS under the "not-for-profit activity” loss rules (otherwise known as the "hobby-loss" rules). Mark-to-Market Accounting - The new trader tax laws of 1997 are IRC Section 475(f); these allow Traders in Securities (475(f)(1)) and Traders in Commodities (475(f)(2) to elect mark-to-market accounting by April 15 of the current tax year (not after the year ends). The main effect of this new tax law is to convert capital gains and losses into ordinary gains and losses. More on Mark-to-Market Accounting... Net Operating Losses (NOL's) - Business taxpayers are allowed a special huge tax benefit – Net Operating Loss (NOL) tax laws. These laws provide the opportunity to carry back or forward business losses. Make a fortune in one year and pay your taxes, then lose a fortune in the following years and carry back your NOLs to get huge refunds of taxes paid in the prior (profitable) years. If this sounds too good to be true, it isn’t. And, you are in luck – these tax benefits just got even better. Congress just passed temporary relief extending the carry back period from two to five years for 2001 and 2002 NOLs. Non Resident Traders - Many "international taxpayers", who otherwise do not pay US taxes, have opened US based brokerage accounts and they have questions about what US taxes they owe in the US. We provide below, a full set of resources for international investors, traders and proprietary traders. Part Time Trader - Part-time traders may qualify for trader tax status. However, be ready for a fight from the IRS, if you don't trade every day, all day. If you have another job or business activity besides your trading business, you should be aware that the IRS may challenge your trader tax status in a future tax exam. Pattern Day Trader - The NASD passed new margin rules, which require $25,000 of trading capital for “pattern day traders.” The SEC has a distinct definition of "pattern day traders." We explain how these rules may affect your trader tax status and tax situation. Proprietary Trading - When you take a "job" or "position" with a proprietary trading firm and trade the firm's capital (instead of trading with your own money), you are considered to be "proprietary trading." Proprietary firms handle tax matters in a variety of ways: "employees" get a W-2; a Form 1099-Misc. is used for "independent contractors"; and Form K-1s for LLC members. In many cases, the firm handles taxes for its traders in an inappropriate way. In those cases, proprietary traders can benefit from overriding the firm's tax handling, gain trader tax status and report their true economic gains and losses as a "trader in securities." Retirement Plans - What every consistently profitable trader should have. Recent tax law changes have increased the deductible contributions dramatically. Scams & Alerts - The idea of "avoiding" taxes on income sounds appealing to many traders, but look before you leap; because the IRS considers "tax avoidance" against the law. We have reviewed many tax avoidance schemes marketed to traders and we strongly advise traders to stay clear of these schemes and the firms that promote them. Self Employment Tax - Unlike all other types of "sole proprietorship" or "unincorporated" businesses, securities and/or commodities traders, with trader tax status, with the mark-to-market or cash methods of accounting, are exempt from self employment taxation (SE taxes). One exception: Commodities traders who are also dealers (registered with a domestic board of trade designated as a contract market by the Commodities Futures Trading Commission) are subject to SE taxes. Strategies for IRA's - Tax strategies for IRA owners affected by the stock market decline. Trader Entities - The best reason for a trader entity is to establish a retirement plan and/or other tax deductible and tax deferred employee benefit plans; which are not available for sole proprietor traders (who otherwise receive all trader tax status and MTM accounting benefits). Trader Tax Status - If you qualify as being in the business of trading, you have trader tax status. Learn what it is and how you can get it. Wash Sale Rules - Securities traders and investors are subject to the "wash-sale” loss deferral rules. Securities traders using mark-to-market accounting (475(f)(1)) are exempt from wash sales. Wash sales are a major headache for active traders, because they are very difficult to calculate and they increase your tax bill. Wash sale losses are not realized in the current tax year and instead deferred to the next tax year.
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DISCLAIMER: Futures Trading involves a huge risk of financial loss! FuturesKnowledge.com is a traders research and resource site - and is not meant to be used as a guide for trading. Due to the large risk involved - we highly recommend that you consult with a number of different resources before attempting to invest in the futures, commodities, options, or any other market we report on. Copyright © FuturesKnowledge, 2006. All rights reserved. |
