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K-1 from echotrade
Hey guys,
I got a k-1 from echotrade which lists my loss, in section 11 titled 'other income(loss)'. It's listed with code F. How do I file this in my 1040? I am using taxact.com and they don't even know how to handle this. Any echo traders out there? Anyone with experience please respond. Thanks
See the PM I sent.
your k-1 and taxes
I'm putting this out there because I have some experience in this area.
And also because it's not necessary to PM this, anyone who gets a k-1 from a prop firm for their profit/loss might want to read this.
First, you file a schedule E with your 1040. You take your profit or loss from the K-1 echotrade sends you and you put it on the line that states Profit or (Loss) from partnership. Put the loss as a positive number within parenthesis. I wouldn't bother with the line that says unreimbursed partnership expenses unless your echotrade agreement specifically spells out what other expenses you, as a partner of the firm, will or will not be reimbursed for. If you have minimal other expenses, such as internet or computer lease or purchase, you can put these in there, but in an audit, the IRS will want proof that these are legit and that proof is in your trading agreement and all that paperwork from the firm you may or may not have actually read. If you want a more rock solid tax return i wouldn't even bother with trying to deduct these expenses, its just another number the IRS can hook u on, and remember, for every deduction you take be willing to estimate 3x that number in penalties and interest if you can't substantiate that. That's the potential risk of each deduction.
You fill out the one or two lines on the form. That's it. Then, back in the section of your 1040 where you have losses or gains from real estate, s corps. etc..you put this same number (in your case, a loss) in that area.
These losses will reduce your taxable income dollar for dollar on the 1040. If you have any more questions ask me.
Additional comments:
Do not file a schedule C or D for the gain/loss from a partnership such as the one you are in with echotrade or any other prop firm where you are a member of an llc. My accountant in 2001 filed a schedule C for me when I was back then a partner and i got AUDITED. So I learned the hard way, and skillfully defended myself in the audit and was successful in the appeals process. This included filing an amended return with the schedule E. During the appeals process I took the time to get as much information from the appeals agent as to what the IRS is looking for regarding my specific situation (professional trader as a partner of an LLC) and this is how I file currently. Robert Green is a pretty good resource if you need some quick advice, I consulted him over the phone on some fine points once or twice.
Anyway, do this correctly. To file with a Schedule E and the one number from your firm (Echo) is a very positive way. Retail traders probably have to use a Schedule D and list all their trades...What a nightmare. Remember each number you put down is a point of questioning for the IRS. Don't give them anything you can't or are unwilling to substantiate. This is where most filers make serious errors.
In addition, the more deductions you have enumerated on you tax forms the more the IRS will poke and disallow as deductions. Your job, then, is to PROVE they are valid. Even when you do that, it takes time, money hassle away from things you could otherwise be happily engaged in: trading, sleeping, women, kids, travel, etc. It's no party. In my opinion the k-1/schedule E is a great way. One more vote for going the prop llc vs. retail trading method imho.
Most LLC trading firms will also roll in your data fees and all other fees to your account. Obviously they debit this from your account so you don't have to substantiate deductions for outside fees associated with your trading on your tax forms. Of course, this is a benefit to your lower likelihood for audit.
Sometimes, the trading firm will also deduct expenses you pay to run your trading and further reduce your k-1 number if they are reasonable and related to your trading. I would talk to your firm about this. i don't think echo would do this maybe bright would. However, the fees we have associated with trading outside of data fees and cost of capital are basically negligible in this day and age: internet computers etc...everyone has them now and they are no longer exclusive to the trader.
Hope this sheds some positive light on the LLc k-1 tax area and I hope it helps a few people. Its not that well written, yeah i know.
further
nothing like advice nearly two months late...still hope it helps.
the above poster is making a mountain out of a mole hill. i've been trading mtm trader as an individual with a sch c for 11 yrs and never one question from the irs. as long as you use footnotes like green does in his tax returns never a problem. i've even used the carry back lose many years ago and got 120k back with no questions asked
to brandon
that's great that you think its a mountain. You have been doing it correctly for 11 years....great for you.
Some traders make mistakes, and some have poor accountants. I was the latter and went through a lot to fix it. So I was merely sharing my experience with the group.
If you haven't ever been in that situation, I can see how you view it as such. I have multiple (more than 10) business ventures, and I don't know your situation. Maybe you just trade, and that's fine. But coming from where I come from, preparing for and considering all possible implications of tax preparation is important, as the consequences are time consuming to fix.
So kudos to you for only encountering molehills. In my experience, when you get big enough, and hopefully it happens when you are still small enough, eventually the IRS will have some questions for you. It's very important to understand that. It's not really important if my post is a mountain or a molehill to the people that want information.
Re: further
Quote from pairsarbtooo:
nothing like advice nearly two months late...still hope it helps.
carryover
I dont' know how to respond to that and I dont' want to give anything out that really isn't from my own experience regarding carryover. I haven't had to use carryover losses or deductions in a while in this instance.
You might try Robert Green, like a phone consultation. I did one or two with him and thought him pretty quick to identify the key issues and can probably confirm the last person you consulted with or give you some additional information. He seemed up to date and seems actively involved in working for traders in tax matters.
If you are a trading partner in a firm that marks to market, and your receive a k-1 from this firm, you are automatically considered a mark to market trader for your trades with this firm, and I don't think you need to make the declaration for your trading conducted with this firm. I would research this and get confirmation though on if this is true in your case, as well as for your desire to possibly trading with a different firm and what those implications are regarding this form of trading accounting.
Re: your k-1 and taxes
Quote from pairsarbtooo:
I'm putting this out there because I have some experience in this area.
And also because it's not necessary to PM this, anyone who gets a k-1 from a prop firm for their profit/loss might want to read this.
First, you file a schedule E with your 1040. You take your profit or loss from the K-1 echotrade sends you and you put it on the line that states Profit or (Loss) from partnership. Put the loss as a positive number within parenthesis. I wouldn't bother with the line that says unreimbursed partnership expenses unless your echotrade agreement specifically spells out what other expenses you, as a partner of the firm, will or will not be reimbursed for. If you have minimal other expenses, such as internet or computer lease or purchase, you can put these in there, but in an audit, the IRS will want proof that these are legit and that proof is in your trading agreement and all that paperwork from the firm you may or may not have actually read. If you want a more rock solid tax return i wouldn't even bother with trying to deduct these expenses, its just another number the IRS can hook u on, and remember, for every deduction you take be willing to estimate 3x that number in penalties and interest if you can't substantiate that. That's the potential risk of each deduction.
You fill out the one or two lines on the form. That's it. Then, back in the section of your 1040 where you have losses or gains from real estate, s corps. etc..you put this same number (in your case, a loss) in that area.
These losses will reduce your taxable income dollar for dollar on the 1040. If you have any more questions ask me.
Additional comments:
Do not file a schedule C or D for the gain/loss from a partnership such as the one you are in with echotrade or any other prop firm where you are a member of an llc. My accountant in 2001 filed a schedule C for me when I was back then a partner and i got AUDITED. So I learned the hard way, and skillfully defended myself in the audit and was successful in the appeals process. This included filing an amended return with the schedule E. During the appeals process I took the time to get as much information from the appeals agent as to what the IRS is looking for regarding my specific situation (professional trader as a partner of an LLC) and this is how I file currently. Robert Green is a pretty good resource if you need some quick advice, I consulted him over the phone on some fine points once or twice.
Anyway, do this correctly. To file with a Schedule E and the one number from your firm (Echo) is a very positive way. Retail traders probably have to use a Schedule D and list all their trades...What a nightmare. Remember each number you put down is a point of questioning for the IRS. Don't give them anything you can't or are unwilling to substantiate. This is where most filers make serious errors.
In addition, the more deductions you have enumerated on you tax forms the more the IRS will poke and disallow as deductions. Your job, then, is to PROVE they are valid. Even when you do that, it takes time, money hassle away from things you could otherwise be happily engaged in: trading, sleeping, women, kids, travel, etc. It's no party. In my opinion the k-1/schedule E is a great way. One more vote for going the prop llc vs. retail trading method imho.
Most LLC trading firms will also roll in your data fees and all other fees to your account. Obviously they debit this from your account so you don't have to substantiate deductions for outside fees associated with your trading on your tax forms. Of course, this is a benefit to your lower likelihood for audit.
Sometimes, the trading firm will also deduct expenses you pay to run your trading and further reduce your k-1 number if they are reasonable and related to your trading. I would talk to your firm about this. i don't think echo would do this maybe bright would. However, the fees we have associated with trading outside of data fees and cost of capital are basically negligible in this day and age: internet computers etc...everyone has them now and they are no longer exclusive to the trader.
Hope this sheds some positive light on the LLc k-1 tax area and I hope it helps a few people. Its not that well written, yeah i know.
The IRS has published a very clear instruction on the issue. See IRS Topic 429 Traders in Securities. Anyone reading the above should refer to the IRS instructions and/or seek professional advice before taking action.
Anyone aware of not trading the first 31, and last 31 days in year , to qualify for mark to market election? Thankyou
Great posts, but just as a head's up -
K-1, line 11F does not necessarily go on Sch E.
Many items go on line 11F, including security trader cpital gains that might go on Sch D and security trader dividends that might go on Sch B, for just two examples.
oceanwave07,
The 31 day trick is not part of qualifying for the mark to market election. Rather it is an informal method mentioned on traderstatus.com for a capital gian securities trader to avoid the perils of the wash sale rule, assuming he not only stops trading, but also stops holding any positions too.
I'm reviving this dead thread to see if anyone has a definitive answer to my question. I do not see Form 4797 (line 10) mentioned anywhere in this thread and that seems to be the area to report "Other Trading Gains/Losses" that were listed on Box 11, Code F on a K-1. Is this the correct path to go versus Schedule E?
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